Month: March 2013
- 2013.03 CHINA INFRA INV
Company Name: China Infrastructure Investment LimitedStock Code: 00600Year end: December 31, 2012
Basis for Disclaimer of Opinion
Scope limitation – Interests in associates
Included in the interests in associates as set out in Note 19(a) to the consolidated financial statements was the Group’s interests in 北京中港綠能投資咨詢有限公司 (Beijing Zhonggang Green Energy Investment Consulting Co., Ltd.) (“Beijing Zhonggang Green Energy”) of approximately HK$292,996,000 as at 31 December 2012. As further explained in Note 19(a)(i) to the consolidated financial statements, the directors of the Company are unable to obtain adequate and reliable financial information of the Beijing Zhonggang Green Energy and its subsidiaries (the “Beijing Zhonggang Green Energy Group”). As a result, the directors of the Company have used the consolidated financial statements of the Beijing Zhonggang Green Energy Group for the six months ended 30 June 2012 as the practicably most recent available financial information in applying equity accounting, the Group did not equity account for its interests in Beijing Zhonggang Green Energy Group since 1 July 2012 and has not presented adequate disclosures in relation to the financial information of the Beijing Zhonggang Green Energy Group. The directors of the Company are also unable to determine whether any impairment loss was required. In addition, the directors of the Company are unable to disclose its share of the contingent liabilities of the Beijing Zhonggang Green Energy Group incurred jointly with other investor and those contingent liabilities that arise because the Group is severally liable for all or part of the liabilities of the Beijing Zhonggang Green Energy Group in accordance with Hong Kong Accounting Standard (“HKAS”) 28 “Investment in Associates” issued by the HKICPA.
However, due to the lack of adequate financial information of the Beijing Zhonggang Green Energy Group, we have not been able to obtain sufficient appropriate audit evidence and explanations or to carry out alternative audit procedures that we consider necessary in respect of the Group’s accounting treatment for the interests in the Beijing Zhonggang Green Energy Group. We were also unable to obtain sufficient appropriate audit evidence to satisfy ourselves as to whether (i) the Group’s interests in the Beijing Zhonggang Green Energy Group; (ii) the amount of share of results of the Beijing Zhonggang Green Energy Group; (iii) the disclosure of the financial information of the Beijing Zhonggang Green Energy Group; and (iv) the amount of the Group’s share of contingent liabilities of the Beijing Zhonggang Green Energy Group are free from material misstatement. In addition, we have not been able to obtain sufficient appropriate audit evidence and explanations or to carry out alternative audit procedures that we consider necessary to determine whether any impairment loss was required and to assess the impact of departures from HKAS 28. Any adjustment to the abovementioned financial information would have a consequential effect on the net assets of the Group as at 31 December 2012, the loss attributable to the owners of the Company and the presentation and disclosure of financial information thereon.
Scope limitation – Amounts due from an associate
Included in the trade and other receivables as set out in Note 22 to the consolidated financial statements were the amounts due from Beijing Changdongshun Gas Limited (“Changdongshun”), a directly wholly owned subsidiary of Beijing Zhonggang Green Energy, of approximately HK$23,921,000 as at 31 December 2012. As further explained in Note 19(a)(i) to the consolidated financial statements, the directors of the Company are unable to obtain adequate and reliable financial information of the Beijing Zhonggang Green Energy Group. As such, the directors of the Company have been unable to determine the fair value of the amounts due from Changdongshun in accordance with HKAS 39 “Financial Instruments: Recognition and Measurement” issued by HKICPA. Accordingly, the amounts due from Changdongshun was stated at cost less any identified impairment loss as at 31 December 2012.
However, due to the lack of adequate financial information of the Beijing Zhonggang Green Energy Group, we have not been able to obtain sufficient appropriate audit evidence and explanations or to carry out alternative audit procedures that we consider necessary in respect of the Group’s accounting treatment for the amounts due from Changdongshun and the impact of the departure from HKAS 39. In addition, we have not been able to obtain sufficient appropriate audit evidence and explanations or to carry out alternative audit procedures that we consider necessary to assess the valuation of the amounts due from Changdongshun and whether the amounts due from Changdongshun are free from material misstatement. Any adjustment to the abovementioned financial information would have a consequential effect on the net assets of the Group as at 31 December 2012 and the loss attributable to the owners of the Company and thereon.
Scope limitation – Financial assets at fair value through profit or loss
Included in the financial assets at fair value through profit or loss as set out in note 23 to the consolidated financial statements was an option granted to the Company in respect of the acquisition of 51% equity interests of Beijing Zhonggang Green Energy (the “Option”) of approximately HK$7,350,000 as at 31 December 2012. As further explained in Note 19(a)(i) to the consolidated financial statements, the directors of the Company are unable to obtain adequate and reliable financial information of the Beijing Zhonggang Green Energy Group. As such, the directors of the Company have been unable to determine the fair value of the Option and whether the Option is impaired as at 31 December 2012. Accordingly, no fair value change of the Option was recognised since 1 July 2012.
However, due to the lack of adequate financial information of the Beijing Zhonggang Green Energy Group, we have not been able to obtain sufficient appropriate audit evidence and explanations or to carry out alternative audit procedures that we consider necessary in respect of the Group’s accounting treatment for the Option and the impact of the departure from HKAS 39. In addition, we have not been able to obtain sufficient appropriate audit evidence and explanations or to carry out alternative audit procedures that we consider necessary to assess the valuation of the Option, the fair value change of the Option recognised and whether the carrying value of the Option is free from material misstatement. Any adjustment to the abovementioned financial information would have a consequential effect on the net assets of the Group as at 31 December 2012 and the loss attributable to the owners of the Company and thereon.
