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Bursa Malaysia Securities Berhad (Bursa Malaysia Securities) has publicly reprimanded Inch Kenneth Kajang Rubber PLC (INCKEN) and its directors for breaching the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, three directors of INCKEN were fined a total of RM75,000.
INCKEN was publicly reprimanded for failing to ensure that the Company’s announcement dated 25 February 2011 on its fourth quarterly report for the financial year ended (FYE) 31 December 2010 (4th QR 2010) took into account the adjustment as stated in the announcement dated 29 April 2011 resulting in a significant deviation between the companies’ unaudited and audited results.
The failure to take into account the adjustment was in contravention of paragraph 9.16(1)(a) of the Main LR where a listed company must ensure that each announcement is factual, clear, unambiguous, accurate, succinct and contains sufficient information to enable investors to make informed investment decisions.
INCKEN is also required to carry out a limited review of its quarterly report submissions. The limited review must be performed by external auditors for four quarterly reports commencing from the quarterly report for the financial period ended 30 September 2013. In addition, INCKEN must ensure all its directors and relevant personnel attend a training programme on compliance with the Main LR pertaining to financial statements. INCKEN is also required to review and assess the adequacy and effectiveness of its financial reporting function.
The following directors of INCKEN at the material time were found to have breached paragraph 16.13(b) of the Main LR for permitting knowingly, or where they had reasonable means of obtaining such knowledge, INCKEN to commit the above breach. The penalties imposed are as follows:
| No | Director | Penalty |
|---|---|---|
| 1. | Dato’ Adnan bin Maaruf Executive Chairman Audit Committee Member |
Public Reprimand and fine of RM25,000 |
| 2. | Dato’ Haji Muda bin Mohamed Independent Non-Executive Director Audit Committee Member |
Public Reprimand and RM25,000 |
| 3. | Datuk Kamaruddin bin Awang Independent Non-Executive Director Audit Committee Chairman |
Public Reprimand and fine of RM25,000 |
| 4. | Tan Sri Dato’ Bentara Istana Nik Hashim bin Nik Abdul. Rahman Independent Non-Executive Director |
Public Reprimand |
| 5. | Dr. Radzuan bin A. Rahman Independent Non-Executive Director |
Public Reprimand |
The finding of breach and imposition of the above penalties on INCKEN and its directors were made pursuant to paragraph 16.19 of the Main LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including factors giving rise to and materiality of the deviation, the impact of the breach and in relation to the directors, their respective roles and responsibilities in the company, particularly pertaining to financial management, preparation and review of financial statements and their conduct.
Bursa Malaysia Securities views the contravention seriously as listed companies are required to submit financial statements that are factual, clear, unambiguous, accurate, succinct and contains sufficient information to enable investors to make informed investment decisions.
BACKGROUND
(I) PUBLIC REPRIMAND ON INCKEN
On 25 February 2011, INCKEN reported an unaudited profit after tax and minority interest of RM169,000 in its 4th QR 2010. However, on 28 April 2011, INCKEN announced an audited loss after tax and minority interest of RM4,918,000 in its annual audited accounts for the FYE 31 December 2010. The difference of RM5,087,000 between INCKEN’s unaudited and audited results for the FYE 31 December 2010 represented a variance of 3010%.
The variance of RM5,087,000 was mainly due to the provision for impairment in value of the Company’s associate. Prior to the issuance of the 4th QR 2010, the Company had performed a valuation/assessment on the fair value of the investment in the associate where the valuation was lower than the net book value. However, the Company did not provide for any impairment at all on the investment in the 4th QR 2010.
The impairment made subsequently in the audited results was without any reasonable explanation on the change of circumstances from the issuance of the 4th QR 2010 to the audited results.
(II) PUBLIC REPRIMAND AND A TOTAL FINE OF RM75,000 IMPOSED ON THREE DIRECTORS
The directors had failed to discharge their duties to undertake reasonable assessment and enquiries in approving INCKEN’s 4th QR 2010 to ensure the 4th QR 2010 provided for the impairment particularly in the light of the following:
- Prior to the issuance of the 4th QR 2010, the directors were aware / informed of the audit issues raised by the external auditors in the audit plan on the poor performance of the associate, the risk that the carrying value of the associate was not supported by underlying value of the associate and that the external auditors would be reviewing whether the value of the associate was fairly stated; and
- In approving the 4th QR 2010, the directors were informed of the lower share of profit of the associate, that based on the valuation of the investment in the associate by the management, the value of the investment was lower than the cost and management’s view that no provision was required as the investment was for long term. The directors had accepted and relied on the management’s view without further enquiry on the management’s valuation and view including the reasonableness of the view vis a vis compliance with the accounting standard. The reliance placed on the management was unreasonable in the light of the facts and circumstances.
The penalties were imposed against the directors were after taking into account their respective knowledge, roles and responsibilities and in respect of the audit committee members, their function to review financial statements, focusing on compliance with the accounting standards under the Main LR.
