Documente Academic
Documente Profesional
Documente Cultură
Semester 2 2015/2016
PREPARED FOR:
DATIN DR. ZAINI BINTI EMBONG
PREPARED BY:
TAN BEE KUN
A140209
A139789
A142341
A140099
A136723
A139477
Content
Description
1.0 Introduction
Page
2
3-6
7-10
11-12
13-29
30-32
7.0 Conclusion
33
1.0
Introduction
The case study is about a company, Transmile Group Berhad who encounter
with accounting scandal where it causes the company to face suspension and delisting on Bursa Malaysia Securities Berhad. The overstated of revenue and profits
had resulted in negative consequences to both the company and its shareholders due
to the issue of corporate governance and business ethics.
Transmile Group Berhad is an investment holding company who involved in
the provision of air freight, aircraft engineering and maintenance services.The
company was founded by Gan Boon Aun in November 1993 and was later listed on
the Bursa Malaysia Securities Berhad on 27 June 1997. Operationally, Transmile had
maintained regular flights between Peninsular Malaysia and East Malaysia as well as
some major cities in the Asia Pacific. With a wide range network of operations,
Transmile reported increasing revenues and profits since 1998 until 2006. The strong
showing in revenue and profit were tracked by its share price which had risen
substantially.
However, in 2007, the external auditor of the company, Deloitte &Touche
declined to approve the annual accounts for lacking of certain supporting documents.
These has caused the company failed to adhere the deadline in submitting its audited
annual accounts for the financial year ended 31 December 2006 to Bursa Malaysia for
public release. Thus, the company faces suspension and de-listing.
The culprits to the accounting scandal may include the audit committee, the
board of director, the internal auditor, the external auditor and the research analysts.
However, in our opinion, we strongly believe that the external auditor is the main
culprits who cause the accounting scandal in the company due to few issues against
the regulations and accounting standards caused by the external auditor during their
audit works.
It shows that the BOD never fulfill their responsibilities to the company and
shareholders. As BOD of a listed company, the BOD have no obey to the Corporate
Governance Principles where they need to held fully responsible on the overall
monitoring and overseeing the performance of the company. The BOD had break the
trust of the shareholders and the principles of the corporate governance. The BOD
pass all the responsibilities to the agents and just with an assuming that the business
with be conducted properly according to the corporate governance. BOD also against
the principles of corporate governance where disclosure of information which is not
true and fair. As stated in annual report BOD have the fully responsibilities in
overseeing the company but in real the BOD did not practice it.
The corporate governance principles stated that, the board members should be
able to commit themselves effectively to their responsibilities and the boards should
regularly carry out evaluations to appraise their performance and assess whether they
possess the right mix of background and competences. Training and evaluation are
suggested to make sure for the competency of the boards. However, this two principle
are also not being practicing by Transmile.
overseeing the performance of the company and the company had breached the
Listing Requirement of the Exchange. The reputation of the company also affected as
the public was believe that the boards with the assistance of Audit committee will
ensure for the quality of reporting. However, it was not as what the public expected.
The boards have the responsibilities to oversee the risk management system to
ensure the internal control of the company. The boards of Transmile had passed the
responsibilities to the Audit committee to determine the adequacy of the companys
internal control system. Since year 2014, Transmile had outsource the internal control
function however the sales and finance division was not under the service of the
internal control. It was happened since year 2014, the boards of Transmile had fail to
fulfil their responsible in risk management.
The sales and finance division are vital division related to revenue. The boards
should have to make sure adequate internal control on the divisions and also the
whole company. The fraud was happened since year 2014 where the sales is
overstated from year 2014 to years 2016. Inadequate of internal control in sales and
finance division should be one of the reason that letting a chance for the fraud to be
conduct. The boards fail their responsibilities in risk management in the company and
fail to appoint a committee which are competence in carry out the responsibilities
given.
In conclusion, the boards of director have the responsibilities on the fraud that
occurred. The boards play an important role in overseeing the management and
performance of the company. They have to ensure and implement adequate internal
control for the company to prevent any fraud. Prevention is better than cure, even
though the BOD have formed a special audit to investigate the issues found after
informed by the external auditor. However, it have been late for them to notice.
