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.