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    CGN   SG1DG3000004

BEST WORLD INTERNATIONAL LIMITED

(CGN)
  Report
End-of-day quote. End-of-day quote Singapore Stock Exchange - 05/09
1.36 SGD   -16.05%
11/11Update On Future Plans Of The Company
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11/11Best World International Limited Reports Earnings Results for the Third Quarter and Nine Months Ended September 30, 2021
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11/09Proposed Change Of Auditor
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Replace - Annual General Meeting :: Voluntary

09/30/2021 | 09:02am EST

BEST WORLD INTERNATIONAL LTD

(Company Registration: 199006030Z)

Incorporated in the Republic of Singapore

Annual General Meeting 2020

Questions & Answers

No.

Questions from Shareholders

Replies

Financials

1

Why does Ernst & Young took so long to audit the

The Company's auditors Ernst & Young LLP ("EY") commenced the

company's financial statement?

FY2020 audit only after the finalisation of the FY2019 audit in February

2021. Also, as disclosed in the announcement dated 25 August 2021,

EY took more time to finalise their audit of the Group's financial

statements for FY2020 as a result of outstanding audit matters, which

included the tax review process for the purposes of the Group's FY2020

audit. Such tax review for the Group's audit typically commences only

after the audit field work has been substantially completed, which was

delayed due to late completion of the China audit field work.

2

(i) One of the reasons that Auditor issued disclaimer of

(i) As disclosed in Note 2.1 (b) of our FY2020 annual reportand Note

opinion is that they were unable to verify the 3rd parties

2.3 of the Unaudited Condensed Interim Financial Statementsfor the

commission payments. Please share how Best World is

half year ended 30 June 2021, in our franchise business in China, the

resolving these issues? Can the Board elaborate on how

sales representatives are not BW employees and instead work for the

they are going to address this?

franchisees, who have in turn entrusted BW Changsha and BWL China

to oversee the payment of commissions to their sales representatives

through third-party promotion companies which are in line with the

company's Customer Relationship Management (CRM) system. In

consideration of the third-party promotion companies making

commission payments to the sales representatives of the franchisees,

withholding and paying the personal income tax of the sales

representatives and assisting with recruitment of sales representatives,

the service fees paid/payable to the third-party promotion companies

were recorded as marketing fees as part of distribution costs. The third-

party promotion companies did not comply with our auditor's request for

information on the exact breakdown of the service fees paid/payable to

them and the actual percentage of fees retained by them respectively,

due to their asserted confidentiality obligations owed to the Chinese tax

authorities. Nonetheless, we understand that the service fees were

based on contractual agreements at a rate which is in line with the fees

charged by other payment companies that have provided quotes to our

management in China. The Board and management have assessed that

the classification of the service fees as marketing fees will not impact the

net profit and loss of the Group.

  1. Were the Ernst & Young's disclaimer of opinion submitted to SGX?
  2. Will the financial report for FY2021 still be a disclaimer of opinion if the issues highlighted by auditors are not able to be resolved by the management? What is the reason for the issues which are not able to be resolved?
  3. Can the Independent Directors explain what happened to the corporate governance? Is there any proper and independent due diligence done in the new business model? External Auditors found the same issues in FY2019 and FY2020 accounts, did the Board/Management take proper mitigation measures to put things right? Were these dealt with in the Audit Committee? What did the Audit Committee/Independent Directors find after issues in 2019 repeats in 2020?
  1. The disclaimer opinionhad been disclosed to shareholders and SGX via SGXNet on 15 September 2021 and SGX is aware of the matters disclosed in the disclaimer opinion.
  2. We are unable to comment on the FY2021 audit opinion as the FY2021 audit has yet to commence.
  3. Throughout the years, on top of overseeing the sustained performance by the company, the Independent Directors / Audit Committee have consistently put in tremendous efforts to engage and deliberate with management and our advisers to address these issues.

