CmaBoardReleases
Title: Announcement regarding issuance of Disciplinary Board Resolution No. (25/2022 Disciplinary Board) (218/2021 Authority) and the imposition of a fine against: Adel Mohammad Al- Sanea HLB Kuwaiti Accountant Auditing Office (HLB) as the Auditor for National Shooting Company for violating the Rules of Securities Activities and Registered Persons.
Announcement regarding issuance of Disciplinary Board Resolution No. (25/2022 Disciplinary Board) (218/2021 Authority) and the imposition of a fine against: Adel Mohammad Al- Sanea HLB Kuwaiti Accountant Auditing Office (HLB) as the Auditor for National Shooting Company for violating the Rules of Securities Activities and Registered Persons.
For violating the following:
• The documents and forms that were provided to the Authority regarding the procedures for reviewing the financial statements of the National Shooting Company for the financial period ending on 31 March, 2021, does not necessarily mean that he actually performed those procedures, as the amount of procedures specified in these forms such as client acceptance procedures and review planning procedures , risk assessment procedures, and other review procedures are very difficult in practice to complete and review within only one or two days. In addition, there are many errors that have been detected in these forms and documents.
• The incompetence of the review team (its subsidiary) to perform the review work, as it was noted that it relied on a person outside the review team, to discuss and clarify the review work on the data of the National Shooting Company for the field inspection team of the Authority, in addition to the many contradictions in the statements of this person with the approved financial statements of the Company, and the forms and documents that have been provided to the Authority.
• There was severe negligence when performing the review procedures on the financial statements of the National Shooting Company, and his failure to adhere to quality control standards within international auditing standards.
The matter constitutes a suspected violation of the provision of Article (3-4-5) of Module Five (Securities Activities and Registered Persons) of the Executive Bylaws of Law No. 7 of 2010 and their amendments, based on the observations and violations detected, as in the following:
1- No evidence or documentation was obtained that the review team (its subsidiary) held any meetings or discussions with:
• Representatives from the National Shooting Company (the client) regarding review work on the financial statements.
• The Internal Audit Committee before presenting the reviewed interim financial statements.
• The former auditor, as one of the audit procedures for the financial statements for the first time.
• Between the review team members and the partner (Mr. Adel Al-Sanea).
2- Many of the items were relied on the previous auditor’s report, without the inspection team finding out the procedures he had taken to verify the validity of the previous auditor’s conclusions, and when inquiring about the extent to which he communicated with the former auditor in this regard, the Authority was provided with different statements as follows:
• It was conveyed through e-mail that he did not communicate with the previous auditor, and that he should communicate with him during the later periods.
• It was conveyed that he communicated with the previous auditor without receiving a response from him.
• The Authority was provided with a letter sent to the previous auditor, but the letter sent is not dated, and therefore it cannot be taken into account.
3- It was noted that most of the forms that were provided to the Authority were not signed by the persons concerned with preparing or reviewing them.
4- When reviewing the planning work form, the following was noted:
• Within item No. (8) of the document, it was mentioned that all planning work will take place within one day only on 24/06/2021, which coincides with the date of the general assembly of the client (National Shooting Company) and appointing an auditor, as it is not practical to carry out all planning work within only one day, knowing that these works mainly include “risk assessment”, obtaining information about the client “Client Acceptance”, obtaining information about the legal obligations of the client, performing preliminary analytical procedures, understanding internal control, assessing control risk, and developing the overall review plan.
• Within Clause No. (8) of the document, it was mentioned that the field work was executed during the period from 25/06/2021 to 26/06/2021, which coincides with Friday and Saturday, i.e. the weekend, It is an impractical period to carry out the review work, for the following reasons:
-The short period of time is two days only.
-The duration of the work falls on a period of weekly leave, during which it is difficult to find the Company’s representatives concerned with governance and available to answer the auditor’s inquiries regarding the financial statements subject of the review work.
- That the client (National Shooting Company) is a Company listed on the Kuwait Securities Exchange.
-The client owns a variety of assets, the most important of which are real estate under development, investment properties, investments in securities, storage, and publicity.