We are recommend that the BOD should practice the principles of corporate
governance. The boards should carry out their responsibilities at their own instead of
pass all the responsibilities to the agents. The boards should have the self-awareness
in carry out their duty and be more proactive in communication with the audit
committee, internal and external auditors. The boards have to make sure the
5
information reached is relevant and in a right timing. The boards have to make sure
the audit committee and auditors being appoint are competence in carry out the
responsibilities given. Evaluation of the boards should be implemented too to ensure
for the quality of monitoring of the management of the company.
3.0
Audit Committee
Under Section 320.5 Companies Act an audit committee is required for all
companies listed on the Bursa Malaysia Securities. Under the Bursa Malaysia
requirements, the audit committee should comprise at least three directors, and all
members must not be executive directors of the company or any related corporation.
Section 94 of the Companies Act determines that the audit committee must
consist of at least three members who must be directors of the company and not:
be involved in the day to day management of the company for the past financial
year;
be a full-time employee for the company for the past 3 financial years;
be a material supplier or customer of the company such that a reasonable and
informed third party would conclude in the circumstances that the integrity,
impartiality or objectivity of that director is compromised by that relationship; and
be related to anybody who falls within the above criteria.
The audit committee can consist of as many members as the company wishes
to appoint (but at least three), but each member must meet the criteria and must be a
director of the company. The audit committee may utilise advisors and obtain
assistance from other persons inside and outside of the company. The audit committee
may also invite knowledgeable persons to attend its meetings. However, the formally
appointed members of the audit committee entitled to vote and fulfil the functions of
the audit committee will have to meet the criteria (non-executive independent
directors) in accordance with the prescribed requirements.
Integrity needs an auditor not affected, and not seen to be affected by conflict
or interest. Conflict may arise from personal, financial, business, employment and
other relationships which the audit engagement team, the audit firm or its partners or
staff have with the audited entity and its connected parties.
Integrity is very important since the director and management are rely on
auditor information obtained during the auditing since it is confidential. Without
integrity, there is danger that director and management will fail to disclose such
information to the director and the effectiveness of the audit will thereby be impaired.
In Transmile case, one of the audit committee is the former executive director
of the company. This is against the Act of Companies, which will have conflict
interest that will affected the independent of the member. The audit committee were
alerted several times by external auditor which is Deloitte & Touch about the
accounting issue found in the companys unaudited 4th quarter of 2006 report. Even
though the audit committee knowing the external auditors concern, they are still
8
ignore the concern and went to seek board of director consideration to release
unaudited annual report. What making the situation more worst is, audit committee
and top executives did not inform the BOD about the unaudited report. Here, we can
see that the audit committee have no integrity, they have failed in perform their
fiduciary duties to alert the board.
In this case, public believe with the present of the independence director in
audit committee, the quality of monitoring would be increased but what happen is
opposite, that is the independence auditor had knowingly permitted the making of
misleading statements to Bursa Malaysia which breached the Listing Requirement of
the Exchange when the unaudited report on fourth quarter of financial year ended has
been released.
professional responsible for fulfilling his or her duties diligently and carefully. Due
care includes consideration of the completeness of the working papers, the sufficient
of audit evidence, and the appropriateness of the audit report. As a professional, the
auditor must avoid negligence and bad faith, but the auditor is not expected to make
perfect judgments in every instance. Under MIA law Section 410, the law implies an
accountant to observe the professionals technical and ethical standards, strive
continually to improve competence and the quality of service through Continuing
Professional Education (CPE) and discharge professional responsibility to the best of
his or her ability.
The audit committee have been assign to determine the adequacy of the
internal control of the Transmile. Prior to year 2004, audit committee was helping the
Internal Audit Department in overseeing the internal control system. Beginning from
the middle of year 2004, the internal audit function of Transmile have been outsource.
The internal service that been outsource was not cover the sales and finance division
and also reviewing of the financial statement. As the audit committee of a listed
company, the member should be have the competency in overseeing the internal
control. The audit committee should have the ability and knowledge in determine the
adequacy of internal control in the company. However, the audit committee had failed
to meet the competency. They should know the lack of internal control in the sales
and finance division. They have failed the responsibilities being given.
10
IPPF 1220. A1- Internal auditors must exercise due professional care by considering
the:
Extent of work needed to achieve the engagement objectives
Relative complexity, materiality, or significance of matters to which assurance
procedures are applied
Adequacy and effectiveness of governance, risk management and control
processes
Probability of significant errors, fraud, or noncompliance, and
Cost of assurance in relation to potential benefits.
