Yfg Berhad Audit

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- Business risk – PN17

On 22nd September 2015, the Company has announced that it is an affected listed issuer in accordance with the Practice Note 17 (‘PN17’) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (‘Bursa Securities’). An emphasis of matters has disclosed in the annual report and the ability of subsidiaries to continue as a going concern is expressed by the auditor. YFG is asked to submit a regularisation plan in 12 months’ time to Bursa Securities regardless the plan will result in a huge change or not and an approval from Bursa Securities is needed to execute the plan.

PN17 is issued by Bursa Malaysia and normally PN17 companies are facing financial difficulties. One of the reason why a listed company is categorized as a PN17 company is the shareholders’ fund is equal or less than 25% of the total issued and paid up capital of the listed company. In accordance with the reason stated, YFG fall into PN17 following by the decrease of less than 50% of the shareholders’ equity at 30th June 2014. On 23rd September 2015, after YFG has been categorised as a PN17 company, YFG’s share fall for about 41% or 2.5 cent. Besides, on 24th September 2015, YFG gain a significant loss and the price is reduced for 14.29% or 0.5 cent to 3 cent. There are 10.67 million shares changed hands during that time.

There is no issuance of shares during the financial period. As at 30th September 2015, the Group had a deficit in its shareholder’s equity of RM21,156,315 before deducting the non-controlling interests. As per annual report, the total equity of 30th June 2014 is RM24,791,543 and it has decreased to –RM21,280,034 on 30th September 2015 for RM46,071,577.

The issue of PN17 will lead YFG the business risk that make YFG to have a lower anticipated profits or have a loss instead of getting profit. In my opinion, further investigation on equity area need to be perform as the total equity stated in the annual report is a negative amount.

- Liquidity risk - increase in finance cost

Finance cost is the cost that involved in the borrowing of money to build or purchase assets. For the year 2014, the finance cost is RM 162 000 was increased to RM 1,113000 in the year 2015 which is equal to 85%.. The finance costs of YFG Berhad are consists of bank overdraft, trust receipts and bankers’ acceptance, finance lease liabilities and term loan. The finance cost is a liquidity risk. This is because the amount was increased drastically compared to previous year which reduces the profit of the company.

Liquidity risk is a risk when the company or bank unable to meet the demand of the short term financial. This usually occurs when a company is unable to convert a security or asset into cash without a loss of capital or income. Compared to year 2014, the bank overdraft, finance lease liabilities and the term loan was increased in the year 2015. The bank draft increased from RM 148,002 to RM 347,667 in the year 2015. The finance lease liabilities increased from RM 22,497 to RM 40,534 and the term loan increased dramatically from RM 1,482 to RM 513,619 in the year 2015.

Bank overdraft and term loan was increased during the period. The main reason will be the subsidiaries will not able to pay back the money to the company and also the loan was classified as a short term loan. When a loan classified as a short term liability, their maturity period will be less than one year which enable their subsidiaries to pay back the amount within the given time. Dramatically increase of finance cost was reducing the amount of the net profit in the year 2015. So, the auditors need to focus on the finance costs because the amount can be material to the company.

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- Credit Risk

Basically, the credit risk of the Group is arise from the trade receivables whereas the credit risk of the Company is arise from the advances to subsidiaries.

The Group apply the policy of dealing with the creditworthy counterparties only. The management will implement it by deposit with financial institutions and licensed bank with good credit rating, and dealing with creditworthy parties. This policy is specially set for financial assets which can easily convert into cash. The decrease of financial assets shows that the Group’s ability to meet its short term obligation has been decrease too.

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30.9.2015

30.6.2014

Financial Asset

RM

RM

Other Receivables

3,002,505

2,811,829

Amount due from subsidiaries

5,916,980

17,859,670

Cash & cash balances

124,770

134,612

9,044,255

20,806,111

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The company provides unsecured advances and interest-free and repayable on demand to the subsidiaries and there is no indication that any subsidiary would default on repayment as at the end of the reporting period. The impairment losses of amount due from subsidiaries have increase 15846% from RM 97,274 in year 2014 to RM 15,511,487 in year 2015. The factors and calculation of the increasing of impairment loss should be consider to make sure that no fraud or error is occurred.

- Interest Rate Risk

The fixed rate deposits of the Company and the Group that placed with licensed banks and borrowings are exposed to a risk of change in the fair value because of the change in interest rates. Thus, they will try to put their deposit in a high interest rates’ plan so that they can get more return for the deposits.

While the variable rate loans of the Group and the Company are exposed to a risk of change in the cash flows because of the change in interest rates. To minimize the interest expense, the Group will try to get the loans at an appropriate interest rates in the market.

The fair value sensitivity analysis for fixed rate instruments shows that all the financial assets and financial