Topics: Audit, Financial audit, Corporation Pages: 14 (2365 words) Published: December 8, 2014

In 1981, Delima Enterprise was founded by Encik Zayed in conducted trading and supplying related product including manpower supplies to oil and gas industries. In 2004, Delima Enterprise incorporated as Delima Enterprise Sdn Bhd. It has two principal shareholders and controlling director who is Encik Zayed and Puan Hashimah. Both of them are husband and wife. In 2006, the company submitted application to get a loan since the company gets several contract. The director of Delima Enterprise Sdn Bhd tries to get a loan from MAYBANK and CIMB BANK. However, both bank required company’s Audited Financial Statements for the last two years.


This case is about an enterprise founded by family members and later was incorporated as Sdn Bhd. The shareholders are mainly the directors of husband and wife who involved in the management of the company. It was July, 2006 when Encik Zayed engaged the external auditor Aziz & Co(Chartered Accountant) introduced by his friend to perform the statutory audit for the period of 2003 to 2006. That was the first audit experience for Encik Zayed and Puan Hashimah and it was a difficult learning experience. The Auditors expressed their intention to qualify the Financial Statements due to several unresolved issues. However, Encik Zayed and Puan Hashimah tried to negotiate with the Auditor to not qualify the Financial Statements, failing which Encik Zayed planned to terminate the auditor’s appointment and appoint a new “friendly party” auditor. Encik Zayed and Puan Hashimah were not familiar with Accounting Standards and the provisions of the Companies Act 1965, including their roles and duties as Company Directors. The company had maintained a very lean organization and had employed their owned family members as its employees and some did not have the necessary job experiences. Time was the essence and the Audited Financial Statements had to be issued to the bank at least by September, 2006, as Encik Zayed had applied for banking facilities to implement several contracts the company had managed to secure. Encik Zayed had assigned the tasks to Cik Amy, the Finance Executive who was newly appointed by the company to analyze and provide the Auditors with the necessary clarifications and documentations.

4.1 Were there any abuses of power by the management and breach of fiduciary on the part of the directors? Yes, there is abused of power and breach of fiduciary duty. Based on Company Act 1965, Directors are required to act bona fide for the benefit of the company as a whole. Fiduciary is a term used to cover situation where a person is expected to act for the interest of others not for their own self interest. Directors’ fiduciary obligations are to exercise their powers under the company’s constitutions for proper purpose, to avoid conflict of interest and not to profit from their position such as misuse of corporate fund, misuse of confidential information, honesty and diligence. While power is defined as the ability to conferred on a person by law to determine and alter the rights, duties and other legal relations of him or others.

In this case, abuses of power by the management can be seen when 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...
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