External auditor's report containing reservation |
Basis for Qualified Opinion 1) As disclosed in note 10 to the accompanying financial statements, all reinsurance treaties up to the underwriting year 2014 were managed by the Medgulf Group Corporate Reinsurance Center (CRC), a related party, who dealt with the Companys transactions, along with those of other related parties, on a consolidated basis with the reinsurers and brokers. All transactions with reinsurers and brokers were routed through CRC and the settlement of balances with these reinsurers and brokers were also made by CRC. The Company, together with CRC, have now initiated an exercise to separate the Companys transactions and balances with the respective reinsurers and brokers from those of other related parties. This exercise is still on-going and on completion certain parties included in the policyholders and reinsurance balances receivable under note 9 amounting to Saudi Riyals 120.2 million may be identified as receivable from related parties and therefore may need to be disclosed under due from related parties. The underlying transactions with such related parties will then also require disclosure under related party transactions. Accordingly, management is currently unable to provide a complete list of all related parties balances and transactions which impacts both the presentation and disclosure of related party balances and transactions. Consequently, we were unable to determine whether any adjustments to the presentation and disclosure of the related party balances and transactions were necessary in the accompanying financial statements. 2) As disclosed in note 6, the Company is accounting for its reinsurance transactions related to the general line of business based on their understanding of the contractual terms of the reinsurance agreements. However, such accounting of reinsurance transactions may be subject to different interpretations. As a result, the Companys financial statements may require adjustments, if the terms of reinsurance agreements are interpreted differently. Management is still securing clarity on the terms of the reinsurance agreements. In the absence of information in this regard, we were unable to determine whether adjustments would be required in the accompanying financial statements. We conducted our audit in accordance with International Standards on Auditing (ISAs),that are endorsed in the Kingdom of Saudi Arabia. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the code of professional conduct and ethics, endorsed in the Kingdom of Saudi Arabia, that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. QUALIFIED CONCLUSION Based on our review, except for the possible effects of the matters described in the Basis for Qualified Conclusion paragraphs, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial information is not prepared, in all material respects, in accordance with IAS 34 as modified by SAMA for the accounting of zakat and income tax. Material uncertainty relating to going concern We draw attention to note 1 and note 33 to the accompanying financial statements, which details various communications from SAMA to the Company. The Company did not meet the solvency margin requirements as at 31 December 2017 and consequently SAMA issued a letter dated 29 January 2018 preventing the Company from writing any new policies and renewing the existing policies. SAMA also instructed the Company to increase its share capital before 30 July 2018 to address the issue of its deteriorating solvency margin. Subsequent to the year ended 31 December 2017, the Companys Board of Directors in their meeting held on 6 February 2018, recommended a rights issue amounting to Saudi Riyals 400 million in order to improve the solvency margin and the Companys future business activities. Such rights issue is subject to approval of the regulatory authorities and general assembly of the Company. The aforesaid approvals were in process till the signing of this report. As stated in note 1, these events and conditions, along with other matters set forth in note 33, indicate that a material uncertainty exists that may cast significant doubt on the Companys ability to continue as a going concern. Our opinion is not further modified in respect of this matter. Emphasis of matter We draw attention to note 26 to the accompanying financial statements which states that the Company in its extra-ordinary general meeting held on 22 September 2017 approved the reduction of share capital from Saudi Riyals 1 billion to Saudi Riyals 400 million to absorb the accumulated losses in order to comply with the requirements of the Regulations for Companies. This resulted in the accumulated losses to decline below one-half of the Companys share capital as at 30 September 2017. The reduction of capital has been approved by the regulatory authorities. |
Reclassifications in annual financial results |
During the year ended December 31, 2017, the Company has restated the retained earnings as at January 1, 2016 and comparative financial statements as of December 31, 2016 as a result of erroneous recording in prior year of transactions relating to medical reinsurance treaty amounitng to SR 33 million. Also, the Company reclassified some numbers within the annual financial results for comparative reasons in order to comply with the current period, there was no financial impact on net income or accumulated surplus after the reclassification. |
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