2016.08 G CHINA FIN

Company Name: Greater China Financial Holdings Limited
Stock Code: 00431
Year end: June 30, 2016

BASIS FOR DISCLAIMER ON CONCLUSION

(a)  De-consolidation of subsidiaries

As fully described in note 1 to the condensed consolidated financial statements, due to the managements appointed by the Group to Shanghai Xinsheng Pawnshop Limited (“Xinsheng”) and Shanghai Zhongyuan Pawnshop Limited (“Zhongyuan”) were replaced and were unable to exercise the right to manage the business of pawn broking and money lending in the PRC of Xinsheng and Zhongyuan under the Exclusive Consulting Service Agreements in July 2016, the Company had been unable to both i) access the complete sets of books and records together with the supporting documents and company chops of Xinsheng and Zhongyuan and ii) maintain and operate the business of Xinsheng and Zhongyuan. As such, the directors of the Company consider that the Company has lost its control over Xinsheng and Zhongyuan.

As a result, the directors considered it is appropriate to de-consolidate Xinsheng and Zhongyuan from the condensed consolidated financial statements of the Group as from 1 January 2016 even though the actual date for loss of control happened around July 2016 and the Company received Xinsheng and Zhongyuan’s management accounts every month up to June 2016, however, the Company was denied to access the books and records for review procedures and unable to control over the operations of Xinsheng and Zhongyuan. The net loss on de-consolidation of Xinsheng and Zhongyuan and impairment loss on the amounts due from the de-consolidated subsidiaries, based on the management accounts, were HK$323,208,000 and HK$94,203,000 respectively. As set out in note 23 to the condensed consolidated financial statements, the Group had de-consolidated the balance of liabilities included in de-consolidated subsidiaries as at 1 January 2016, which consisted of amounts due to the Group, borrowings, other payables and accruals and tax payables of HK$64,966,000, HK$195,170,000, HK$11,216,000 and HK$713,000 respectively.

In the opinion of the directors of the Company, the condensed consolidated financial statements at 30 June 2016 and for the six months ended prepared on the aforementioned basis present more fairly the results and state of affairs of the Group as a whole in light of the fact that they were denied access to the books and records of Xinsheng and Zhongyuan at the time of review. However, the de-consolidation of Xinsheng and Zhongyuan from the beginning of the year is a departure from the requirement of Hong Kong Financial Reporting Standard 10 “Consolidated Financial Statements”.

We have not been provided with sufficient information and explanations on the de-consolidation of Xinsheng and Zhongyuan and there were no alternative review procedures that we could perform to satisfy ourselves as to whether it was appropriate to de-consolidate the assets and liabilities with effect from 1 January 2016 and cease to recognise results of operations of Xinsheng and Zhongyuan from the condensed consolidated financial statements from the beginning of the financial year for the six months ended 30 June 2016. In addition, due to the unavailability of complete sets of books and records and the lack of information on the assets and liabilities of Xinsheng and Zhongyuan, we were unable to obtain sufficient appropriate evidences to determine whether the net loss on de-consolidation of subsidiaries and impairment loss on the amounts due from the de-consolidated subsidiaries of approximately HK$323,208,000 and HK$94,203,000 respectively, which were charged to the Group’s loss for the six months ended 30 June 2016, were free from material misstatement.

Due to insufficient information and explanation of Xinsheng and Zhongyuan, we were unable to complete our review procedure as to whether the de-consolidated liabilities should, to the extent unpaid, be recognised as liabilities of the Group.

(b)  Contingent liabilities and commitments

As disclosed in note 1 to the condensed consolidated financial statements, due to the lack of complete books and records of Xinsheng and Zhongyuan, we have been unable to obtain sufficient appropriate evidence and explanations as to whether the contingent liabilities and commitments committed by the Company were properly recorded and accounted for and in compliance with the requirements of applicable HKFRSs including HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”. There were no alternative procedures that we could perform to satisfy ourselves as to whether the contingent liabilities and commitments were free from material misstatements.

DISCLAIMER ON CONCLUSION

Because of the significance of the matters described in the Basis for Disclaimer on Conclusion paragraphs, we were unable to obtain sufficient appropriate evidence to form a conclusion on the interim financial information. Accordingly, we do not express a conclusion on the condensed consolidated financial statements.