DISCLAIMER OF OPINION
Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the consolidated financial statements and as to whether the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
- 2013.03 CVM MINERALS
Company Name: CVM Minerals LimitedStock Code: 00705Year end: December 31, 2012
Basis for disclaimer of opinion
1. Scope Limitation: valuations on exploration and evaluation assets, goodwill and certain property, plant and equipment
During the year 2012, the Group has undertaken several mining or extractive projects in Malaysia, Indonesia and the People’s Republic of China (the “PRC”). The principal operations of the Group included: (a) mining of dolomite and manufacture of magnesium ingots in Malaysia; (b) exploration for iron ore, coal and manganese in Indonesia; and (c) extraction and bottling of mineral water in the PRC. Due to various material fundamental uncertainties facing by the Group, as disclosed in notes 2(b) and 15 to the consolidated financial statements, these principal operations, except for the operation of extraction and bottling of mineral water, are effectively suspended for various reasons. At the same time, the extraction and bottling of mineral water operations are not generating positive cash flow for the Group as anticipated by the management of the Company.
Taking into consideration that the Group has not incurred any exploration and evaluation expenditures on these extractive operations in order to obtain up-to-date technical data for these extractive operations in the current year and the Group does not have sufficient working capital to finance these extractive operations, we are unable to assess the reliability of these valuations prepared for financial reporting purposes. In addition, we consider that the technical data in the Technical Report 2011 used to prepare the valuation is not up-to-date and we are unable to verify the Group’s ability both financially and technically to relative mining permits. Accordingly we are unable to assess whether the recoverable amount of these assets as at the end of the reporting period are reliably measured. There are no alternative audit procedures that we could perform to satisfy ourselves as to whether any further impairment losses should be recognised on these assets and the balances of the exploration and evaluation assets, goodwill and property, plant and equipment are free from material misstatement. Any adjustments found to be necessary in respect thereof had we obtained sufficient appropriate audit evidence would have had a consequential effect on the net assets of the group and of its loss for the current year.
2. Scope Limitation: valuations of exploration and evaluation assets, goodwill and associated deferred tax liabilities in business combinations
Disclosed in note 32(a), the Group acquired 51% equity interest of Step Pacific Development Ltd and its subsidiaries (“Step Pacific Group”) on 19 April 2011. Because of lacking of sufficient information to complete the initial accounting in the year ended 31 December 2011, the Group has completed the initial accounting for this business combination in 2012. Exploration and evaluation assets with a fair value as at acquisition date of HK$279,610,200, goodwill of HK$141,625,589 and deferred tax liabilities associated with the fair value adjustment on the exploration and evaluation assets of HK$46,093,957 were restated and recognised in this business combination.
As disclosed in note 32(b), the Group acquired a 51% equity interest in Victory Dragon Holdings Limited and its subsidiaries (“Victory Dragon Group”) on 18 April 2012. In the year 2012, the Group has completed the initial accounting for this business combination. Exploration and evaluation assets with a fair value as at acquisition date of HK$16,763,000, goodwill of HK$111,180,501 and deferred tax liabilities associated with the fair value adjustment on the exploration and evaluation assets of HK$40,440,750 are recognised in this business combination.
The Group appointed an independent valuer, to perform valuations to assess the fair values as at the acquisition dates of these exploration and evaluation assets. The valuer estimated the fair values of these assets using an income-based approach based on the estimated reserves of those mines located in Indonesia from Technical Report 2011 and the water well located in the PRC from a technical report prepared in 2003 (“Technical Report 2003”) and assumptions as to the Group’s ability to undertake the exploration for and exploitation of these nature resources.
Taking into consideration that the Group has not incurred any exploration and evaluation expenditures on these extractive operations in order to obtain up-to-date technical data for these extractive operations in the current year and the Group does not have sufficient working capital to finance these extractive operations, we are unable to assess the reliability of these valuations prepared for financial reporting purposes. In addition, we consider that the technical data in the Technical Report 2011 and the Technical Report 2003 used to prepare the valuation are not up-to-date and we are unable to verify the Group’s ability both financially and technically to undertake exploration for or exploitation of any iron ore, coal and manganese resources under the relevant mining permit. Accordingly we are unable to assess whether the fair values as at the acquisition dates are measured reliably in accordance with the requirements of Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations” issued by the HKICPA. There are no alternative audit procedures that we could perform to satisfy ourselves as to whether the recognition of these exploration and evaluation assets, goodwill and associated deferred tax are free from material misstatement. Any adjustments found to be necessary in respect thereof had we obtained sufficient appropriate audit evidence would have had a consequential effect on the net assets of the group and of its loss for the current year.
3. Scope Limitation: incomplete records for the mineral water extraction and bottling operations
As disclosed in note 32(b) to the consolidated financial statements, the Group has acquired through the business combination of Victory Dragon Group in 2012, an operation for the extraction and bottling of mineral water. Certain books and records relating to the acquisition of the mineral water operations were incomplete or missing and the inventory costing system was not able to generate reliable information for financial reporting purposes. We are unable to obtain sufficient audit evidence on:
(a) Turnover and trade receivables
The Group has reported revenue from sales of bottled mineral water amounting to HK$2,148,220 (2011: HK$Nil) during the year and trade receivables of HK$461,356 (2011: HK$Nil) as at the end of the reporting period. We are unable to obtain sufficient the delivery notes and trade receivables settlement records to verify the sales amount for the year and the respective trade receivables balances as at 31 December 2012.