11
When it comes to activities that relate to internal control, the internal audit
function had to evaluate the internal control by reviewing controls, evaluating their
operation and recommending improvements thereto. In doing so, the internal audit
function provides assurance on the control.For example if a line manager is concerned
about a particular area of responsibility, working with the internal auditor could help
to pinpoint improvements or perhaps a major new project is being undertaken, the
internal auditor can help to ensure that project risks are clearly identified and
approached with action taken to administer them.
However, Audit Committee had limited the scope of auditing of Moores only
on several specific areas and not expanded to some critical areas such as the sales and
finance divisions of the company. Hence, it did not cover the review of financial
statement. Therefore, the internal auditors work did not cover the review of financial
statement.
12
ii.
iii.
To ensure auditors professionalism are not affected due to price wars among
auditors
In this case, Deloitte & Touche have quoted its client an audit fee, which was
comparatively low. This could be Deloitte & Touches strategy to continue secure
auditing assignments from Transmile. Yet, from another point, it could be seen as fear
of losing the client, especially with the intense competition from the other audit firms.
According to the accountants, evidence of low audit fees by Deloitte & Touche could
be found in the case of Transmile where in 2006 and 2005, the fees were RM150,000
and RM73,000 when revenue were RM655.8 million and RM356.4 million
respectively. However, when the audit was taken over by KPMG in 2007, the fees
shot up to RM280,000 while the revenue dropped to RM616.2 million. The practice
of setting the fees so low could compromise the principle of competence and due care
as auditors might be in difficulty to perform their duties satisfactory.
13
In my opinion, Deloitte & Touche should not quoted Transmile a low audit fee
just because of fear of losing Transmile or to continue secure auditing assignments
from Transmile. Although Deloitte & Touche have a long-term relationship with
Transmile for a number of years, based on the Code of Ethics for Professional
Accountants, auditors should set an audit fee which is reasonable and acceptable
without affected by other factors such as the relationship between auditors and clients.
Besides, the low audit fees might give the wrong impression to other people that the
quality of the audited report is bad and it might affect the reliability of users on the
audited report. Based on the Recommended Practice Guide 7 (Revised), it gives a
guidelines to auditors on the charging of audit fees in order to increase in compliance
burden due to higher auditing standards requirements, increase in operating costs,
mainly salariesand to ensure auditors professionalism are not affected due to price
wars among auditors. Therefore, Deloitte & Touche should consider this guideline in
order to set a reasonable audit fee to clients as reduced audit fees can present
problems in terms of quality and it might raise auditor independence issues or may be
ineffective.
14
5.2 Issue the Long Term Relationship between Deloitte& Touch and
Transmile Group
Other than competence and due care, another things to concern was the
integrity and theindependence of external auditor. As referred to the case Deloitte&
Touch and Transmile Group have a very long relationship that is more than a decade.
This can be proven or supported by the statement given by ChalyMah Chee Kheong,
Chief Executive Officer (CEO) for Asia- Pacific of Deloitte& Touch said We have
been serving them for a number of years, even before their initial public offering.
What bothers in this case is the relationship between Deloitte and Transmile
Group. This relationship could to a certain extent, pose familiarity threat. Familiarity
could negatively affect the auditors independence of mind and therefore their
auditing quality. Chief Consultant at Alliance IFA (M) Sdn. Bhd explained, When
the auditor go for a job, there is a presumption in their mind that everything is in good
faith. The value of auditing depends heavily on the public perception of the
independence of auditor. In auditing process there are two types of independence that
are independence in fact and independence in appearance.
15
moral, character or simply honesty. Every professional job need to integrity. For
example, a medical doctor is expected to have high integrity, objectivity to observe
professional standard and have to act in public interest. However, one difference
between auditors and others professional s need not be concerned about is the
remaining and independent. Independence must certainly be most critical
characteristic.
Transmile first notified in Bursa Malaysia that its auditors had trouble
verifying its account for the year ended 31 December 2006 on May 7, due to the
absence of some documents. Mah (executive of Asia-pacific) said in the course of an
audit, the external auditors rely only on the companys management and board of
directors, who are tasked with the governance and overall responsibility of the
company.
16
They can hire their accounting department to create fictitious invoice and
dummy sale and so on, in other words, Transmile can abuse Deloitte as they know
how auditor works since they know very well how Deloitte works. In year 2004 and
2005, the report is released but the fraud cannot be detected. This might be due the
company might change their full set cycle of supporting document. The change of full
set cycle of supporting document can affect the materiality
How the materiality affected?
