Probing corporate Malaysia
By ERROL OH
BIG or small, profitable or loss-making, voluntarily or otherwise, with or without warning signs – many businesses here have called in forensic accountants to ascertain if there had been wrongdoings, and if so, to compile evidence. But no matter how often this has happened, the commissioning of an investigation into a company’s financial affairs is usually a headline-grabbing development because it brings a whiff of scandal. Or it at least tells us that not all is right with the company. That is why there has been so much attention on accounting probes involving companies such as Port Klang Free Zone Sdn Bhd, Sime Darby Bhd, Petra Perdana Bhd, Ho Hup Construction Co Bhd, Maxbiz Corp Bhd, Axis Inc Bhd and CNLT (Far East) Bhd. More recently, Bursa Malaysia has asked Kenmark Industrial Co (M) Bhd to appoint a special auditor to investigate its affairs, in view of the recent developments affecting the company, while Linear Corp Bhd said a special task committee reviewing the company’s financial records and statements would seek the advice of independent accountants on an ad hoc basis. In some of these cases, the media glare is also linked to shareholder tussles or political agenda, but at the core of it all is the fact that such special exercises – whether called audits, reviews or investigations – are supposed to answer plenty of questions. How much dirt will the special audit unearth? How much has been siphoned away? Who are the culprits and who else will be blamed? What needs to be done to eliminate the weaknesses that have allowed the fraud to occur? What will the regulators do? Most of all, the forensic accountants’ work heightens our awareness of the importance of internal controls, fraud detection and good governance. Below are several other prominent examples of special audits of listed companies: ·Transmile Group Bhd
Transmile was once a share market darling. Encouraged by the fact that the air cargo player stood to benefit from the growth of intra-Asian trade and that tycoon Tan Sri Robert Kuok was (and still is) the largest shareholder, analysts recommended the stock and many institutional investors bought into the story. Things abruptly began to fall apart in 2007, when the company missed the April 30 deadline for the submission of its audited accounts for 2006 because auditors Deloitte & Touche could not obtain from the management the necessary supporting documents for certain transactions relating to trade receivables and related sales, and purchases of property, plant and equipment. No longer sure about the reliability of the unaudited 2006 results, Transmile’s board of directors appointed Moores Rowland Risk Management Sdn Bhd to conduct a special audit on May 7. Some details of Moores Rowland’s interim report were released on May 30, while the findings set out in the final report were announced on June 16. The headline item was the revelation that the company had overstated revenue for financial years 2004 to 2006 by RM622mil. This relates to invoices issued to over 20 companies. In connection with this, Moores Rowland uncovered irregularities in Transmile’s trade receivables, cash receipts, and property, plant and equipment. The final report also singled out CEN Worldwide Sdn Bhd, a major customer of Transmile and also a 37.5% indirect associated company. Moores Rowland recommended a review of the billing of sales to CEN and of the trade receivables owing by CEN. A special audit of CEN was commissioned. The adjustments following the special audit on Transmile dramatically slashed the carrier’s shareholders’ fund as at December 2006, from the unaudited figure of RM1.39bil (announced in February 2007) to RM619mil as per the audited balance sheet. In July 2007, the Securities Commission (SC) charged three former Transmile senior executives – Gan Boon Aun (CEO), Lo Chok Ping (chief financial officer) and Khiudin Mohd (executive director) – for...
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