(b) Cost of inventories sold and inventories
The Group has recognised cost of inventories amounting to HK$2,002,755 in the year and has inventory balances related to bottled mineral water of HK$755,415 (2011: HK$Nil) as at the end of the reporting period. Inventories are stated as lower of cost or net realisation value. Cost is calculated using weighted average cost formula and comprises all costs of purchase, costs of conversion and other direct costs incurred in bringing the inventories to its location and condition. However, we are unable to verify the weighted average cost formula because the inventory cost system used by the Group for this operation is unable to generate reliable data for us to verify the calculations of the closing balances of these inventories and the respective cost of inventories sold for the year.
We are unable to perform alternative audit procedures to satisfy ourselves as to whether the turnover and cost of inventories sold recognised for the year are fairly accounted for and the closing balances of trade receivables and inventories are fairly stated. Any adjustments found to be necessary in respect thereof, had we obtained sufficient appropriate audit evidence, would have had a consequential effect on the net assets of the Group and of its loss for the current year.
4. Scope limitation: material fundamental uncertainties relating to the going concern basis of presentation of consolidated financial statements
As disclosed in note 2(b) to the consolidated financial statements, the Group and the Company has encountered a number of circumstances giving rise to material fundamental uncertainties. The Group and the Company are principally sustained in their daily operations by bank loans, unsecured loans, convertible bonds and placing of shares. The Group and the Company are pursuing certain measures set out in note 2(b) to the consolidated financial statements, and therefore, the directors of the Company have prepared the consolidated financial statements on a going concern basis. However, we are unable to obtain sufficient audit evidence for us to assess the validity of the going concern assumption which depends on the continuing financial support of the Group’s bankers and creditors and the Group’s ability to generate adequate working capital in future. Although the Group and the Company have received letters of extension for unsecured loans with an aggregate amount of HK$100,000,000, for its commitment on providing adequate financial support to enable the Group and the Company to meet in full its financial obligations as they fall due for the next twelve months, we are unable to obtain sufficient evidence to satisfy ourselves as to the support to the Group and the Company. The existence of these material fundamental uncertainties casts significant doubt on the Group’s and the Company’s ability to continue as a going concern.
Should the going concern assumption be inappropriate, adjustments may have to be made to reflect a realisation basis which includes, where appropriate, writing down the Group’s and the Company’s assets to net realisation value, and providing any contractual commitments that become onerous at the end of the reporting period. In addition, the Group and the Company may have to provide for further liabilities that might arise, and to reclassify non-current assets and liabilities as current assets and liabilities.
5. Scope limitation: valuation and impairment assessment of the Company’s investments in subsidiaries and amounts due from subsidiaries
Included in the Company’s statement of financial position are gross investments in subsidiaries of HK$457,898,800 (2011: HK$418,633,636), amounts due from subsidiaries of HK$592,133,807 (2011: HK$343,068,999) and an impairment provision of HK$840,699,394 (2011: HK$432,829,859) respectively. As required by HKAS 36 issued by the HKICPA, at the end of the reporting period, the Company should assess whether there are any indications of impairment on the carrying amounts of these balances. As reported in the basis for disclaimer of opinion, there are material fundamental uncertainties that may affect our ability to assess the validity of the going concern assumption and operations of these subsidiaries. We are unable to satisfy ourselves as to whether any further impairment losses should be recognised on these balances and that the carrying amounts of investments in subsidiaries and amounts due from these subsidiaries are fairly stated at the end of the reporting period. Any adjustments found to be necessary in respect thereof had we obtained sufficient appropriate audit evidence, would have had a consequential effect on the net assets of the Group and of its loss for the current year.
Should the going concern assumption be inappropriate, adjustments may have to be made to reflect. In addition, the Group may have to provide for further liabilities that might arise, and to reclassify non-current assets and liabilities as current assets and liabilities.
Disclaimer of opinion
Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the consolidated financial statements. In all other respects, in our opinion the consolidated financial statements have been prepared in accordance with the Hong Kong Companies Ordinance.
- 2013.03 SINO-TECH INT’L
Company Name: Sino-Tech International Holdings LimitedStock Code: 00724Year end: December 31, 2012
Basis for disclaimer of opinion on the financial performance, cash flows and relevant disclosures
Scope limitation on the corresponding figures
As set out in our report dated 30 March 2012 on the Group’s consolidated financial statements for the year ended 31 December 2011, we were not provided with sufficient audit evidence to enable us to assess whether certain trade receivables could be recovered in full or to determine the amount of impairment, if any. We qualified our opinion on the Group’s consolidated financial statements for the year ended 31 December 2011 in respect of this scope limitation accordingly.
Any adjustments that might have been found necessary in respect of the above would have had a consequential impact on the Group’s opening balances of the consolidated financial statements as at 1 January 2012 and the Group’s results for the year ended 31 December 2011 and the related disclosures made in respect of the corresponding figures for the year ended 31 December 2011 in the consolidated financial statements for the year ended 31 December 2012.
Scope limitation on the loss for the year from discontinued operations, cash flows and relevant disclosures
During the year ended 31 December 2012, the Group recorded a loss for the year from discontinued logistics services operation of approximately HK$231,576,000 as set out in note 13 to the consolidated financial statements. As further described in note 1 to the consolidated financial statements, the loss for the year from discontinued logistics services operation related to the voluntary winding-up of CITIC Logistics (International) Company Limited (the “CLI”), a company in which the Group held 100% equity interest, under Section 241 of the Hong Kong Companies Ordinance. Upon the commencement of the winding-up on 27 December 2012, the Company lost its control over CLI, and accordingly CLI ceased to be a subsidiary of the Company and the financial results and position of CLI and its subsidiaries were deconsolidated from those of the Group since that date.