Let say the materiality is 1% of the revenue which is equal to RM12 million (
for the example) and auditors needed 60 samples of transaction that material and in
the year 2004 or 2005 and only find 25 samples material, so the remaining 35 samples
will take randomly on any the sales. Transmile might make the fictitious sale that
below their benchmark that is RM120 000. Therefore it will fall under non-key item
for sale. The sample is a lot but auditors can only choose a few.
Even auditors choose the samples without supporting document in 2004 and
2005, Deloitte might change the selected sample due to their long term relationship.
Any selected sample which are non-key item, the external auditor may just change
the sample if they found that the sample are lack of some supporting document.
Because of their long term relationship, the external auditor are believe that there will
be a possibility accept any explanation from management about the lack of document,
and they will just change the sample as they tend to bias towards materiality. If
Deloitte maintain use 1% materiality for more than ten years, no wonder the report in
2005 and 2004 can be released even they do not have enough supporting documents.
17
As the management can be easy to manipulate and the judgement of external auditor
will be affected due to the long term relationship and trust towards the company.
5.4 Issue of late report fraud to BOD within 2 and half months
According to its 2005 Annual Report, the role played by Deloitte and Touche
was to evaluate the overall financial statements presentation and ensure that they are
prepared in accordance with statutory requirements. One of the roles of external
auditors in corporate governance is protecting the interests of shareholders. This is
possible because external audition reports are conducted independent of the
companys influence. External auditors report the state of a company's finance and
attest to the validity of financial reports that may have been released. They ensure that
the board receives accurate and reliable information.
In this case, Deloitte &Touche had held regular discussions with the
management and the audit committee to address the accounting issues when they were
first discovered, but was to no avail. Finally, on 4 May 2007, via a letter, Deloitte
&Touche informed the BOD that they declined to approve the annual accounts as they
had not been able to obtain relevant supporting documentation from the management
on certain transactions relating to trade receivables and related sales and additions to
property, plant and equipment so as to enable them to satisfy themselves on fairness
or validity of those transactions. In response, on 7 May 2007, the BOD appointed
Moores Rowland Risk Management to conduct a special audit on issues raised by
Deloitte &Touche. An unaudited annual account was released in 2006 to Bursa
Malaysia was made but the report was released without the auditors concern over the
accounting issue had breached the Listing Requirements of the Exchanges and what
was more unfortunate is about how Deloitte react or responded to the matters. Deloitte
had failed in fiduciary duties to alert the board on the warning raised sooner after the
release of the unaudited results on 15 February 2007.
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Furthermore, Deloitte also should inform the security commission about this
matter. According to the Section 99E of Security Industry Act stated that if an
auditor is of the professional opinion that there has been a breach of security laws or
rules of the exchange or any matter which may adversely affect the financial position
of the listed company, the auditor must immediately submit a written report on the
matter to the security commission. The Securities Commission Malaysia (SC) is a
statutory body entrusted with the responsibility of regulating and systematically
developing the Malaysias capital markets. It has direct responsibility in supervising
and monitoring the activities of market institutions and regulating all persons licensed
under the Capital Markets and Services Act 2007. Therefore, before releasing the
unaudited report, SC had been informed and the action of charging audit committee
can be done earlier. However, Deloitte had failed to inform them.
19
5.5
ISA 320 Para 10: Materiality Levels for Particular Classes of Transactions,
Account Balances or Disclosures
When establishing the overall strategy for the audit, the auditor shall also consider
whether, inthe specific circumstances of the entity, there are particular classes of
transactions, accountbalances or disclosures for which misstatements of lesser
amounts than the materiality level forthe financial statements as a whole could
reasonably be expected to influence the economicdecisions of users taken on the basis
of the financial statements. In such circumstances, theauditor shall determine the
materiality levels to be applied to those particular classes oftransactions, account
balances or disclosures.
ISA 320 Para 11: Amounts Lower than the Materiality Level or Levels for
Purposes of Assessing Risks and Designing Further Audit Procedures
The auditor shall determine an amount or amounts lower than the materiality level for
the financial statements as a whole (and an amount or amounts lower than the
materiality level for particular classes of transactions, account balances or disclosures,
20
Based on the case Transmile, Deloitte have been serving Transmile for more
than a decade and there was this concern about Deloitte independence due to the
longterm relationship. This long-standing relationship could however to a certain
extent pose the familiarity threats. Familiarity, could negatively affect auditors
independence of mind and therefore their auditing quality.