To-date, the franchise business model has been reviewed by two separate legal firms, namely Merits and Tree (Beijing) Law Office ("M&T") and Dentons Beijing Office who collectively highlighted the key points below.

  • Direct selling risk and risk of violation to be remote.
  • With the clear distinction between the Group's franchise product focused model and Chuan Xiao's typical "investors" recruitment focus, risks of the franchise model violating anti-Chuan Xiao laws and regulations is remote.
  • Based on a review of a contract between BWL China and a third party promotion company, BWL China and a consulting service provider, and BW Changsha and a franchisee, Merits and Tree (Shanghai) Law Office concluded that the tax risk of the expenses paid by BW Changsha or BWL China under the reviewed contracts being classified as commissions (as defined in the Notice of the Ministry of Finance and the State Administration of Taxation on Policies Regarding the Pre- tax

Deduction of Handling Fees and Commissions Incurred by Enterprises (No. 29 [2009] of Caishui) for taxation purposes is relatively low.

  • Work done by the law firms also point to no record of penalties by BW Changsha or BWL China in the past two years.
  • Statute of limitation supports the legal opinion that these risks are remote

The Audit Committee obtained assurance from management that the sole objective of the business activities under the franchise model is the sale of products in China and the Group's business does not profit from recruiting persons and remunerating recruiters based on the number of persons recruited or requiring recruiters to pay to participate and distribute the Group's products. In addition, out of an abundance of caution, management decided to accrue the risk of penalties due to possible association with Chuan Xiao (despite the legal opinions to the contrary) to mitigate any possible financial impact in the future (no matter how remote).

The Audit Committee also noted the changes to the business model over the period with the advice from lawyers to ensure the business model is legal, transparent and compliant with the requirements of China laws and regulations, such as working with State Owned vendors to ensure compliance. The Board also approved a recommendation by the Nominating Committee to further strengthen corporate governance which is being implemented.

With respect to the issue regarding the relationship with the Group's former import agents and marketing agent, the Audit Committee commissioned BDO to develop a test to determine whether any Best World personnel were involved in the management of any other entities which were not within the Group as part of the agreed-upon audit procedures engagement.

  1. The Chinese Government, I think rightly, want better transparency, higher adherence to good corporate governance. If all are above board, why don't BWL be more pro-active to simplify? If there were/are technical breaches, especially on legal & tax issues, then be pro-active to rectify.
  2. Are the accounts window dressed? Any detection of fraud?

Based on BDO's work done, there were no significant exceptions noted. The Audit Committee was satisfied with the work done by BDO.

  1. The Company believes in adhering to good corporate governance practices and plans to engage PRC lawyers to address further areas for improvement for our China business.
  2. The issue the auditors had with the fees related to classification in the profit and loss statement. In accordance with the requirements of SFRS(I) 15 Revenue from Contracts with Customers, certain component of the service fees paid to promotion companies engaged by BW Changsha and BWL China should be recorded as net against revenue instead of operating expenses. Overall, management and the Board are of the view that this carries no impact on the net profit in the profit and loss statement.

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Best World International Limited published this content on 30 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 September 2021 13:01:03 UTC.


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Financials
Sales 2020 549 M 402 M 402 M
Net income 2020 135 M 99,0 M 99,0 M
Net cash 2020 337 M 247 M 247 M
P/E ratio 2020 5,47x
Yield 2020 -
Capitalization 740 M 543 M 542 M
EV / Sales 2019 1,30x
EV / Sales 2020 0,74x
Nbr of Employees -
Free-Float 43,8%
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Managers and Directors
Beng Mui Hoan Co-Chairman, Group Chief Executive Officer & MD
Nee Moi Tan Co-Chairman & President
Sugiharto Husin Senior Group Manager-Information Systems
Ban Chin Huang Chief Operating Officer & Executive Director
Sen Choon Lee Lead Independent Non-Executive Director
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