Nexgram’s consultant fee raises eyebrows

PETALING JAYA (Sept 14): Nexgram Holdings Bhd has incurred a consultant fee of RM46.9 million for the financial year ended April 30, 2015 (FY15), the digitalEDGE Daily reported today.

Not only was the lump sum, which is equivalent to one-third of the company’s market capitalisation, questioned, the accounting treatment of the amount in Nexgram’s books raised eyebrows.

Nexgram’s chief executive officer, Datuk Tey Por Yee, however, commented that the amount was a small sum and the company will incur even higher consultant fees for two projects in Cyberjaya and Dengkil.

“For projects that have [a] GDV of RM1.44 billion, RM46.97 million is not much. In fact, I think this (consultancy-nature expenses) is not enough for the entire projects,” he said, adding that the groundworks for the projects have already begun.

When asked about the accounting treatment that was different from the industry’s norm, Tey reiterated that every payment made by Nexgram was in accordance with a schedule agreed by the projects’ off-taker, MyAngkasa Bina Sdn Bhd, and the relevant banks involved in financing the projects.

Meanwhile, Nexgram’s audited annual account for FY15 shows that its inventories stood at RM89.84 million, of which RM46.9 million was categorised as consultancy-nature expenses.

The digitalEdge DAILY reported that booking consultant fees under inventories is not a common practice in the property development segment.

An industry player pointed out that Nexgram’s accounting practice of booking development expenditure under inventories was “unusual” and seemed to be relatively higher than normal.

A few public listed property developers also revealed that consultant fees incurred prior to the completion of projects would be parked under “work in progress” accounts, which would be categorised as “development expenditure”.

“Companies will only shift the development cost to inventories when the [property] project is completed... that is the point of recognition,” said Jerry Lau Hing Kiet, a former senior general manager at the property development division of Gabungan AQRS Bhd.

An officer at the Malaysian Institute of Accountants (MIA), who wished to remain anonymous, said that according to the Malaysian Financial Reporting Standards, consultant fees should not be placed under inventories.

“Unless the company can justify that the development activities have commenced, and that it can be demonstrated that the development activities can be completed within a normal operating cycle, which is usually in one financial year, these costs should remain under non-current assets,” the MIA personnel said.

Meanwhile, the group’s auditor CHI-LLTC partner Tang Boon Hiap, who was in charge of Nexgram’s FY15 account, declined to explain the nature of the transaction and insisted that he is not answerable for not flagging the questionable booking.

Prior to CHI-LLTC, SJ Grant Thornton was Nexgram’s external auditor. SJ Grant Thornton resigned as the company’s auditor after a revised audit fee of RM500,000 (from RM200,000) was not approved by the board.

The consultancy-nature expenses paid by Nexgram represented 5.18% of the collective estimated construction cost of RM906 million for both of the proposed property development projects.

In December last year, Nexgram’s subsidiaries entered into an off-take agreement cum sale and purchase agreement with MyAngkasa, where the latter would buy the company’s two development projects in Cyberjaya.

MyAngkasa is a subsidiary of Angkatan Koperasi Kebangsaan Malaysia Bhd.