However, the directors of the Company have represented to us that neither they nor the liquidators of CLI were able to obtain the complete set of accounting books and records of the CITIC Logistics Company Limited（中 信物流有限公司）(“CLBJ”) and its subsidiary and associate (collectively referred to as the “CLBJ Group”) for the period from 1 January 2012 to 27 December 2012 (the date of deconsolidation) due to the un-cooperation of the financial personnel of CLBJ and its subsidiary amid the adverse situations faced by the CLBJ Group and the winding-up of CLI as set out in note 1 to the consolidated financial statements. Accordingly, the Group recorded the loss for the year from discontinued operation and cash flows relating to the CLBJ Group based on their unaudited financial information for the period from 1 January 2012 to 30 June 2012, which were the latest management accounts available to the directors of the Company. Due to lack of the complete set of accounting books and records of the CLBJ Group, we are unable to carry out audit procedures to obtain sufficient reliable audit evidence to satisfy ourselves as to the completeness of all transactions undertaken by the CLBJ Group and accordingly, whether the loss for the year from discontinued operation in relation to the CLBJ Group of approximately HK$212,856,000 included in the consolidated income statement, consolidated statement of cash flows and the relevant disclosures to the consolidated financial statements are free from material misstatements. Accordingly, we have not been able to provide a basis for an audit opinion on the financial performance and cash flows of the Group and the relevant disclosures to the consolidated financial statements.
Any adjustment that might have been found to be necessary in respect of the above would have a significant effect on the Group’s loss and cash flows for the year ended 31 December 2012 and related disclosure notes to the consolidated financial statements.
Disclaimer of opinion on the financial performance, cash flows and relevant disclosures
Because of the significance of the above matter described in the basis for disclaimer of opinion paragraph on the financial performance, cash flows and relevant disclosures, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for audit opinion on the financial performance and cash flows of the Group and the relevant disclosures to the consolidated financial statements. Accordingly, we do not express an audit opinion on the financial performance and cash flows of the Group and the relevant disclosures to the consolidated financial statements for the year ended 31 December 2012.
Unqualified opinion on the financial position
In our opinion, the consolidated statement of financial position gives a true and fair view of the state of the Group’s affairs as at 31 December 2012 in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
- 2013.03 HISENSE KELON
Company Name: Hisense Kelon Electrical Holdings Company LimitedStock Code: 00921Year end: December 31, 2012
Matters leading to qualified opinions
It was reported by the Company that a series of related party transactions and unusual cash flows occurred between Guangdong Greencool Enterprise Development Limited, the former substantial shareholder of the Company, and its related parties (hereinafter referred to as the “Greencool Companies”) and Hisense Kelon during the period from October 2001 to July 2005 ( the “Period”). In addition, during the Period, the Greencool Companies, through certain specified third party companies such as Tianjin Lixin Commercial Trading Development Company Limited, were involved in a series of unusual cash flows with Hisense Kelon. Hisense Kelon has instituted proceedings for such transactions and unusual cash flows as well as the suspected fund embezzlements. These matters are related to Hisense Kelon’s amounts due from or to the Greencool Companies and the specified third party companies mentioned above.
As at 31 December 2012, the balance of amounts due to Hisense Kelon from the Greencool Companies and such specified third party companies amounted to RMB651 million. Hisense Kelon has made a provision for bad debts of RMB365 million in respect of the amounts due from the Greencool Companies and such third party companies. As set out in Note 8 to the financial statements, apart from the withdrawal of the case at the Intermediate People’s Court of Foshan ((2006) Fo Zhong Fa Min Er Chu Zi No. 178) and the rejection of the petition to the Intermediate People’s Court of Foshan ((2006) Fo Zhong Fa Min Er Chu Zi No. 183), Hisense Kelon has won in all other cases mentioned above and the rulings have all come into force. However, we are unable to adopt appropriate audit procedures to obtain sufficient and appropriate audit evidence to ascertain whether or not the estimated provision for bad debts based on such amount and the assessment and calculation of the receivables are reasonable.
Audit opinion
In our opinion, apart from the possible effects of the above matters, the accompanying financial statements of the Company present fairly, in all material respects, the consolidated and company’s financial position as at 31 December 2012, and the consolidated and company’s financial performance and cash flows for the year then ended in accordance with the requirements of Accounting Standards for Business Enterprises.
- 2013.03 NT PHARMA
Company Name: China NT Pharma Group Company LimitedStock Code: 01011Year end: December 31, 2012
Basis for qualified opinion
As stated in notes 1 and 14(c) to the consolidated financial statements, in the second quarter of 2012 the Group decided to gradually exit from the vaccine business. As disclosed in note 21, the Group has net outstanding trade receivables of RMB326,481,000 related to the vaccine business as at 31 December 2012, among which RMB300,135,000 was past due by more than three months. The Group has recorded an impairment provision of RMB343,933,000 against the gross receivable balance from customers of this vaccine business of RMB670,414,000. The Directors of the Company have informed us that this impairment provision represents their assessment of the recoverability of the individual debtor balances based on the information available and current circumstances. However, we were unable to obtain sufficient information to evaluate the appropriateness of management’s assessment and basis of judgment on the recoverability of this vaccine business related receivable balance. Accordingly, we were unable to satisfy ourselves regarding the valuation of the accounts receivable balance related to the vaccine business as at 31 December 2012. Any under or over-estimate of the recoverability of these receivables would affect the net assets of the Company and the Group as at 31 December 2012 and the Group’s net loss for the year ended 31 December 2012, and the related disclosures in the financial statements.
