cont'd - KNM Steel Sdn Bhd

136KNM GROUP BERHAD I Annual Report 2012Independent Auditors’ Reportto the members of KNM Group BerhadReport on the Financial StatementsWe have audited the financial statements of KNM Group Berhad, which comprise the statements of financial positionas at 31 December 2012 of the Group and of the Company, and the statements of comprehensive income, changesin equity and cash flows of the Group and of the Company for the year then ended, and a summary of significantaccounting policies and other explanatory information, as set out on pages 43 to 133.Directors’ Responsibility for the Financial StatementsThe Directors of the Company are responsible for the preparation of these financial statements so as to give atrue and fair view in accordance with Malaysian Financial Reporting Standards, International Financial ReportingStandards and the requirements of Companies Act, 1965 in Malaysia. The Directors are also responsible for suchinternal control as the Directors determine is necessary to enable the preparation of financial statements that arefree from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our auditin accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on our judgement, including the assessment of risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, weconsider internal control relevant to the entity’s preparation of financial statements that give a true and fair view inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by the Directors, as well asevaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.OpinionIn our opinion, the financial statements give a true and fair view of the financial position of the Group and of theCompany as at 31 December 2012, and of their financial performance and cash flows for the year then ended inaccordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and therequirements of Companies Act, 1965 in Malaysia.Emphasis of mattersWithout qualifying our opinion, we draw attention to the following:-i) As disclosed in Note 1(b) to the financial statements, the current liabilities of the Group exceeded their currentassets by RM360,912,000 as at 31 December 2012.As disclosed in Note 16.6 to the financial statements, the Company and certain subsidiaries fell short of theprescribed financial covenant ratios as required by certain lending institutions. The Company and certainsubsidiaries had obtained the requisite indulgence/waiver from the affected lending institutions subsequent toyear end.In view of the matter set out in the preceding paragraphs, the appropriateness of preparing the financialstatements on the going concern basis is dependent on the Group and the Company addressing the financialcovenant ratios, achieving future profitable operations and the continuing financial support of shareholders,bankers and creditors. Accordingly, the financial statements of the Group and the Company do not includeany adjustments as to the recoverability of recorded asset amounts, additional amounts of liabilities and theclassification of assets and liabilities from non-current to current should the going concern basis of preparationof financial statements be inappropriate;