THE Securities Investors Association (Singapore), or Sias, is pressing AEM Holdings for more details on an inventory shortfall that is expected to hit the semiconductor equipment maker&rsquo s fourth-quarter earnings.

 

The shortfall, first disclosed on Jan 14, is estimated to be between S$17.9 million and S$25.1 million. It was caused by human error in transactions with AEM&rsquo s enterprise resource planning system, the company said on Monday (Jan 22), adding that its Q4 2023 profit before tax would be adjusted.

 

In an e-mail to AEM&rsquo s chief executive Chandran Nair and its board on Tuesday, Sias president David Gerald called on the company to &ldquo clearly state&rdquo the potential financial impact on earnings for the full year ending Dec 31, 2023.

 

&ldquo Can the board (and) management confirm that there are no other discrepancies in the group&rsquo s financial statements and financial position?&rdquo he questioned, also asking if shareholders can still rely on unaudited financial statements for the six months ended Jun 30.

 

Gerald also called for more details on the reasons for the internal stock-taking exercise through which the shortfall was discovered.

 

&ldquo For example, was it a routine exercise or were there any whistle-blowing reports, negative findings from the internal audit or did the group face challenges in fulfilling customers&rsquo orders? When was the board and management first informed of the shortfall?&rdquo he questioned.

 

He also asked what level of oversight was provided by the audit committee after the discovery of the shortfall, and how it concluded that the shortfall was the result of human error.

 

Gerald further queried when AEM&rsquo s audit committee will complete its review of the company&rsquo s stock monitoring processes and systems.

 

&ldquo When was the last time the internal audit assessed the risk management controls and procedures pertaining to inventories? What proactive steps are being taken to prevent the recurrence of similar situations in the future?&rdquo he added.

 

Other questions posed by Gerald were:

 

How does the overstatement or shortfall in inventories affect the remuneration (including cash bonuses, stock options etc) of senior executives?

Can management also provide greater clarity on how the shortfall in inventories may affect operations, such as the order fulfilment schedule or the onboarding of new customers?

Does the audit committee intend to carry out a comprehensive review of the adequacy of the group&rsquo s internal controls?

Can the board elaborate on the measures and protocol in place to enforce accountability within the group?

&ldquo Your kind response to our questions above will help your shareholders to understand the issues better. We should also be happy to discuss the above questions,&rdquo Gerald told AEM&rsquo s management in his e-mail.