Another Big 4 firm quits as auditor of listed company

Pharmaniaga fell under the PN17 classification early last year after incurring its largest quarterly loss of RM664 million in Q4 FY2022.

PETALING JAYA: 

PricewaterhouseCoopers PLT (PwC) has resigned as the external auditor of pharmaceutical group Pharmaniaga Bhd after serving in the role for the past 19 years.

This is the third instance of a member of the Big 4 global accounting firms quitting as auditor of a Bursa Malaysia-listed company in the last few weeks.

On Sept 4, KPMG served a notice to semiconductor assembly and test firm Globetronics Technology Bhd that it was resigning voluntarily as its external auditor.

Just days later on Sept 9, KPMG tendered its resignation as external auditor of Kedah state-owned construction and property development group Bina Darulaman Bhd.

In a bourse filing yesterday, Pharmaniaga said it had received a notice dated Sept 20 from PwC of its voluntary resignation.

The board noted that PwC has served as the external auditor for the company for the past 19 years, and agrees that the resignation and the subsequent appointment of new external auditors would allow a fresh perspective for the board and the company,

 it said.

Pharmaniaga also said the board had approved the appointment of Ernst & Young as its auditor for the financial year ending Dec 31, 2024 (FY2024).

Shares unmoved by PwC resignation

The news of PwC’s resignation had little impact on Pharmaniaga’s share price. At the mid-day break, it was down half-a-sen or 1.3% at 38 sen per share, valuing the group at RM548 million.

This is in contrast with Globetronics which tumbled almost 33% the day after it announced KPMG had quit as its auditor. In the case of Bina Darulaman, its shares dropped 6% on the news.

Pharmaniaga, a Practice Note 17 (PN17) company, is seeing an improvement in its financials and hopes this will help in exiting the dreaded classification for financially distressed companies.

The group fell under PN17 early last year after incurring its largest quarterly loss of RM664.39 million in the fourth quarter ended Dec 31, 2022 with a RM552.3 million impairment related to unsold Covid-19 vaccines.

For the first half ended June 30, 2024, its net profit rose more than five times to RM28.44 million from RM4.61 million a year earlier largely due to cost optimisation measures. Its first half revenue saw a 4.3% rise to RM1.8 billion from RM1.73 billion a year ago.

Significance of an auditor’s resignation

The resignation of external auditors from a listed entity is usually seen as a red flag in the eyes of investors, stakeholders, and regulators.

Former Minority Shareholders Watch Group CEO and Bursa chief regulatory officer Devanesan Evanson said such an event is often considered a 

bad omen

 due to its potential implications for financial health, corporate governance, and overall transparency.

This perception can negatively impact the share price and lead to a loss of market confidence. The resignation of external auditors might be viewed negatively, and it has potential impacts on the share price,

 said Devanesan in his article 

When the external auditor resigns

 published in the Business Times recently.

He said external auditors are independent professionals hired to review a company’s financial statements, ensuring they accurately reflect the company’s financial health and comply with accounting standards.

When auditors resign, especially without a clear and benign reason, it can be interpreted as a red flag indicating deeper issues within the company.

He noted that very often, such resignations are due to reasons such as disagreement over the audit fees, the lack of resources on the part of the auditor, a shift in company policy regarding external auditors, and so on.

He pointed out that when external auditors resign, especially under contentious circumstances, it often attracts the attention of regulators such as the Securities Commission (SC), the Audit Oversight Board, and Bursa.

The potential for regulatory action or legal consequences creates uncertainty, which the market generally dislikes,

 he added. - FMT