The starkly contrasting views of Serba Dinamik Holdings Bhd and stock exchange regulator Bursa Malaysia on disclosures related to a special independent review (SIR) of the former’s accounts for financial year 2020 (FY2020) point to more uncertainties ahead for the company.

Ernst & Young Consulting (E&Y) was appointed on July 2 to undertake the SIR on four contentious areas in Serba’s accounts. The appointment came about after the company’s former external auditor KPMG raised a red flag in May.

The scope of the SIR was determined by the company and reviewed and approved by Bursa. However, the recent spate of announcements by Serba suggest that the disclosures related to the SIR can only be decided by the company and not the regulator.

On the other hand, Bursa wants Serba to disclose some details of a briefing that the company’s three independent directors received in relation to the SIR. The regulator contends that the factual findings update (FFU) on the SIR, about which E&Y notified the independent directors on Oct 22, is material information and should be disclosed to shareholders.

But the company feels otherwise. It contends that E&Y did not give any documents to the independent directors that fit the description of the FFU. Moreover, it said that under the terms of engagement with E&Y, no work products, abstracts or summary are to be distributed to any party, including the regulator, before and after the status update.

An interesting point to note is that Serba contends that the E&Y report, which is still in the midst of being completed, does not fall under the ambit of the disclosure rules of Bursa’s Listing Requirements.

Meanwhile, the regulator has issued statements insisting that the FFU related to the SIR is material and needs to be disclosed comprehensively to the market in a timely manner. Pursuant to Serba’s stance on the matter, Bursa has suspended the trading of the company’s stock and warrants until further notice.

The suspension is also being disputed by the company.

The showdown between Bursa and Serba gives rise to several outcomes that may crop up in the run-up to the company completing its statutory accounts for FY2020. In the meantime, without completion of its statutory accounts, Serba’s bondholders and shareholders are in an almost hopeless position.

In August, international rating agency S&P Global Rating cut Serba’s rating to CCC, which means banks cannot invest in its debt papers. The rating agency also pointed out that the company’s ability to refinance its debts of RM1.7 billion will depend on the completion of the SIR and the statutory accounts for FY2020.

Serba’s accounts for 2020 are long overdue. Before the whole fiasco on the accounts broke out in May, the company’s audited accounts for the financial year ended Dec 31, 2020, should have been completed by April this year and the annual report issued by late May or early June.

On May 7, Serba extended its financial year by six months to June 30, 2021, pushing back all the deadlines for it to report the accounts. Two weeks later, KPMG red-flagged its accounts.

On July 2, E&Y was appointed to undertake a SIR to determine the veracity of the accounts in the four areas highlighted by KPMG. In August, Serba appointed Nexia SSY PLT to take over from KPMG, which resigned after Serba took legal action against it.

Now, Serba’s books that have been audited by KPMG until May this year have been handed to Nexia, while E&Y is looking into the contentious issues raised by KPMG.

The irony is that three accounting firms have had or are still looking into Serba’s books and there is no certainty as to when the accounts will be ready.

The exchange has given the company until the end of next month to issue the annual report and audited accounts.

Would anybody dare bet that the accounts will be out by the deadline? It is rather uncertain given the disagreements between the regulator and the company on even matters such as the disclosure of information related to the SIR.

Generally, listed companies, especially those with large market capitalisations, rarely delay the reporting of their audited accounts. The external auditor — usually one of the top six — keeps regular tabs on the accounts and would present them to the audit committee well before the deadline.

If there are issues, the management would engage with the auditing firm to see how the matter can be resolved. A confrontation is something that the management and the accounting firm would want to avoid at any cost. And rarely do discussions end in disagreements.

In a nutshell, Serba’s accounts would have been a subject of intense discussion by both management and KPMG until May. In addition, E&Y has had a look at the contentious issues for four months since its appointment on July 2. But the accounts are still not ready. Four months is a long time and more than sufficient for a special audit on selected areas.

What is causing the delay? Also, without E&Y completing the SIR, Nexia cannot complete the accounts for FY2020.

The developments at Serba are unprecedented in Corporate Malaysia. This is the first time that a special audit has been commissioned to verify matters raised by one of the big four accounting firms. It is the first time that the regulator has stepped in to review the scope of the special audit.

And it is the first time that a large listed company has a differing view to the authority of Bursa on what is deemed as “material information” that is relevant to shareholders and investors.

The bottom line is that the finality to Serba’s 2020 accounts is still nowhere in sight, which would not be comforting to its shareholders, bond investors and banks.

M Shanmugam is a contributing editor at The Edge