- The review process on the client is done for the first time, without prior coordination with the previous auditor, as explained above.
• Within Clause No. (10) the name..... was mentioned as the Review Partner, then within Clause No. (11) the name of "Mohammed Al-Sanea" was mentioned as the Review Partner, taking into consideration the absence of any signature of the review team members.
5- Within the Client Acceptance Questionnaire, the following is noted:
• Within question No. (10), the reasons for changing the auditor were not mentioned.
• Within question No. (16), the question was answered with “no” to the question of the existence of material violations on the client by the regulatory authorities, and the extent of negative press reports on the client, despite the huge amount of news, reports and press releases issued by the regulatory authorities. (Ministry of Commerce - Capital Markets Authority) regarding the events that occurred during the general assembly of the client.
• Within question No. (18), the question was answered with “no” to the extent to which the Company’s continuity depends on future plans that may include restructuring the Company, as the Company suffers from many financial problems, especially since the auditor indicated in his report about exceeding the Company’s traded liabilities as compared to its current assets which amounted to about 22.7 million Kuwaiti Dinars, and that the Company needs support from its shareholders for its continuity.
• Within question No. (20), the question was answered “no” to the extent to which conservative reports were issued to the client, despite the previous auditor’s recording of several material reservations in the previous financial statements.
• Within question No. (40) and (41), the questions related to the review team's entitlement were answered with "yes", where the inspection team found that the person answering the team's inquiries was not a member of the review team. Which indicates that the review team is not qualified to respond and clarify the observations related to the review work on the client. Furthermore, this may raise doubts about the competence and capability of the review team.
• Within the 'Conclusion' clause, this basic clause is not completed about the final conclusion on the client’s acceptance.
6- Within the client acceptance form dated 10/06/2021, false information was noted, as follows:
• The name of the client's Chairman of the Board of Directors (National Shooting Company) is mentioned as ............, although in fact it is .......
• On page No. (6) of the document, the risk assessment was identified as "Greater Than Normal", and then at the conclusion of the document, the risk assessment was identified as "Normal".
7- When reviewing the form for calculating Materiality, the following was noted:
• There is no date on the document.
• There are errors in the date of the financial period for which the document is prepared.
8- When reviewing the Risk Assessment form, the following was noted:
• The Authority was provided with two identical copies of the same form, with different names of persons preparing and reviewing in each form, as one of the copies contained the name of the prepared person "Walid & Samah", and the reviewer was "Ahmed", and in another copy, the name of the person who prepared is 'walid', and the reviewing person is 'Hanfi'.
• The form was approved by a person named “Hanfi” under the name of Engagement Partner, while this person was not named among the persons involved in the review work in the Client Service Plan document, in addition the main partner “Engagement Partner" is Mr....... .
9- It was noted that many of the forms that were provided to the Authority include general information and procedures, and it is not possible to verify whether they have already been implemented within the review work on the financial statements of the client (National Shooting Company).
10. The Authority was not provided with the names of the owners of ……. Company, despite the transactions that have a material financial impact that this Company has carried out with the client (National Shooting Company). Especially since those who authorized …… Company to deal with the National Shooting Company are employees of the National Shooting Company or their first-degree relatives, which he had to disclose and perform their work as required.
11. It was noted that the statements submitted to the field inspection team by its representative contain contradictions with the approved financial statements for the period of March 31, 2021, and with the forms that were provided to the Authority regarding the review work on the data of the National Shooting Company.
The Resolution included the infliction of the following penalty: -
“Mr. Adel Mohammad Al- Sanea HLB Kuwaiti Accountant Auditing Office (HLB) as the Auditor for National Shooting Company is fined an amount of five thousand Dinars for the attributed violation.”
In this regard, the CMA emphasizes the implementation of CMA Law and its Executive Bylaws on all persons dealing in securities activities, and urges them to comply with these rules in order to promote investors' confidence, create a sound investment environment, and implement the Law according to the principles of fairness, transparency, and integrity in line with the best international practice.