During sampling test, it is divided into 2 parts which is key-value item and
non key value item. Key-value item consists of item above the material level and non
key-value item consist of item below the material level of the company. For every
single key-value item, auditors have to do vouching the entire cycle supporting
documents. Where else for non key-value item, this group of item consists of
numerous amounts of transactions and audit will only pick samples by sampling
method. Therefore if Deloitte does not change method of determine materiality, there
is opening opportunity for the management to abuse and create fictitious invoice for
dummy sales under the materiality level.
Besides, the familiarity with Transmile can cause auditor to change samples of
non-key value item when they did are unable to vouch full set of supporting
documents for the samples selected and hence this affect the integrity of auditor.
Using the same method and style to determine materiality over the decade could lead
to fraud among management level of clients. Therefore, determining the materiality of
a company during the planning of audit is very important.
21
Generally, every audit firms have created their own template for calculation of
samples during sampling test. Within this template, an auditor will key in account
balance of the item in financial statement, materiality, risk of material misstatement,
and multiplier of samples. Automatically, template will calculate the numbers of
samples selected for testing.
In the case, Deloitte have been auditing Transmile for over a decade and have
been a long-standing relationship. Usually when auditors have good faith in their
clients due to long term relationship, they will tend to reduce the multiplier and risk of
material misstatement. If the risk of material misstatement (RMM) and multiplier of
samples being reduce to relatively low, number of samples selected to be tested will
be little too. If this were to happen, the chances of selecting the samples which is
fictitious invoice in case of Transmile will be low especially when the item is fall
inside non-key value item. For example, selecting 60 samples from 10,000 samples
will have less chance selecting the fictitious invoice and selecting 250 samples from
10,000 will have more chance an auditor came to detect the fictitious invoice.
22
23
The higher the sampling risk willing accepted by auditor the lower the sample
size will be selected. Sampling risk is normally related to the internal control, the test
of control and the test of detail that will conducted by the auditor. For tests of controls
normally auditor will makes an assessment of the expected rate of deviation based on
the auditors understanding of the relevant controls or on the examination of a small
number of items from a population.
From the ISA 530, we are clear that the auditor in selecting the sample size for
testing is always depend on sample risk that willing to accept and always related to
the effectiveness of the internal control of a company. Normally, the more assurance
the auditor intends to obtain from the operating effectiveness of controls, the lower
the auditors assessment of the risk of material misstatement will be, and the larger
the sample size will need to be. When the auditors assessment of the risk of material
24
In the case of Transmile, since year 2004, the internal controlof the company
have been outsourced to Moores Rowland Risk Management Sdn Bhd. However, the
sales and finance division of the company are not under the area of service for the
internal audit. It means that the internal control for the sale and finance division is less
as compared to other division in the company. We always clear that sales is always
directly affected to the revenue of a business. Transmile have been overstated its
revenue in a total of RM530 million since year 2004 till year 2006. This amount had
turn the Transmile financial position from a gain to a loss. So, we are questioning on
the quality audit work that been done by the external auditor, Deloitte.
The external auditor should be noted that the sales and finance division are not
included in the outsource service of internal audit since year 2014. It means that the
audit work especially the audit procedure, test of control, test of detail and the level of
accepted sample risk will be different as compared to before year 2004 due to the
change of the effectiveness control of the divisions. We will questioning are the
external auditor doing differently since year 2004 in order to obtain more assurance.
However, from the explanation of the ChalyMah Chee Kheong (CEO Deloitte), we
believe that external audit still performing inadequate of audit work in this case.
Mah explain that their audit work tend to bias towards large items which are
material, and he further explain that the responsibilities of ensuring proper internal
control system and accurate accounting record lies with the directors and management
of a company. From the explanation of Mah, it can be seen that audit work done by
the external auditor was tend to rely or highly rely on the internal control of the
company. We can believe that this trust of Deloitte towards management of Transmile
might due to their long term relationship. We believe that Deloitte designing the audit
procedure tend to referring to the prior year (before year 2004) working style. That
will be the possible reason why Deloitte unable to discover the overstatement in year
2004 and year 2005. Referring to the ISA 530, the effectiveness of the internal control
will affected the level of sample risk of the audit procedure. Since year 2004, the
25
structure of the internal control of Transmile have been changed. The audit procedure
designed should be different.