Qualified opinion arising from limitation of audit scope
In our opinion, except for the effects of such adjustment, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the matter set out in the basis for qualified opinion paragraph above, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2012 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
- 2013.03 FIRST NATURAL
Company Name: First Natural Foods Holdings LimitedStock Code: 01076Year end: December 31, 2012
Basis for qualified opinion
1. Opening balances and corresponding figures
Our audit opinion on the consolidated financial statements of the Group for the year ended 31 December 2011 (the “2011 Financial Statements”), which forms the basis for the corresponding figures presented in the current year’s consolidated financial statements, was disclaimed because of the significance of the possible effect of the limitations on the scope of our audit and the material uncertainty in relation to going concern, details of which are set out in our audit report dated 30 March 2012. Accordingly, we were then unable to form an opinion as to whether the 2011 Financial Statements gave a true and fair view of the state of affairs of the Group as at 31 December 2011 and of the Group’s results and cash flows for the year then ended.
2. Deconsolidation of the subsidiaries
Certain subsidiaries of the Company were deconsolidated from the Group since 1 July 2008. No sufficient evidence has been provided to satisfy ourselves as to whether the Company had lost control of the subsidiaries since 1 July 2008 and throughout the year ended 31 December 2011 and the period from 1 January 2012 to 3 September 2012, the date immediately before the group reorganisation being completed.
Accordingly, no sufficient evidence has been provided to satisfy ourselves, in relation to the deconsolidated subsidiaries, as to the completeness of the transactions of the Group for the year ended 31 December 2011 and for the period from 1 January 2012 to 3 September 2012 and the Group’s financial positions as at 31 December 2011 and 3 September 2012.
3. Gain on debts discharged under the scheme of arrangement
As explained in note 11 to the consolidated financial statements, upon the scheme of arrangement of the Company becoming effective on 4 September 2012, the Company recognised a gain on debts discharged under the scheme of arrangement of approximately HK$381,258,000 for the year ended 31 December 2012.
No sufficient evidence has been provided to satisfy ourselves as to certain liabilities of the Company being discharged under the scheme of arrangement. As a result, we are unable to satisfy ourselves as to the gain on debts discharged under the scheme of arrangement of approximately HK$381,258,000 included in the consolidated profit or loss.
4. Loss on group reorganisation
As explained in note 11 to the consolidated financial statements, upon completion of the group reorganisation on 4 September 2012, the Group recognised a loss on group reorganisation of approximately HK$260,000 for the year ended 31 December 2012.
No sufficient evidence has been provided to satisfy ourselves as to the net assets amount of the subsidiaries transferred out of the Group due to the group reorganisation. As a result, we are unable to satisfy ourselves as to the loss on group reorganisation of approximately HK$260,000 included in the consolidated profit or loss.
Any adjustments to the matters as described from points 1 to 4 above might have a consequential effect on the Group’s results for the two years ended 31 December 2011 and 2012, the Group’s cash flows for the two years ended 31 December 2011 and 2012 and the financial position of the Group as at 31 December 2011, and the related disclosures thereof in the consolidated financial statements.
Qualified opinion
In our opinion, except for the possible effects of the matters as described in the basis for qualified opinion paragraphs, the consolidated financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2012, and of the results and cash flows of the Group for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
- 2013.03 KARCE INTL HOLD
Company Name: Karce International Holdings Company LimitedStock Code: 01159Year end: December 31, 2012
Basis for disclaimer of opinion
(a) Limitation of Scope – Deconsolidation of a Subsidiary during the Year Ended 31 December 2009
As set out in note 3(i) to the consolidated financial statements, the Group completed the acquisition of Pacific Choice Holdings Limited (“Pacific Choice”) and its subsidiaries (collectively referred to as the “Pacific Choice Group”) on 15 January 2009 for a total consideration of HK$604,616,000 which mainly comprised cash, promissory notes issued by the Group and convertible bonds issued by the Company.
As set out in note 3(ii) to the consolidated financial statements, the directors of the Company have been unable to obtain and access to the books and records of 聯合光電 （蘇州）有限公司 United Opto-Electronics (Suzhou) Co., Ltd. (the “PRC Subsidiary”), an indirectly owned subsidiary of Pacific Choice, after 30 November 2009 and resolved that the Group no longer had the power to govern the financial and operating policies of the PRC Subsidiary, and accordingly the control over the PRC Subsidiary was lost on that date.
The PRC Subsidiary has therefore been deconsolidated from the consolidated financial statements of the Group and recognised as an available-for-sale investment from 1 December 2009 onwards. Besides, since the assets of the PRC Subsidiary and the planned operations thereof predominantly accounted for the reason for which the Group acquired the Pacific Choice Group, the loss of control over the PRC Subsidiary effectively impaired any practical value of the entire Pacific Choice Group, if any, and therefore, the directors of the Company considered that assets of the entities comprising the Pacific Choice Group other than the PRC Subsidiary (the “Pacific Choice Remaining Group”) should be fully impaired on the same date the Group lost control over the PRC Subsidiary.
