Delima Case Study

Topics: Fiduciary, Board of directors, General ledger Pages: 16 (4971 words) Published: December 11, 2013



Table of Content

Page No.
Introduction : Company Background & Case Summary
Identified Issues In DESB
4 - 8
Questions & Answers
14 - 17
Company Background
Delima Enterprise was set up by Encik Zayed in 1981. It engaged in trading and supplying related products including manpower supplies to the oil and gas industries. In 2004, the enterprise was incorporated as Delima Enterprise Sdn. Bhd. Both Encik Zayed and Puan Hashimah (husband and wife) were the two principal shareholders and controlling directors of the company. The company expanded its activities into provision of engineering services while its corporate mission was to become a leading service contractor who provide quality products and excellent services. The company had been awarded with several engineering projects since 2006. Delima Enterprise Sdn. Bhd. (DESB) had maintained a very lean organization with basic functional positions. En Zayed and his wife Pn Hashimah were the Managing Director and Chief Operating Officer respectively. He and his wife only had secondary school background. They employed their own family members to work in DESB with minimal education background and no job experience. Puan Balqis, the Operation Manager and En Salam, the Human Resource and Administrative Manager were their relatives who only had secondary school background as well. Cik Amy, a young Accounting graduate was employed as Finance Executive responsible for maintenance of the accounting and financial matters of the company although she did not have working experience.

Case Summary
DESB had applied for banking facilities to implement the contract it had secured. The banks required the company’s Audited Financial Statements for the last two years. It was then when En Zayed realized that the company had not performed statutory audit and was introduced to Aziz & Co (Chartered Accountant) as their external auditor to perform the audit from the period of 2003 to 2006. The auditor wanted to qualify the Financial Statements due to several unresolved issues. Encik Zayed and his wife attempted to convince the auditors to not qualify the Financial Statements but failed. Encik Zayed wished to terminate the auditor’s appointment and appoint a new “friendly party” auditor to do the audit. IDENTIFIED ISSUES IN DESB

There were several issues that can be identified within DESB. It is important to identify these issues which require solutions and improvements in order for the company to meet the statutory audit requirements. The issues can be divided into several categories which are legislation, corporate governance, internal control, human resource, ethical, accounting information system (AIS) and management issues. Legislation Issues

One of the legislation issues was breach of director’s fiduciary duty in DESB. The controlling directors, En Zayed and Pn Hashimah tried to negotiate with the Auditor to not qualify the Financial Statement. They planned to terminate the auditor’s appointment and appoint a new “friendly party’’ auditor who can cooperate with them. The directors showed the intention to commit fraud and they definitely did not act in the best interest of the company. According to Section 132(1) of Companies Act 1965, a director of a company shall at all time exercise his power for a proper purpose and in good faith in the best interest of the company. The directors had gone against the provision in the Companies Act 1965. Besides that the directors had also charged their personal vehicle expenses on the company. There were also withdrawals of company’s money without proper documentation. Section 132(2)(a) of CA 1965 stated that the director cannot simply use the company’s property or asset. The directors’ action had breached their...
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