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Categories
| SC tells auditors to whistleblow |
| Features | |||
| Written by Doreen Leong | |||
| Monday, 13 April 2009 00:00 | |||
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Industry sources say the partners from some 10 to 15 audit firms gave their views at the dialogue, which lasted three hours, on how to improve the detection of corporate fraud, which would enhance confidence among investors. “The SC, in trying to raise the bar, is reaching out to the auditors to help monitor the capital market, especially when it comes to fraud. The SC wants to see how they can work together,” says a partner with an audit firm. It is learnt that this is not the first time the SC has held discussions with audit firms but this particular meeting was specifically on measures to counter fraud. The SC, says the auditor, told the auditors to highlight suspected fraudulent activities and to make use of Acts and other avenues such as whistle blowers to bring up their cases. Auditors were also told that they could seek unofficial meetings with the SC on the matter. He describes the dialogue between the SC and auditors, which included the big four audit firms, as fruitful. “Previously, auditors would only be called up whenever there were cases or queries,” he adds. The SC’s proactive move does not come as a surprise in the light of the growing number of accounting scandals globally. Investors have been alarmed at the extent of accounting fraud at well-known companies like India’s Satyam Computer Services Ltd as well as the Bernie Madoff Ponzi scam. In the Satyam case, company founder B Ramalinga Raju confessed that he had effectively cooked the books of his firm for a few years. The Indian government has officially filed charges against nine individuals, including two auditors and an adviser, believed to be connected to the accounting scandal at the outsourcing firm. Nearer home, investors will find it hard to forget the extensive accounting fraud that was discovered two years ago at the overnight express cargo carrier, Transmile Group Bhd. The group’s former CEO, former CFO and former executive director have been charged with abetting the company in making a misleading statement in its quarterly report. Gan Boon Aun, Lo Chok Ping and Khiudin Mohamed claimed trial to charges of allegedly cooking the books between Feb 26, 2006, and Feb 15, 2007. Another company that has been hit by alleged fraud in recent years is Megan Media Holdings Bhd. Two officials of the company have been charged while a warrant of arrest has been issued for its former director, George Yeo Wee Siong. The collapse of the two companies left investors and bankers suffering heavy losses. It also thrust the auditors into the limelight for both good and bad reasons. The bright side of it was that the Transmile incident would not have been uncovered if the auditors had not stood by their decision not to sign off the accounts despite pressure from the management. However, the negative aspect was that the fraud in some of the companies had gone on for some time and was detected only at the late stage. While most auditors are willing to help the authorities in sounding the alarm on fraudulent accounts, “the common complaint is that fees are currently too low for auditors to perform more thorough audits, which could help uncover fraud early”, an industry player says. The issue of audit fees was one of the subjects discussed at the dialogue. “The accounting profession is now deliberating how to deal with such issues. If fees are set too high, new and smaller players will enter the market and undercut fees. For instance, they are prepared to cut fees by 20% to 30% just to land jobs,” says an auditor. One way to solve the problem is to set up an audit oversight board (AOB), which was proposed in Budget 2008. But the setting up of the board has been delayed. A Bill was supposed to be tabled in Parliament in March last year but it has now been pushed to June this year. The AOB is a special independent body that will regulate auditors and ensure audit quality is in line with international benchmarks to strengthen corporate governance. Once the AOB has been set up, stringent conditions will be imposed on accounting firms, which may force the smaller outfits to consolidate. Countries such as the US, the UK, Australia, Singapore, Canada and Germany have all established auditor oversight authorities to regulate the audit profession. This article appeared in the Corporate page,The Edge Malaysia, Issue 750, April 13-19, 2009.
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