As a result of the circumstances described above, the directors of the Company have been unable to provide us with a complete set of accounting books and records of the PRC Subsidiary. We were appointed as auditors of the Company pursuant to an ordinary resolution passed at the special general meeting of the Company held on 18 March 2013. We have therefore been unable to carry out audit procedures to obtain sufficient appropriate audit evidence to satisfy ourselves as to whether:
(i) the accumulated losses of the Group as at 31 December 2012, 31 December 2011 and 1 January 2011 resulted from the losses on (i) deconsolidation of the PRC Subsidiary and (ii) incurred by the PRC Subsidiary for the period from 15 January 2009 (date of acquisition) to 30 November 2009 (date of deconsolidation) were free from material misstatement; and
(ii) the Group had lost its control over the PRC Subsidiary and whether it was appropriate to deconsolidate the assets and liabilities and cease to record results of operations of the PRC Subsidiary from the consolidated financial statements of the Group and be recognised as an available-for-sale investment.
We were therefore unable to determine whether any adjustments were necessary to be made to the accumulated losses as at 1 January 2011 and the results of operations for the years ended 31 December 2012 and 31 December 2011 that might have a significant effect on the state of the Group’s affairs as at 31 December 2012, 31 December 2011 and 1 January 2011 and on its loss for the years ended 31 December 2012 and 31 December 2011. The predecessor auditor disclaimed their audit opinion on the consolidated financial statements for the years ended 31 December 2011 and 31 December 2010.
(b) Limitation of Scope – Fair Value and Carrying Amounts of Convertible Bonds as at 31 December 2012 and 31 December 2011 and Interest Charge for the years ended 31 December 2012 and 31 December 2011
As set out in note 3(i) to the consolidated financial statements, on 15 January 2009, the Company issued zero-coupon convertible bonds due in 2014 with a principal amount of HK$300,000,000, subject to a downward adjustment, as part of the consideration for acquisition of the Pacific Choice Group. As set out in note 26 to the consolidated financial statements, the directors of the Company appointed an independent valuer to perform a valuation of the fair value of the convertible bonds issued at the date of issue on 15 January 2009. However, we were not provided with the explanation that we considered necessary for the assessment of the valuation of the convertible bonds and there were no alternative audit procedures that we could perform to obtain sufficient audit evidence to satisfy ourselves as to whether the valuation was properly prepared and accordingly, we were unable to satisfy ourselves as to whether:
(i) the fair value of the liability component of the convertible bonds on initial recognition was reliably measured in accordance with the relevant requirements of Hong Kong Accounting Standard (“HKAS”) 39 “Financial Instruments: Recognition and Measurement” issued by the HKICPA (“HKAS 39”) and whether their carrying value of HK$261,725,000, HK$229,583,000 and HK$201,389,000 as at 31 December 2012, 31 December 2011 and 1 January 2011, respectively, as disclosed in note 26 to the consolidated financial statements were free from material misstatement;
(ii) convertible bonds reserve of HK$120,398,000 as at 31 December 2012, 31 December 2011 and 1 January 2011 representing equity component of the convertible bonds (net of related deferred tax liabilities arising from the issue of the convertible bonds) recognised directly in equity, income tax credit of HK$5,303,000 and HK$4,652,000 recognised in the profit or loss for the years ended 31 December 2012 and 31 December 2011, respectively, and the deferred tax liabilities arising from the issue of the convertible bonds of HK$6,316,000, HK$11,619,000 and HK$16,271,000 as at 31 December 2012, 31 December 2011 and 1 January 2011, respectively, were free from material misstatement;
(iii) any other embedded derivatives of the convertible bonds issued for the acquisition of the Pacific Choice Group would have been recognised in accordance with HKAS 39 as at 31 December 2012, 31 December 2011 and 1 January 2011;
(iv) goodwill of HK$77,685,000 arising from the acquisition of the Pacific Choice Group as at 15 January 2009 (date of acquisition) as disclosed in note 18 to the consolidated financial statements was reliably measured in accordance with the relevant requirements of Hong Kong Financial Reporting Standard 3 “Business Combinations” issued by the HKICPA and whether the impairment loss on this goodwill of HK$77,685,000 recognised in the profit or loss for the year ended 31 December 2009 and included in the accumulated losses as at 31 December 2012, 31 December 2011 and 1 January 2011 was free from material misstatement; and
(v) the interest charge recognised in the profit or loss in respect of the liability component of the convertible bonds, as set out in note 26 to the consolidated financial statements, amounting to HK$32,142,000 and HK$28,194,000 for the years ended 31 December 2012 and 31 December 2011, respectively, were free from material misstatement.
We were therefore unable to determine whether any adjustments were necessary to be made to the carrying amounts of the liability component of the convertible bonds as at 31 December 2012, 31 December 2011 and 1 January 2011, the accumulated losses as at 1 January 2011 and the results of operations for the years ended 31 December 2012 and 31 December 2011 that might have a significant effect on the state of the Group’s affairs as at 31 December 2012, 31 December 2011 and 1 January 2011 and on its loss for the years ended 31 December 2012 and 31 December 2011. The predecessor auditor disclaimed their audit opinion on the consolidated financial statements for the years ended 31 December 2011 and 31 December 2010.
(c) Limitation of Scope – Carrying Amounts of Promissory Notes as at 31 December 2012 and 31 December 2011 and Interest Charge and Income Tax Credit for the years ended 31 December 2012 and 31 December 2011
As set out in note 3(i) to the consolidated financial statements, on 15 January 2009, the Group issued zero-coupon promissory notes due in 2011 with a principal amount of HK$375,000,000 as part of the consideration for the acquisition of the Pacific Choice Group. As further set out in note 25 to the consolidated financial statements, principal amounts of HK$250,000,000 and HK$37,500,000 of the promissory notes were early settled and cancelled respectively in 2009, and the maturity of the remaining promissory notes with a principal amount of HK$87,500,000 was extended to January 2012 without further extension granted during the year. However, this liability has neither been settled nor, in the opinion of the directors, a demand for claims has been received from the noteholder or its representative up to the date of this report.
