C A S E
Asian Journal of Case
4(S): 15 – 25 (2011)
Flat Cargo Berhad: An Auditor’s Conundrum
ZAKIAH MUHAMMADDUN MOHAMEDa* AND
TAKIAH MOHD ISKANDARb
Flat Cargo Berhad (FCB) was one of the largest air freight companies in Malaysia, servicing several government linked companies including Freight Malaysia Berhad, and had Kencana & Associates served as its auditors. In 2006, during a routine financial audit, the auditors identified several suspicious findings that resulted in a delay in finalising the auditor’s report. The case presented an auditor’s dilemma involving the possibility of fraud in a financial audit engagement. Keywords: fraud, auditors, professional scepticism
It was 5 February 2006 and Mr Chuah Mun Soong had just finished a meeting with his audit team. He was silently enraged. “Not another Media Com or Blue Vital. Could there be a fraud in Flat Cargo too?” he wondered. His firm, Kencana & Associates, could not deal with another client scandal. He had just been informed by his subordinates that there had been inconsistencies in the accounts of Flat Cargo Berhad (FCB). His team was to report to the audit committee of FCB in two weeks. His boss, Mr Keong Chee Wah, the managing partner of Kencana & Associates, had to be informed immediately of the situation.. Taking time to calm himself down, Mr Chuah decided to work through the company’s information to assess the possibility of fraud. He needed the information to help him explain the situation to Mr Keong.
FCB was a listed company operating primarily as an air cargo carrier. It was registered as an investment holding company with several subsidiaries. The principal activities of FCB subsidiaries included air freight services and aircraft
School of Accounting, Faculty of Economics & Business, Universiti Kebangsaan Malaysia
School of Accounting, Faculty of Economics & Business, Universiti Kebangsaan Malaysia *
Corresponding author: E-mail:firstname.lastname@example.org
Asian Journal of Case Research (AJCR)
ground handling services. FCB’s wholly owned subsidiaries included FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV), Cargo Air Services Sdn Bhd and FC Air Ltd. The company’s head office was located in Selangor. FCB started operations in 1997 with two aircrafts: a Boeing 737-200F and a Cessna Grand Caravan. FCB’s maiden flight in November 1997 had been an overnight air express transport service for Freight Malaysia Berhad to Singapore. Flat Cargo Group obtained listing in Bursa Malaysia1 on 15 September 2001. FCB’s major shareholder in 1997 had been Bangor Berhad, which was part of a diversified international family owned conglomerate, the Miri Group. The Miri Group had a China based company called Miri Logistics Ltd which owned logistic businesses extensively in the Asian region. In 2004, the Miri Group2 bought a controlling interest of 55.2 million shares or 26.5% of FCB from the founders, Lim Loon Sim and Ali Bin Ahmad, via an off market deal. The fast growing intra-Asian air express market fuelled FCB’s expansion plans between 2001 to 2004. With the extensive growth in e-business activities, the demand for express transportation services increased. FCB aimed to maintain their niche position in the Asia Pacific region by delivering best quality customer service and satisfying customer demands. The corporate structure of FCB is seen in Figure 1.
Figure 1 Flat Cargo Group Berhad’s corporate structure
FCB was the only dedicated Intra-Asian overnight express cargo operator based in Malaysia. Its core business was to provide air freight transportation, which included aircraft charter and leasing.
FCB’s prompt handling of large shipments to meet customer demands was attributed to its expansion in freighter fleet size for its Boeing 737s, 727s, MD11s. In addition, it had access to an international cargo complex covering 24-hour custom facilities at the...
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