1.

0 Nature of entities

1.1 Background of the company

Batu Kawan Berhad is a holding company for investments including plantation

segment, Manufacturing segment, Property development segment and Investment

holding/Others segment. The plantation segment is involved in the palm and rubber product

cultivation and processing, palm product refining, palm kernel crushing, and palm product

trading. Manufacturing segment is attached with oleochemicals, nonionic surfactants and

esters, rubber gloves, parquet flooring goods, pharmaceuticals, bulk liquid storage and

distribution and chemicals and transportation services. Development for both residential and

commercial properties is included in Property Development. Investment holding is attached

in the investment in listed and unlisted firms, investment in unit trust funds, fixed income

trust funds, and placement of deposits with licensed banks, leasing out office space and

parking lots, farming, management services, and lending money.

1.2 Organization chart

Tan Sri Dato' Seri Lee Oi Hian

(Non-independent Non-Executive Chairman)

Dato' Lee Hau Hian Dato' Yeoh Eng Khoon

(Managing Director) (Senior Independent Non-Executive
Director)

Tan Sri Dr. Tunku

Mr. Quah Alina Binti Mr. Lee Yuan Mr. Lim Ban
Rastam Bin Zhang
Chek Tin Raja Muhd Aik
Mohd Isa
(Independent Alias (Non- (Independent
(Independent Independent
Non- (Independent Non Executive
Non- Non-Executive
Executive Non-Executive Director)
Executive Director)
Director) Director)
Director)

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2.0 Data Analysis

2.1 Ratio Analysis

Type of Ratio 2021 2020

Current Ratio 1.5437:1 3.1279:1
Ratio of 1.54:1 means that for Ratio of 3.13:1 means that for
every Ringgit of current every Ringgit of current
liabilities, quality has RM1.54 of liabilities, quality has RM3.13 of
current assets. Its means that for current assets. Its means that for
every Ringgit Malaysia of every Ringgit Malaysia of
current debt, Batu Kawan had current debt, Batu Kawan had
RM 1.54 available to pay for the RM 3.13 available to pay for the
debt at the time this snapshot was debt at the time this snapshot was
taken. taken.
Quick Ratio 0.9799:1 1.9249:1
A company with a ratio of 1:1 is A company with a ratio of 1:1 is
considered to have sufficient considered to have sufficient
liquidity. However, in 2021, Batu liquidity. However, in 2020, Batu
Kawan’s quick ratio was 0.98:1. Kawan’s quick ratio was 1.93:1.
This mean for every RM1 of This mean for every RM1 of
current liabilities, the company current liabilities, the company
had RM0.98 current assets as had RM1.93 current assets as
collateral. Since the quick ratio is collateral. Since the quick ratio is
almost to one this means that almost to one this means that
Batu Kawan is able to pay its Batu Kawan is able to pay its
short-term obligations with its short-term obligations with its
most liquid assets. most liquid assets.
Debt Ratio 0.4994:1 0.4349:1
Ratio of 0.50:1 means that 50% Ratio of 0.43:1 means that 43%
of Batu Kawan’s assets are of Batu Kawan’s assets are
financed using debt. Therefore, financed using debt. Therefore,
since the ratio is below 1, this since the ratio is below 1, this
means that Batu Kawan has more means that Batu Kawan has more
assets than debt and had a greater assets than debt and had a greater

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 portion of assets is funded by portion of assets is funded by
equity. equity.
Profit Magin 0.1226:1 = 12.26% 0.0569:1 = 5.69%
Ratio of 0.12: 1 means that for Ratio of 0.05: 1 means that for
every Ringgit Malaysia of net every Ringgit Malaysia of net
sales, would equate 12.26% of sales, would equate 5.69% of net
net income. Its means that for income. Its means that for every
every Ringgit Malaysia of net Ringgit Malaysia of net sales,
sales, Batu Kawan will earn RM Batu Kawan will earn RM 0.05
0.12 of net income. of net income.
Earnings per share 2.8961 1.0527
EPS indicates the company’s EPS indicates the company’s
profitability by showing how profitability by showing how
much money a business makes much money a business makes
for each share of its stock. So, for each share of its stock. So,
ratio of 2.90 means that Batu ratio of 1.05 means that Batu
Kawan will make a profit of Kawan will make a profit of
RM2.90 per share of its stock. RM1.05 per share of its stock.