We circulated direct confirmations to the noteholder but did not receive a reply and there were no alternative audit procedures that we could perform to obtain sufficient audit evidence to satisfy ourselves as to whether the promissory notes of HK$87,500,000 and HK$87,036,000 included in the consolidated statement of financial position as at 31 December 2012 and 31 December 2011, respectively, and the pertinent interest charge of HK$464,000 and HK$12,072,000 and income tax credit of HK$76,000 and HK$1,992,000 recognised in the profit or loss for the years ended 31 December 2012 and 31 December 2011, respectively, were free from material misstatement. Any adjustment that might have been found to be necessary in respect of the above may have a significant effect on the state of the Group’s affairs as at 31 December 2012 and 31 December 2011 and on its loss for the years ended 31 December 2012 and 31 December 2011. The predecessor auditor disclaimed their audit opinion on the consolidated financial statements for the years ended 31 December 2011 and 31 December 2010.
(d) Limitation of Scope – Reversal of Impairment Loss Recognised in respect of Intangible Asset during the Year Ended 31 December 2010 and Impairment Loss Recognised in respect of Intangible Asset during the Year Ended 31 December 2011 and Carrying Value of Intangible Asset as at 31 December 2012 and 31 December 2011
The Group acquired an intangible asset in the acquisition of the Pacific Choice in 2009. The carrying amount of this intangible asset was fully impaired in the year ended 31 December 2009. (See limitation of scope (a) above.)
Included in the consolidated statement of financial position as at 1 January 2011 as set out in note 17 to the consolidated financial statements, the carrying value of this intangible asset amounted to HK$50,000,000. This HK$50,000,000 uplift arose from the partial reversal of the impairment loss recognised during the year ended 31 December 2010. The amount of reversal was determined by the directors of the Company based on the amount of the non-refundable deposit received in January 2011 for the proposed disposal of Sourcestar Profits Limited (“Sourcestar”) and its subsidiaries, the Pacific Choice Group. As detailed in note 3(iv) to the consolidated financial statements, the total consideration of the proposed disposal was more than HK$50,000,000. We were not provided with an assessment of recoverable amount of the intangible asset prepared in accordance with HKAS 36 “Impairment of Assets” issued by the HKICPA (“HKAS 36”), we therefore were unable to satisfy ourselves as to whether any reversal of impairment loss should be recognised and whether the reversal amount of HK$50,000,000 included in the accumulated losses as at 1 January 2011 was free from material misstatement and the carrying value of the intangible asset as at 1 January 2011 had been properly stated in accordance with HKAS 38 “Intangible Assets” issued by the HKICPA (“HKAS 38”).
As set out in notes 3(v) and 17 to the consolidated financial statements, the proposed disposal of Sourcestar and the Pacific Choice Group was terminated upon the lapse of the relevant agreement during the year ended 31 December 2011 and the directors of the Company determined that the then carrying value of the intangible asset of HK$50,000,000 was fully impaired. Due to the circumstances described in the above paragraph and we were not provided with an assessment of recoverable amount of the intangible asset prepared in accordance with HKAS 36, we were therefore unable to satisfy ourselves as to whether:
(i) the impairment of such amount (as disclosed in note 11 to the consolidated financial statements) recognised in the profit or loss for the year ended 31 December 2011 and included in the accumulated losses as at 31 December 2012 and 31 December 2011 was properly determined in accordance with the requirements of HKAS 36; and
(ii) the carrying values of the intangible asset has been properly stated in accordance with HKAS 38 as at 31 December 2012 and 31 December 2011.
Any adjustment that might have been found to be necessary in respect of the above may have a significant effect on the state of the Group’s affairs as at 31 December 2012, 31 December 2011 and 1 January 2011 and on its loss for the years ended 31 December 2012 and 31 December 2011. The predecessor auditor disclaimed their audit opinion on the consolidated financial statements for the years ended 31 December 2011 and 31 December 2010.
Going Concern
As set out in note 2 to the consolidated financial statements, the Group incurred a loss of approximately HK$35,285,000 during the year ended 31 December 2012 and, as of that date, had net current liabilities and net liabilities of approximately HK$77,689,000 and approximately HK$340,650,000 respectively. The Company is pursuing certain measures to improve the Group’s liquidity and financial position. The validity of the going concern assumption on which the consolidated financial statements are prepared is dependent on the successful implementation of these measures. The consolidated financial statements have been prepared on the assumption that the Group will continue as a going concern and therefore do not include any adjustments relating to the realisation of assets and the recognition of further liabilities that may be necessary if the Group is unable to continue as a going concern.
Should the going concern assumption be inappropriate, adjustments may have to be made to reflect the situation that assets may need to be realised other than at the amounts at which they are currently recorded in the consolidated statement of financial position. In addition, the Group may have to provide for further liabilities that might arise, and to reclassify non-current assets and liabilities as current assets and liabilities.
