SINGAPORE - Financially ailing China Hongcheng Holdings has responded to queries from the Singapore Exchange (SGX) over observations highlighted by its auditors such as incomplete accounting records held by the firm.
China Hongcheng said internal control weaknesses had mainly arisen from human errors and the complexity of product categories. Its management had in response been revieweing and updatinginternal control procedures and had also instructed internal auditors to further investigate areas of weakness.
The company has been suspended from trading on the SGX since Oct 1. In early September, the SGX advised the firm it would be delisted from the bourse and asked it to make an exit offer to shareholders.
China Hongcheng was placed on the SGX's watchlist of financially struggling companies in 2013.
In its latest statement, the firm added that a high turnover of staff owing losses in the light of the "weak" China textile industry had lead to incomplete accounting records.
"As most of the group's stock costing records maintained in the production departments are prepared manually, the high turnover of staff had led to errors and the loss of certain costing and other production records," it said.
This made it difficult for the group's finance team to account for group inventorise and cost of sales accurately and on a timely basis, China Hongcheng said.
"Due to the complexity and large variety and categories of products and semi-products and the lack of manpower resources ... the management was not able to reconstruct the costing and other production records and consequently the group was unable to the fulfil its financial year end reporting deadlines. "
The firm said that it would focus on automating and improving its cost recording system to address this issue.
The company also said that it would have sufficent cash resources to satisfy working capital requirements till June 2016, and to pay debts when they are due.
This was becaues it had maintained good relationships with the banks, and "as a usual practice", would arrange with the banks to reschedule the bank borrowings when they fall due.
"The management is therefore confident that the existing bank borrowings can berenewed as and when they fall due so that the operations of the Group will not be affected".
China Hongcheng also said it was confident it would be able to operate as a going concern because its profit margin had improved from Julythis year to the date of the annual report owing to a decrease in raw material costs.