2017.10 CHAMPION TECH

Company Name: CHAMPION TECHNOLOGY HOLDINGS LIMITED
Stock Code: 00092
Year end: June 30, 2017

Basis for Disclaimer of Opinion

(a) Limitation of scope – impairment of available-for-sale investments

As disclosed in note 17 to the consolidated financial statements, as at 30 June 2017, the Group had available-for-sale investments (“AFS Investments”) whose cost and accumulated impairment losses brought forward from prior year amounted to HK$518,480,000 and HK$100,184,000, respectively. The AFS Investments related to investments in unlisted equity securities issued by private entities incorporated outside Hong Kong (the “AFS Investees”) representing holding of strategic investments in the information technology and telecommunications industries. Consistent to prior years, they were measured at cost less any accumulated impairment losses at the end of the reporting period because the range of reasonable fair value estimates was so significant that the directors of the Company were of the opinion that their fair values could not be measured reliably.

As at 30 June 2017, the management of the Group determined that there existed objective evidence that an impairment loss had been incurred on the AFS Investments, after taking into account the significant decline in carrying amounts of net assets of the AFS Investees based on the unaudited financial information of the investees currently available to the management of the Group. Further, the Group did not receive any dividend income from the AFS Investees during the year ended 30 June 2017. In assessing the recoverability of the AFS Investments, the management of the Group tried to establish direct communications with the management of the AFS Investees to understand their latest developments and obtain further and updated financial information of the AFS Investees. However, as at date of this report, the management of the Group represented to us that they have not been able to obtain from the AFS Investees — 16 — the necessary financial and other information nor been able to establish contacts with the management of the AFS Investees. Having considered the general downturn in their respective markets, the management of the Group believed that the AFS Investments should be fully impaired. Accordingly, the Group recognised an additional impairment loss of HK$418,296,000 for the year ended 30 June 2017.

During the course of our audit, we sought to perform alternative audit procedures to satisfy ourselves that the AFS Investments were fully impaired as at 30 June 2017. However the scope of our alternative audit procedures was limited to a set of unaudited financial information for each of the AFS Investees which showed significant write-offs of assets. In particular, as at the date of this report, we have received no response from the AFS Investees to our requests for (i) direct confirmation from the management of the respective AFS Investees that the unaudited financial information provided by the management of the Group to us were consistent to their book and records; and (ii) interviews with the management of the respective AFS Investees.

As a result of the limitations in the scope of our work as explained in the foregoing paragraphs, we were unable to obtain sufficient appropriate audit evidence regarding the impairment assessment of the AFS Investments by the management of the Group. Accordingly, we were unable to satisfy ourselves that the impairment loss of HK$418,296,000 recognised as an expense during the year ended 30 June 2017 and the Nil carrying amount of the AFS Investments as at 30 June 2017 were free from material misstatements. Any adjustments that might have been found to be necessary in respect of these account balances would have a significant effect on the Group’s financial position as at 30 June 2017 and the Group’s financial performance for the year then ended, and the related disclosures thereof in the consolidated financial statements.

(b) Limitation of scope — impairment of inventories resulting from downgradings and reclassifications of cultural products

Included in the Group’s inventories as at 30 June 2017 were cultural products whose cost amounted to HK$8,511,305,000. These cultural products were purchases made by the Group in the second half of the preceding financial year by the former management of the Group in the ordinary course of business for its principal activity of trading of cultural products. Consistent to the impairment review performed as at the end of the preceding financial year, cultural product and jewellery experts (the “Current Experts”) were engaged by the management of the Group to perform an inspection, on a test basis, on the inventories of the cultural products. As a result of the inspection, the Current Experts advised the management of the Group that downgradings and reclassifications were required to be made on a number of the inventory items of cultural products. The findings of the Current Experts were inconsistent with the results of the grading and classification review carried out by the former management of the Group on the cultural products as at 30 June 2016 which had been confirmed by another team of cultural product and jewellery experts (the “Former Experts”) who had performed an onsite inspection, on a test basis, on the inventories of cultural products as at 30 June 2016. As a result of the inconsistencies in the grading and classification of cultural products as at 30 — 17 — June 2017 and 2016, the current management of the Group resolved to arrange another team of cultural product and jewellery experts to conduct a full inspection of the cultural products regarding their grading and classification as soon as practical (the “Full Inspection”). As at the date of this report, the management of the Group is still in the process of identifying and arranging suitable team of experts to conduct the Full Inspection. For the purpose of preparing the current year’s consolidated financial statements, the management of the Group had reassessed the current market values of the inventories as at 30 June 2017 based on the findings of the Current Experts concerning the grading and classification of the cultural products. As a result of the assessment, the management of the Group had determined that the net realisable values of a number of the inventory items of cultural products were lower than their costs and that the shortfalls amounted to an aggregate amount of HK$4,275,921,000. Accordingly, the Group recognised an impairment loss of HK$4,275,921,000 for the year ended 30 June 2017.

Because of the inconsistencies in the written findings of the Former Experts and the Current Experts concerning the grading and classification of cultural products and the unavailability of sufficient appropriate audit evidence available to us as at the date of this report to ascertain the assessment of the net realisable values of the cultural products made by the current management of the Group, we were unable to satisfy ourselves that the impairment loss of HK$4,275,921,000 recognised as an expense during the year ended 30 June 2017 and carrying amount of the cultural products of HK$4,235,385,000 as at 30 June 2017 were free from material misstatements. Any adjustments that might have been found to be necessary in respect of the above would have a significant effect on the Group’s financial position as at 30 June 2017 and the Group’s financial performance for the year then ended, and the related disclosures thereof in the consolidated financial statements.

As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of available-for-sale investments and inventories, and the other elements making up the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows.

Disclaimer of Opinion

We do not express an opinion on the consolidated financial statements of the Group. Because of the significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated financial statements. In all other respects, in our opinion the consolidated financial statements have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.