Therefore, we are believe that external auditor have the big responsibilities on
this matter which their inadequate audit work since 2004 have make them fail to
discover or prevent the fraud.As an auditor conducting an audit in accordance with
ISA is responsible for obtaining reasonable assurance that the financial statements
taken as a whole are free from material misstatement, whether caused by fraud or
error.In accordance with ISA 330, the auditor shall design and perform further audit
procedures whose nature, timing and extent are responsive to the assessed risks of
material misstatement due to fraud at the assertion level.
As stated in the ISA 240, we noted that the timely basis is a vital element
when the external auditor informed the management level or those charged with
corporate governance there are possibility of fraud. Based on the Transmile case, the
external auditor have fail to meet the timely basis when they communicate to the
Board of Directors. On 14th and 15th February 2007 external auditor have informed
the Audit Committee of the Transmile relate to the serious accounting issue found in
26
the fourth quarter 2006 unaudited report. The issue was not immediately highlighted
to the BOD. After two and half months, on 4th May 2007 external auditor only
communicate to the BOD about the accounting issue found.
The timely basis was not follow by the external auditor. They do not have any
further action during the two and the half months. The decision of audit committee
failed in fiduciary duties to alert the board on the warning raised had given to a
suspicion that something sinister was going on. The external auditor should able to
identify the suspicion that something sinister was going on among the audit
committee. The external auditor should inform the board in a timely basis. The
external auditor should have further action within the two month. Therefore, the
external auditor had fail their responsibilities to inform the board on timely basis.
27
During that period, the individual shall not participate in the audit of the entity,
provide quality control for the engagement, consult with the engagement team or the
client regarding technical or industry-specific issues, transactions or events or
otherwise directly influence the outcome of the engagement.Key audit partners whose
continuity is especially important to audit quality may, in rare cases due to unforeseen
circumstances outside the firms control, be permitted an additional year on the audit
team as long as the threat to independence can be eliminated or reduced to an
acceptable level by applying safeguards.
Based on the case Transmile, the external auditor, Deloitte have served
Transmile for more than 10 years. Referring to the Section 290, there should be
rotation of the partner and also the audit team in Deloitte to serve the Transmile
Group Berhad. Rotation of the key audit partner and audit team beside to maintain the
28
independence and integrity, it is also for the purpose of maintaining the quality of
audit work done. With the explanation of Mah, Deloitte have high familiarly with the
operation of the Transmile. The audit team from Deloitte will be tend to more relies
and tend to more confident to the management of the Transmile. It is the nature of
human, things will be easier when we have high familiarly. Deloitte failed to discover
the overstatement in year 2004 and year 2005 we can believe that the trust and
familiarly towards Transmile had affected their professionalskepticism and judgment
throughout the audit process.
29
In this case, the research analysts did not do their study or research completely
and had caused few mistakes or errors that had led the investors to think that the
analysts reports are reliable. These mistakes have influenced the investors decision
making in making investments and have caused the unconscious herd instinct. The
following are the mistakes done by the analysts.
Indicatorsthat could have material effect on the investors decisions in
i.
30
and investigate the company before compiling their report. They should go to the
company for site visit, meet up with the staffs, and contact the CEO of the company in
order to find out the possible indicators. The analysts play an important role in stock
market, most of the investors will make their decision whether to invest in that
particular company based on their report. Thus, all the reports that they prepare need
to be complete and obtain as many information as possible including the indicators
that could have material effect on the investors decisions in making investment.
ii.
turn its sales into cash. Transmiles trade receivable had been building over the years
with trade receivables for 2006 were reported at RM381.2 million, which was a 243%
jump or RM270.1 million more than the previous year, while growth in 2005 was 5%
and 2004, 46.1%. With revenue recorded increase of 80% or RM439.1 million during
the same year 2006, receivables accounted for much more of the companys revenue
growth. Since trade receivables could have influence on the profitability reported, it
would be prudent for analyst to be on the alert as these trade receivables could easily
be reclassified as doubtful debts.
