2007.07 MAGICIAN IND

Company Name: Magician Industries (Holdings) Limited
Stock Code: 526
Year end: March 31, 2007

Basis for disclaimer of opinion

1) We were not able to form a view in the previous year on the appropriateness of the impairment loss of HK$3,515,000 and the reversal of impairment loss of HK$12,196,000 on property, plant and equipment and whether the property, plant and equipment of HK$210,489,000 were fairly stated at 31 March 2006. We had expressed a qualified opinion in our audit report accordingly and details of our qualification were fully explained in the 2006 annual report. Any adjustments to the opening carrying amount of the property, plant and equipment which we have previously qualified would have consequential effects on the results for the year ended 31 March 2007.

As stated in note 13 to the financial statements, in light of the continuing operating loss experienced by the Group, management has carried out an impairment review of its property, plant and equipment. However, we have not been able to obtain adequate supporting information from management in respect of its assessment on the value in use of property, plant and equipment with carrying amount of HK$211,155,000 as of 31 March 2007 and therefore unable to satisfy ourselves whether the recognition of the impairment loss of HK$4,569,000 and the reversal of impairment loss of HK$12,016,000 are appropriate. Consequently, we have been unable to satisfy ourselves whether the property, plant and equipment of HK$211,155,000 were fairly stated at the balance sheet date and whether the loss for the year ended 31 March 2007 was fairly stated.

2) We were not able to form a view in the previous year on the completeness and accuracy of the assets, liabilities, income and expenses, cash flows, commitments, contingent liabilities, related party transactions and other disclosures in the financial statements in connection with the Group’s sales division in the People’s Republic of China (“PRC”). We had expressed a qualified opinion in our audit report accordingly and details of our qualification were fully explained in the 2006 annual report.

The Group’s PRC sales division’s operation has substantially been curtailed since 2006 and therefore its transactions for the year under review were minimal. However, because of the high turnover of members of management and accounting personnel, the present management is unable to give an unqualified representation that all liabilities and contingent liabilities in relation to the PRC sales division as at the balance sheet date has been properly included and disclosed in the Group’s financial statements.

Accordingly, we have been unable to carry out audit procedures that we considered necessary to obtain adequate assurance regarding the completeness and accuracy of the liabilities and contingent liabilities in connection with the PRC sales division.

There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the matters set out in paragraphs (1) and (2) above. Any adjustments to the above figures may have a consequential significant effect on the Company’s interests in subsidiaries as recorded in the Company’s balance sheet, the Group’s loss for the year and the Group’s net assets as at 31 March 2007.

Fundamental uncertainty relating to the going concern basis

In forming our opinion, we have considered the adequacy of the disclosures made in note 2 to the financial statements which explains the measures that the directors are currently undertaking and intend to take to generate sufficient liquid funds to finance its operations and, accordingly, that it is appropriate to prepare the financial statements on a going concern basis.

As detailed in note 2 to the financial statements, the Group is dependent upon the continued support of its banks and shareholders. Provided that the measures as detailed in note 2 to the financial statements can accomplish successful outcome, the directors are satisfied that the Group will be able to finance its operations and to meet in full its financial obligations as they fall due in the foreseeable future. The financial statements have been prepared on a going concern basis, the validity of which depends upon the outcome of the measures. The financial statements do not include any adjustments that may result from the failure of these measures to accomplish successful outcome. However, if the outcome turns out to be adverse, it may have significant potential adverse effect on the financial position of the Group and may in turn affect the going concern basis of the preparation of the financial statements.

