2016.10 DAISHOMICROLINE

Company Name: Daisho Microline Holdings Limited
Stock Code: 00567
Year end: March 31, 2015

Basis for qualified opinion

Prepayment to a sewage treatment company

Included in the Group’s “Other receivables, deposits and prepayments” as at 31 March 2014 was a prepayment of HK$9,849,000 to a sewage treatment company. As explained in note 19(a)(i)* to the consolidated financial statements, an impairment loss on the carrying amount of the prepayment of HK$7,424,000 was recognised during the year ended 31 March 2015 as the directors considered the chance to recover the prepayment was low.

The sewage treatment company had been suffering from financial difficulties since July 2013 but we have not obtained sufficient appropriate audit evidence to substantiate the financial ability of the sewage treatment company as at 31 March 2014. In addition, since the financial and operating status of the guarantor of the sewage treatment company and the value of the assets being frozen as at 31 March 2014 had not been evaluated properly, we were unable to verify the financial ability of the guarantor of the sewage treatment company as at 31 March 2014. We were unable to obtain sufficient appropriate audit evidence to evaluate the recoverability of the prepayment of HK$9,849,000 as at 31 March 2014. Therefore, we were unable to determine whether any adjustments to the impairment loss recognised during the year ended 31 March 2015 in respect of the prepayment were necessary, which may have a significant impact on the financial performance and the elements making up the consolidated statement of cash flows of the Group for the year ended 31 March 2015.

Loan receivable

Included in the Group’s “Other receivables, deposits and prepayments” as at 31 March 2014 was a loan receivable of HK$2,522,000. As explained in note 19(a)(ii)# to the consolidated financial statements, an impairment loss on the unsettled loan receivable of HK$2,499,000 was recognised during the year ended 31 March 2015 as the directors considered the chance to recover the loan receivable was low.

* As reproduced in note 7(i) to this announcement.

# As reproduced in note 7(ii) to this announcement.

We have not obtained sufficient appropriate audit evidence to verify the financial ability of the borrower as at 31 March 2014 and we were unable to obtain sufficient documentation to evaluate the recoverability of the loan receivable of HK$2,522,000 as at 31 March 2014. Therefore, we were unable to determine whether any adjustments to the impairment loss recognised during the year ended 31 March 2015 in respect of the loan receivable were necessary, which may have a significant impact on the financial performance and the elements making up the consolidated statement of cash flows of the Group for the year ended 31 March 2015.

Impairment of available-for-sale financial assets

As at 31 March 2014, the Group had available-for-sale financial assets carried at cost with carrying amount of HK$19,281,000, which were an unlisted equity investment in a Japanese company. An impairment loss on this unlisted equity investment of HK$10,000,000 had been recognised during the year ended 31 March 2015.

There was objective evidence of impairment as a result of the deteriorated economic environment of electronic component industry in Japan since an earthquake in 2011. However, we were unable to obtain sufficient appropriate audit evidence to assess the present value of estimated future cash flows discounted at the then current market rate of return for a similar financial asset at the dates when the objective evidence existed. There were no alternative audit procedures that we could perform to verify the carrying amount of the available-for-sale financial assets as at those dates and 31 March 2014. Therefore, we were unable to determine whether any adjustments to the impairment loss recognised during the year ended 31 March 2015 in respect of the available-for-sale financial assets were necessary, which may have a significant impact on the financial performance and the elements making up the consolidated statement of cash flows of the Group for the year ended 31 March 2015.

Qualified opinion

In our opinion, except for the possible effects of the matters described in the basis for qualified opinion paragraphs, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 March 2015, and of its financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Other matter

The consolidated financial statements of the Group for the year ended 31 March 2014 were audited by the predecessor auditor who expressed a qualified opinion on those statements on 27 June 2014.