Mlabs System external auditor PKF expresses qualified opinion in AFS


In a filing with Bursa Malaysia on Tuesday, the qualified opinion was about Mlabs’ subsidiary which had invested in Coinful Capital Fund.

KUALA LUMPUR: MLABS Systems Bhd’s external auditors, Messrs. PKF has expressed qualified opinion in the company's audited financial statements for the financial year ended June 30, 2021.

In a filing with Bursa Malaysia on Tuesday, the qualified opinion was about Mlabs’ subsidiary which had invested in Coinful Capital Fund.

PKF said the fund participated in the non-voting, redeemable shares issued by DGC Fund, a segregated portfolio of Coinful Capital Fund, which is known as Coinful Growth Fund I (CGFI).

The CGFI is unquoted with the objective to seek capital appreciation with investments in digital assets and derivatives with underlying digital assets a reference rate or index, utilising options, futures, swaps and other derivative instruments as well as digital assets’ “decentralised finance” products.

PKF said the investment was accounted for as unquoted financial assets at fair value through profit and loss, with the carrying amount as at the financial year ended June 30, 2021 amounted to RM1.71mil.

CGFI is managed by Lazarus Securities Pty Ltd and administered by Bolder Fund Services (Singapore) Pte. Ltd.

“As at the financial year end, the fair value of the investment is determined based on the net asset value of the Fund according to the policies stated in the agreement.

“However, we are unable to assess the information in determining the fair value of the investment as well as the subsidiary’s participating shares in the CGFI. Owing to the nature of the investment and records, we were unable to satisfy ourselves by any other audit procedures,” it said.

Meanwhile, PKF also said during the financial year, Mlabreported realised gain on investment amounted to RM757,543.

However, the director has originally recorded this transaction as RM73.4mil and RM72.6mil of revenue and cost of sales respectively, arising from the trading of unwrought gold, as a new business activity of the subsidiary.

PKF also said under MFRS 15 “Revenue from Contract with Customers”, revenue will be recognised at a point in time when the company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.

PKF also pointed out that based on the offtake and underwriting agreement on Dec 30, 2020 states the subsidiary shall underwrite the purchase and sales of unwrought gold through a company.

Hence this company is responsible to procure and to sell unwrought gold at a specific target price provided by the subsidiary, therefore it does not create a contract of sale of unwrought or refined gold.

PKF pointed the the subsidiary has taken a role as an investor hedging against the fluctuation of gold price.

“These does not constitute a performance that creates or enhances an asset that the customer controls as the asset is created or enhanced, thereby rendering the accounting policy selected by the subsidiary inappropriate.

“Upon discussion with the directors, they have concurred with the treatment of the transaction, and reconstructed the financial statements of the subsidiary as at the financial year 2021 to reflect the appropriate transaction as an investment in financial assets through profit and loss.

“As at the financial year end, the investment has been realised as gain on investment in the statement of profit or loss,” it said. “In view of the complexity of the arrangement, we have considered this to be an area of audit focus.”

Meanwhile, PKF also the gross carrying amount of the amount due from subsidiaries amounted to RM85.07mil as at the end of the financial year.

“The group carries significant amount due from subsidiaries, which are subject to a high credit risk exposure.

“Due to the significance judgement and estimation in determining the probability of default when assessing the recoverable amount of debts due from subsidiaries, we consider this to be an area of audit focus,” PKF added.

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