Qualified opinion: Disclaimer of opinion on view given by financial statements

Because of the significance of the possible effect of:

• the limitation in evidence available to us on the matters as set out in the basis for disclaimer of opinion section; and

• the fundamental uncertainty relating to the going concern basis,

we do not express an opinion on the financial statements as to whether they give a true and fair view of the state of the affairs of the Company and the Group as at 31 March 2007 and of the loss and cash flows of the Group for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in our opinion, the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

2007.06 HK PHARMA

Company Name: HONG KONG PHARMACEUTICAL HOLDINGS LIMITED
Stock Code: 182
Year end: March 31, 2007

Basis for disclaimer of opinion

The evidence available to the auditors was limited due to the following reasons:

i. The auditors were appointed on 16 April 2007 and accordingly they were unable to carry out auditing procedures necessary to obtain adequate assurance regarding the quantities and condition of inventories of HK$5,810,000 stated in the consolidated balance sheet as at 1 April 2006. There were no other satisfactory audit procedures that they could adopt to obtain sufficient evidence regarding the existence of inventories as at 1 April 2006.

ii. The auditors have not been provided with details of the estimated unprovided restructuring expenses as at 31 March 2006. Accordingly, they are unable to satisfy themselves that the provision for restructuring costs as at 1 April 2006 and the restructuring costs recorded for the year ended 31 March 2007 are free from material misstatement.

iii. A convertible bond was issued by the Company to a bank in April 2000 and such convertible bond was subsequently settled and discharged on 6 December 2006. This convertible bond was accounted for as borrowings in the consolidated and Company balance sheets as at 31 March 2006. This accounting treatment was not in accordance with HKAS 32 — Financial Instruments: Disclosure and Presentation and HKAS 39 — Financial Instruments: Recognition and Measurement as the equity and liability elements of the convertible bond were not separated and the liability element was not accounted for at amortised costs as at 31 March 2006. As a result, the interest expenses recorded for the years ended 31 March 2006 and 2007 were misstated. As the auditors have not been provided with the details of the convertible bond, they were not able to quantify the effect of this failure to comply with the relevant accounting standards on the current year’s income statement and accumulated losses as at 1 April 2006.

Since the opening inventories, restructuring expenses and interest expenses of the convertible bond enter into the determination of the results of operations, the auditors were unable to determine whether adjustments to opening balances of assets, liabilities and accumulated losses as at 1 April 2006 and the results of operations for the year ended 31 March 2007 might be necessary. The auditors’ report on the financial statements for the year ended 31 March 2007 was modified accordingly.

Disclaimer of opinion: disclaimer on view given by financial statements

Because of significance of the matters described in the basis for disclaimer of opinion paragraph, the auditors do not express an opinion on the financial statements as to whether they give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2007 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in their opinion the financial statements have been properly prepared in accordance withdisclosure requirements of the Hong Kong Companies Ordinance.

2012.12 CHINA AU GROUP

Company Name: China AU Group Holdings Limited
Stock Code: 08176
Year end: June 30, 2012

BASIS FOR DISCLAIMER OF OPINION

(1) Opening balances and corresponding figures

Our audit opinion on the consolidated financial statements of the Group for the year ended 30 June 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 limitation on the scope of our audit and the material uncertainty in relation to going concern, details of which are set out in our independent auditors’ report dated 8 June 2012. Accordingly, we were 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 and of the Company as at 30 June 2011 and of the Group’s results and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards.

(2) Scope limitation – Investments in unconsolidated subsidiaries

As further explained in Note 2 to the consolidated financial statements, the Directors of the Company are unable to obtain complete books and records of Blu Spa (Hong Kong) Limited (the “BSHK”) and its subsidiaries (the “BSHK Group”), Clapton Holdings Limited, Blu Spa International Limited and Blu Spa Management Services Limited (collectively referred to as the “Unconsolidated Subsidiaries”). Due to the lack of completed books and records of the Unconsolidated Subsidiaries, the financial statements of the Unconsolidated Subsidiaries have not been consolidated into the Group’s consolidated financial statements for the year ended 30 June 2012.

The resulting gain on de-consolidation of the Unconsolidated Subsidiaries of approximately HK$155,547,000 have been recognised in the consolidated statement of comprehensive income of the Group for the year ended 30 June 2012.

Whilst the Directors of the Company consider that the exclusion of the Unconsolidated Subsidiaries is the best way of presenting the Group’s financial position, results and cash flows as at and for the year ended 30 June 2012 under these circumstances, the exclusion of the financial position, results and cash flows of these Unconsolidated Subsidiaries in the consolidated financial statements is a departure from the requirements of Hong Kong Accounting Standard 27 (Revised) “Consolidated and Separate Financial Statements” (“HKAS 27”).

