The independent auditor of Rich Capital Holdings, Foo Kon Tan LLP, has flagged a more challenging assessment of the property company's ability to continue as a going concern, and also qualified its audit opinion.
The group incurred a net loss of $3.52 million for the financial year ended March 31, and was in a net liability position of $1.07 million at the end of that financial year.
Given expected cash outflows for the next 12 months, Rich Capital faces "a material uncertainty which may cast significant doubt on the ability of the group and the company to continue as a going concern", the auditor said.
Rich Capital is in the midst of acquiring property projects, Foo Kon Tan noted. However, "the operating cycle of a property development company, being the new business model of the group, is typically longer between the acquisition of assets for processing and their realisation into cash and cash equivalents, which makes our assessment of the group's and the company's ability to continue as a going concern more challenging", the auditor said.
Foo Kon Tan also qualified its audit opinion, citing difficulties in ascertaining the valuation of certain mining rights and the recoverability of an investment.
During the financial year, Rich Capital reclassified the mining rights for its Birthday Mine in Western Australia from "non-current asset held for sale" to "asset held for sale", because the former executive director solely in charge of marketing the mining rights had resigned and the sale of the rights was no longer probable, the auditors noted.
Rich Capital has fully impaired the mining rights for $1.78 million based on its value-in-use.
But the auditor said the value-in-use methodology is inappropriate because management does not intend to incur further costs in the exploration works for the mining rights and future cash flows will not be expected to be derived from the unit.
"In the absence of information from management on the fair value of the mining rights, we are not able to obtain sufficient appropriate audit evidence to ascertain whether the mining rights are measured appropriately," Foo Kon Tan stated.
The company also reclassified the cost of investment in the subsidiary that owns the mining rights to "asset held for use" from "non-current asset held for sale". The recoverable amount of that investment, however, is dependent on the value of the mining rights, the auditor said.