Based on the article from Business Times by Kang Siew Li, it stated that An
analyst who declined to be named said it appears that there was a deliberate attempt to
manipulate the account with a plan to deceive the board or shareholders. Analysts
should be alert on these issue earlier and alert on Transmiles trade receivables since
there are unusual growth rates or increments in Transmiles financial statement. But,
the analysts have failed to do so in assessing the performance of Transmile. In
addition, Transmile said that following the final report, the assets of the company will
be adjusted downwards with the adjustments primarily in property, plant and
equipment, investment in associated company and trade receivables. Hence,it is
prudent for analyst to be on the alert as these trade receivables could easily be
reclassified as doubtful debts.
iii.
price went without saying, as when research houses are upbeat on a stock, most
31
others tend to follow suit. And when investors are buying into a counter, others too
think it must be a good idea. It is called the unconscious herd instinct, says a
seasoned investor. The analysts should take the responsibility and think one step
ahead of the effects that will cause if they publish their report. The analysts are like a
guidance for the investors because many investors will make the decision based on
the assessment made by the analysts. Besides, investors should not blame analysts if
they are losing money as the analysts are just giving their professional opinion based
on their study and research. Hence, the investor should know the risks when they
invest in this particular company based on the analysts report only.
iv.
sources believed to be reliable but had not been independently verified by them, thus
no guarantee as to its accuracy, completeness or correctness. Meanwhile, investors
were supposed to seek financial advice regarding the appropriateness of investing in
the share assessed by the research house in its report. The assessments were actually
intended for information purposes only and not to be construed as an invitation to buy
or sell the shares referred.
Based on the articles from Asia Times, it indicated that analysts wonder
whether it was merely a case of poor accounting standards or if management was
trying to hide something in the accounts. If it was merely bad bookkeeping, which
could be easily rectified, auditors most likely would not have held back on signing the
accounts, they say. In my opinion, the analysts should have not rely on the audited
report only but perform some other procedures to obtain other reliable information to
verify and make an accurate assessment on the performance of Transmile as the
investors rely on these assessments made by the analysts.
7.0 Conclusion
There are many issues against the laws caused by the culprits. These culprits
should take their responsibilities in order to help and assist the company to handle the
problem faced by the company which is suspension and de-listing. The potential
factors should be solved as soon as possible so that the interest of the shareholders of
the company can be protected.
The potential factors may consists of the engagement of Transmilein the
illegal actionwhich is to cover up somefacts by reporting a higher profit than the
actual one. Whereas,the opportunistic action taken by the analysts and investorsis
investing in a growth potential business where they should actually be alert of overly
strong growth in companies, weakness in the internal control systems as well as
operational systems. The analysts and investors should not only rely on the publicly
available information but to do more studies and researches before making any
decisions.
In conclusion, its the responsibility of a listed company and its directors and
chief executive to prepare and present financial statements in accordance with
approved accounting standards issued or adopted by the Malaysian Accounting
Standards Board (MASB). Failure to fulfill this obligation is an offence. Furthermore,
the culprits should carry out their responsibilities and comply with regulations and
accounting standards in order to protect the innocent parties such as shareholders and
investors.
33
References
1. Kang Siew Li. Transmile Audit Shows Losses in 2005, 2006. Business
Times 19 June 2007.
http://www.malaysianbar.org.my/business_news/transmile_audit_shows_losse
s_in_2005_2006.html
2. Anil Netto. Cooking the Books in Malaysia. Asia Times 30 May 2007. Asia
Times Online. 30 May 2007.
http://www.atimes.com/atimes/Southeast_Asia/IE30Ae01.html
3. Corporate Governance
http://www.kantakji.com/media/3100/v148.pdf
4. Corporate Governance
http://www.bursamalaysia.com/misc/listed_companies_corporate_governance
_CG_Guide_bm.pdf
5. International Standard on Auditing 530 Audit Sampling, December, 2009
http://www.ifac.org/system/files/downloads/a027-2010-iaasb-handbook-isa530.pdf
6. International Standard On Auditing 240, 15 December, 2010
https://www.frc.org.uk/Our-Work/Publications/APB/ISA-240-The-auditor-sresponsibilities-relating-to.pdf
7. MIA Handbook, Section 290
http://www.mia.org.my/handbook/bylaws/pIB290-150.html
8. International Auditing and Assurance Standards Board, ISA 320 & ISA 450,
15 Febraury 2007
www.paab.co.za/index.php/component/docman/doc.../255-ed-015-02
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