Due to the lack of completed books and records of the Unconsolidated Subsidiaries, we have not been able to obtain sufficient appropriate audit evidence and explanations to determine whether the carrying values of the investment in the Unconsolidated Subsidiaries and the resulting gain on de-consolidation of the Unconsolidated Subsidiaries were fairly stated. Any adjustment that might have been found to be necessary would have a consequential significant effect on the net assets of the Group as at 30 June 2012 and the loss and cash flows of the Group for the year ended 30 June 2012.

(3) Scope of limitation – Balances with the Unconsolidated Subsidiaries

As further explained in note 2 to the consolidated financial statements, the Group recorded amounts due from and amounts due to the Unconsolidated Subsidiaries of approximately HK$288,303,000 and HK$6,246,000 respectively as at 30 June 2012. The Company also recorded amounts due from the Unconsolidated Subsidiaries of approximately HK$285,268,000 as at 30 June 2012 (collectively referred as to the “Balances with the Unconsolidated Subsidiaries”). The directors of the Company are of the view that the carrying values of certain amounts due from the Unconsolidated Subsidiaries to the Group and the Company are not recoverable and recognised impairment losses of approximately HK$240,593,000 and HK$74,291,000 for the year ended 30 June 2012 respectively.

Due to the lack of completed books and records of the Unconsolidated Subsidiaries, we have not been able to obtain sufficient appropriate audit evidence to determine whether the Balances with the Unconsolidated Subsidiaries and the impairment losses recognised on the amounts due from the Unconsolidated Subsidiaries to the Group and the Company are fairly stated. Any adjustment that might have been found to be necessary would have a consequential significant effect on the net assets of the Group and the Company as at 30 June 2012 and the loss of the Group for the year ended 30 June 2012.

(4) Material Uncertainty relating to the Investigation

As disclosed in note 2 to the consolidated financial statements, the Company made an announcement on 18 July 2012 in respect of the appointment of an independent professional firm to conduct a forensic investigation to address (i) all the issues raised by the predecessor auditors in their resignation letter dated 7 March 2012; and (ii) all the issues raised in the our independent auditors’ report dated 8 June 2012 on the 2011 Financial Statements (the “Investigation”). Up to the date of this report, the board of directors of the Company is still in the midst of considering the findings of the Investigation. Accordingly, there were no practical audit procedures that we could perform to ascertain the completeness, validity and accuracy of the transactions asserted to have been undertaken by the Unconsolidated Subsidiaries. Any adjustments or disclosures that might have been found to be necessary would have a consequential significant effect on the accounting treatment adopted by the Group in respect of those transactions, the opening balances and prior period corresponding amounts and the related disclosures thereof in the Group’s consolidated financial statements.

(5) Material uncertainties relating to the going concern basis

As disclosed in Note 2 to the consolidated financial statements, the Group incurred a loss attributable to the owners of the Company of approximately HK$100,389,000 for the year ended 30 June 2012, which indicates the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

The consolidated financial statements have been prepared on a going concern basis, the validity of the going concern assumption on which the consolidated financial statements are prepared is dependent on the favorable outcomes of (i) the repayment of the amounts due from the Unconsolidated Subsidiaries of approximately HK$47,710,000; and (ii) the extension of repayment of loan facility of approximately HK$19,586,000 granted by a company owned by an executive director (the “Proposed Plans”).

The consolidated financial statements do not include any adjustments that would result from a failure to attain favourable results of the Proposed Plans.

Should the going concern assumption be inappropriate, adjustments may have to be made to reflect the situation that assets may need to be realised at other than 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 as current assets. We consider that appropriate disclosures have been made in the consolidated financial statements. However, in view of the extent of the uncertainty relating to the outcome of the Proposed Plans, we disclaim our opinion in respect of the material uncertainty relating to the going concern.

 

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 as to whether they give a true and fair view of the state of affairs of the Company and of the Group at 30 June 2012 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.