Serba Dinamik – Auditors and Reporting Irregularities (Part 2)

In our previous article on this case, we discussed the legal issues which were raised in the proceedings. The High Court Judge, Dato’ Ahmad Fairuz bin Zainol Abidin J delivered judgment on 2 main issues: 

1. Whether Ernst & Young Consulting Sdn Bhd’s (“EYC”) appointment as Special Auditor was valid; and 
2. Whether there was any misrepresentation by EYC to Serba Dinamik, that they were auditors within the definition of the MMLR and respective laws. 

Issue 1: Whether EYC’s appointment as Special Auditor was Valid

The High Court found that the issue of whether EYC was a ‘special auditor’ had already been decided in a different suit (WA-24NCC-535-11/2021 “OS 535”) between Bursa Malaysia Securities and Serba Dinamik. As such, the Court applied the principle of res judicata and held that Serba Dinamik was not allowed to raise the same issue once again. 

The High Court also found that while it was not in dispute that EYC was not registered with the Audit Oversight Board (“AOB”), the evidence showed that steps were taken by EYC to bring a registered auditor into the team, namely a partner of Ernst & Young PLT (“EY PLT”). EY PLT itself is registered with the AOB. 

The High Court further held that Section 263 of the Companies Act 2016 refers to the individual and thus requires the individual auditor to have authorisation and not the firm. As such, as long as the auditor appointed had been approved, there was no requirement that the firm, which merely housed the auditors, must be approved as well.  

Accordingly, the High Court found EYC’s appointment was regular under paragraph 2.24 of the MMLR and the report it produced would remain valid. 

Issue 2: Whether there was any Misrepresentation by EYC to Serba Dinamik that they were auditors within the definition of the MMLR and respective laws

The High Court found that EYC had not misrepresented themselves to Serba Dinamik as being auditors consistent with the requirements under the MMLR, when they were not. The Court found that the disputed paragraph in the Letter of Engagement merely set out the facts surrounding EYC’s engagement by Serba Dinamik. For reference, the disputed paragraph of the Letter of Engagement states:  

“We refer to the appointment of Ernst & Young Consulting Sdn Bhd (formerly known as Ernst & Young Advisory Services Sdn Bhd) (“we” or “EY Consulting”) pursuant to Paragraphs 2.23 and 2.24 of the Main Market Listing Requirements of Bursa Securities (“BLR”) to undertake a Special Independent Review (“SIR“) on the matters set out in the attached Statement of Work (“SOW”).” 

Accordingly, the High Court found that Serba Dinamik’s allegation of misrepresentation was devoid of merit and an afterthought, having been raised almost 5 months after the first engagement between Serba Dinamik and EYC.