2.2 Horizontal Analysis

Based on the Comparative Statement of financial position for the year 2020 and 2021,

there is a significant event in the intangible asset which is a dramatically increase of 481.91%

from RM22,324,000 to RM129,906,000. Besides that, deferred tax liabilities also had shown

a sharp rise from RM470,666,000 to RM1,016,689,000 which is 116.01%. While the least

differences between both years are 5.20% increase of cash and cash equivalents which is

from RM3,239,756,000 to RM3,408,179,000 from the part of asset and also 2.13% increase

of deferred income from RM8,419,000 in 2020 to RM8,598,000 in 2021. There are no

differences in the share capital account between both years which is a norm. It is because

share capital is only increase or decrease when there is a big incident happen in the company

such as combination, merge or discontinue of the company.

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2.3 Vertical Analysis

As shown in the Comparative Statement of Financial Position for the year of 2020 and

2019, the total non-current assets are occupying the big portion of the total value of the

company for both years which is a slightly differences of 60.24% in 2020 and 64.45% in

2021. In addition, the total current liabilities are the least portion of the total value of the

company which is only 12.71% in 2020 and 23.03% in 2021, but there is a significant

increase of the portion which is 10.32% between these two years because the current

liabilities had increased from RM2,839,273,000 to RM6,878,431,000.

3.0 Risk Assessment Analysis

Based on ACCA Global (n.d.), misstatements may be caused by fraud or error and it

are deemed significant because they are likely to influence consumer’s’ economic judgments

based on these financial statements, either directly or individually.

According to the analysis, the total assets show an increasing flow which is

RM22,334,826,000 at 2020 increase 33.73% to RM29,869,067,000 at 2021. The increase will

show a higher return to asset rate which means that Batu Kawan is more efficient and

productive at managing its balance sheet to generate profits. This efficiency will help the

company to attract more investors to fund its operations and grow its business.

Besides, the percentage of liabilities had increased due to the significant raise for

borrowing in current liabilities of 159.96% from RM1,310,848,000 at 2020 to

RM3,407,619,000 at 2021. This shows that the company is a risky client that might have a

high risk of negative affairs such as risk of bankruptcy if the liabilities keep rising for the

following year. However, due to the increase of total asset, RM7,534,241,000 is higher than

the increase of total liability, RM5,204,129 have made Batu Kawan Berhad to be going

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concern and will be considered has low engagement risk that can be audited without taking

risk of financial loss.

Furthermore, the intangible assets in the horizontal analysis also shows an increasing

flow which is from RM22,324,000 in 2020 to RM129,906,000 in 2021 with a difference of

RM107,582,000, 481,91%. As we know, auditing intangible asset has different challenges

because intangible assets do not require physical verification but on the other hand, they have

a level of assurance and complicated calculations, especially goodwill. Therefore, due to the

complication for verifying and calculating intangible asset, there might be a risk of material

misstatement or a chance that the company will try to overstate their intangible asset for

enhancing value of business like creating more customer value. Increase consumer perception

and reputation of the company.

In addition, based on the ratio analysis, the earning per share of Batu Kawan had

shown a significant increase from 1.0527 in 2020 to 2.8961 in 2021. This significant increase

might because of the company had overstated and wants to increase the profit of the year due

to have a higher rate of earnings per share. A higher earnings per share indicates greater value

because investors will be willing to pay more for the company’s shares if they think the

company has a higher profit relative to its share price.

Lastly, according to the ratio analysis, the current ratio shows a significant decrease

which is from 3.1279 to 1.5427. A decrease in current ratio indicates that the company might

increase in short-term debt, a decrease in current assets, or reduced ability to generate cash.

So, from this decrease flow, there might have a risk of material misstatement since it will

involve the cash balance which have a greater materiality and inherent risk than other account

balance. Besides, the decrease in current ratio and quick ratio shows that the company have

difficult time paying their immediate debts and liabilities and also unable to pay its short-term

obligations with its most liquid assets. So, based on this situation, the company is indicating

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as a risky client whether can be in going concern or not, therefore the auditor should have

high engagement risk with more rigorous audit work to avoid loss of reputation and financial

loss.

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Appendix
Horizontal

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Vertical

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Ratio Analysis

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