Meridian falls under PN17 as auditor refrains from expressing opinion on financial statements

• The auditor said the disclaimer of opinion was issued as the firm had not been able to obtain sufficient appropriate audit evidence in respect of the estimates and assumptions made in the cash flow projections prepared by Meridian's management, assuming the group will continue as a going concern.

KUALA LUMPUR (April 9): Meridian Bhd was classified as a Practice Note 17 (PN17) affected listed issuer on Monday after the property developer's external auditor expressed a disclaimer of opinion in its audited financial statements for the period ended Sept 30, 2023.

A disclaimer of opinion simply means that an auditor does not express an opinion. It is one of the four conclusions — the other three being unqualified, qualified, and adverse opinions — by audit firms in expressing whether a set of financial statements provides a true and fair view of a company’s financials.

In its audit report submitted to Bursa Malaysia by Meridian, auditor Jamal, Amin & Partners said the disclaimer of opinion was issued as the firm had not been able to obtain sufficient appropriate audit evidence in respect of the estimates and assumptions made in the cash flow projections prepared by Meridian's management, assuming the group will continue as a going concern.

This includes the group incurring net losses totaling RM108.24 million for the past three financial years and a situation where the group's current liabilities exceed its current assets, the auditor said.

Additionally, the group's cash reserves are low for both entities, with the group's bank overdraft exceeding its credit limit, and a significant portion of the group's inventory is encumbered by a private caveat, complicating its disposal.

Also, outstanding tax payments and penalties have resulted in legal actions by tax authorities against the group, noted the auditor.

"The above events and conditions indicate the existence of material uncertainties which cast significant doubt on the ability of the group and the company to continue as going concerns," said Jamal, Amin & Partners.

The auditor also said that Meridian's properties with a total carrying amount of RM50.43 million, or 28% of the group's total assets, are still registered under a former subsidiary company that has been disposed of previously, but the titles have not been transferred to the group.

The former subsidiary company, responsible for transferring the property titles, was wound up by the High Court and is presently under receivership, raising uncertainties regarding the financial impact on the group, the firm noted.

"Accordingly, we are unable to determine whether potential adjustments are necessary, if any, and unable to confirm the veracity of the related information that may require disclosure in the financial statements of the group," the auditor said.

It also stated its inability to confirm the amount and existence of a RM2.97 million term loan and was unsuccessful in obtaining any other audit evidence regarding its accuracy and existence.

Meridian, well known for completing several properties, including The Summit Subang USJ, The Summit Bukit Mertajam, and The Arc @ Cyberjaya, finally submitted its 2023 annual report last week to avoid its shares and warrant being suspended from trading after missing the March 31 deadline to submit its annual audited financial statements contained in its annual report.

In the company’s most recent quarter — the three-month period ended Nov 30, 2023 — it posted a net loss of RM1.22 million as its revenue of RM321,000 was dwarfed by cost of sales of RM602,000, administrative expenses of RM739,000 and finance cost of RM242,000.

For the 17-month financial year ended Nov 30, 2023, Meridian posted a net loss of RM16.41 million on revenue of RM3.8 million.

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