In a clarification announcement on Jan 22, the group elaborated that the errors that resulted in excess inventory and profits within the system include:
- Full system build production orders were incorrectly closed during the transfer of the production order to the Group’s Penang facility;
- Production orders within the ERP system for orders that were partially produced prior to transfer to the Group’s Penang facility were incorrectly closed without quantities being modified to reflect the actual number of modules and sub-assemblies produced;
- Data entry errors that resulted in incorrect amounts recorded for goods received
The company anticipates that the shortfall will negatively impact the group’s profitability for the year ending Dec 31, 2023.
See more: AEM discovers inventory shortfall, will hurt FY2023
At this point, the group is in the process of investigating and addressing the weaknesses in the processes, controls, and systems that attributed to the excess inventory issue. It is working with its internal and independent external auditors and consultants to finalise year-end adjustments, as well as reviewing and revising processes and controls, and expects to be able to clearly delineate changes to systems and processes to prevent a recurrence of the inventory issue when it reports its full-year results for the year ended Dec 31, 2023 by no later than Feb 28.
“The board and the management take the shortfall in inventory issue very seriously. A full independent review is being launched to ensure that robust controls, processes, and systems are in place, and staff are appropriately trained,” says AEM Holdings.
See also: Cosmosteel’s CEO Ong resigns after 3HA Capital offer declared unconditional
Following the above announcement, SIAS has followed up with the following questions:
1. Can management provide further details on the reasons for the internal stock-taking exercise outside of the audit by the external auditors?
a. For example, was it a routine exercise or were there any whistle-blowing reports, negative findings from the internal audit or did the group face challenges in fulfilling customers' orders?
b. When was the board and management first informed of the shortfall?
2. What was the level of involvement/oversight provided by the audit committee after the discovery of the shortfall in inventories?
a. Can the board/management confirm that there are no other discrepancies in the group's financial statements and financial position?
b. How did the company conclude that this was due to human error?
3. Can management also provide shareholders with greater clarity on how the shortfall in inventories may affect the group's operations, such as its order fulfilment schedule or the onboarding of new customers?
4. Can the company clarify if the unaudited condensed interim financial statements for the six months ended June 31, 2023, published on Aug 11, 2023, can be relied upon by shareholders?
5. When does the audit committee expect to complete the review of the group's inventory and stock monitoring and tracking processes and systems?
a. When was the last time the internal audit assessed the risk management controls and procedures pertaining to inventories?
b. What proactive steps are being taken to prevent the recurrence of similar situations in the future?
6. Does the audit committee intend to carry out a comprehensive review of the adequacy of the group's internal controls?
7. For the benefit of all shareholders, please clearly state the potential financial impact on the group's P&L for the full year ending Dec 31, 2023.
8. How does the overstatement/shortfall in inventories affect the remuneration (including cash bonuses, stock options etc) of senior executives?
a. Can the board elaborate on the measures and protocol in place to enforce accountability within the group?