Disclaimer of Opinion
Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the consolidated financial statements. In all other respects, in our opinion the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
- 2013.03 SEAMLESS GREEN
Company Name: Seamless Green China (Holdings) LimitedStock Code: 08150Year end: December 31, 2012
Scope limitation – Investment property
During the year ended 31 December 2012, the Group acquired an investment property in the PRC through the acquisition of the entire equity interests in Fullway (China) Limited at the consideration of HK$15,000,000. The acquisition was completed on 28 March 2012. However, as at 31 December 2012, the land use rights of the said investment property has yet to be transferred to the Group. In the absence of adequate documentary evidence in respect of the land use rights of the investment property, we are unable to satisfy ourselves as to whether (i) the Group has legal ownership of the investment property; and (ii) the value of the investment property of approximately HK$16,614,000 as stated in the consolidated statement of financial position as at 31 December 2012 was free from material misstatement.
Any adjustments found to be necessary in respect of the above matters would affect the Group’s net assets as at 31 December 2012, and the Group’s loss for the year then ended.
QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE
In our opinion, except for the effect of the matters described in the basis for the qualified opinion paragraph, the consolidated financial statements give a true and fair view of the state of the affairs of the Company and of the Group as at 31 December 2012 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
- 2013.03 TIANJIN DEV
Company Name: TIANJIN DEVELOPMENT HOLDINGS LIMITEDStock Code: 00882Year end: December 31, 2012
Basis of qualified opinion
As set out in Note 18(a) to these consolidated financial statements, the financial information for the year ended 31 December 2012 of Dynasty (as defined in Note 45 to these consolidated financial statements), a listed associate of the Group, is not available at the date of this report. Accordingly, for the purpose of preparing these consolidated financial statements, the Group has equity accounted for its share of loss of Dynasty based on the best estimates made by the directors of the Company. In addition, the Group has recognized an impairment loss against the carrying amount of its interest in Dynasty based on its fair value, which is determined with reference to the quoted price of Dynasty’s listed shares on 31 December 2012. As a result, the Group recognized an aggregate loss of HK$111,267,000 which is included in the consolidated income statement as share of loss of associate for the year ended 31 December 2012. However, we were unable to obtain sufficient appropriate audit evidence to satisfy ourselves with the appropriateness of the estimates made by the directors of the Company to account for the share of loss and net assets less impairment loss of Dynasty as we did not have sufficient access to the financial information, management and the auditor of Dynasty.
In view of the above and in the absence of any alternative procedures to be carried out in respect of the financial information of Dynasty, we are unable to satisfy ourselves as to whether (i) the Group’s share of the results and other comprehensive income or expense of Dynasty for the year ended 31 December 2012 is appropriate; and (ii) the Group’s share of the net assets less impairment loss of Dynasty as of 31 December 2012 is fairly stated. In addition, the required summarized financial information of Dynasty is not disclosed in accordance with Hong Kong Accounting Standard 28 “Investments in Associates”.
Qualified opinion
In our opinion, except for the possible effects of the matter set out in the Basis of qualified opinion paragraph, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2012, and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.
- 2013.03 WATER INDUSTRY
Company Name: China Water Industry Group LimitedStock Code: 01129Year end: December 31, 2012
Basis for Disclaimer of Opinion
During the course of our audit of the Group for the year ended 31 December 2012, we encountered significant of limitation of audit scope in respect of various areas as set out below:
1. Impairment assessment of loan receivables
As previously explained in our report dated 29 March 2012 on the Group’s consolidated financial statements for the year ended 31 December 2011, we were not provided with sufficient audit evidence to satisfy ourselves as to whether the loan receivables advanced to three independent third parties of approximately HK$28,000,000 (net of accumulated impairment loss of HK$15,398,000), HK$24,412,000 and HK$14,647,000 respectively, would be recoverable in full or in part. We disclaimed our opinion on the consolidated financial statements for the year ended 31 December 2011. During the year ended 31 December 2012, the aforesaid loan receivables of approximately HK$24,412,000 and HK$14,647,000 were fully recovered, details are explained in note to the consolidated financial statements.
In relation to the remaining loan receivable as at 31 December 2012 of approximately HK$43,598,000, before the provision of impairment losses of approximately of HK$15,598,000, we have not been provided with sufficient evidence to satisfy ourselves as to the recoverability of the loan receivable and as to whether the impairment loss of the loan receivable determined by the directors of the Company against the carrying amount of the loan receivable were fairly stated. There are no other satisfactory audit procedures which we could adopt to ascertain the carrying value of the loan receivable as at 31 December 2012 being fairly stated in the consolidated financial statements.
Any adjustments in connection with the loan receivable and impairment loss would have a consequential effect on the net assets of the Group as at 31 December 2012 and 2011 and on the Group’s results for the year ended 31 December 2012 and 2011 and the related disclosures in the consolidated financial statements.
2. Available-for-sale investments
As previously explained in our report dated 29 March 2012 in the Group’s consolidated financial statements for the year ended 31 December 2011, the Group had an investment in listed equity securities in Hong Kong with carrying value of HK$29,898,000 as at 31 December 2011.
The trading of the listed equity investment was suspended during the year ended 31 December 2011 and up to date of this report. The directors of the Company considered that there was no material change in the fair value of the listed equity investment. We have not been provided with sufficient evidence to satisfy ourselves as to the available-for-sale investments were fairly stated. There are no other satisfactory audit procedures which we could adopt to ascertain the fair value of the available-for-sale investments stated in the consolidated statement of financial position as at 31 December 2012.
Any adjustments in connection with the available-for-sale investments would have a consequential effect on the net assets of the Group as at 31 December 2012 and 2011 and on the Group’s results and/or equity for the year ended 31 December 2012 and 2011 and the related disclosures in the consolidated financial statements.