In Malaysia, fiscal dirts have occurred due to failure of hearers to describe on the truth of the companies province of personal businesss. This are seen in instances such as Equine Bhd, KYM Holding, MTD ACPI Engineering Berhad, Axis Incorporation Bhd, BSA International Bhd, EkronBhd, JaycorpBhd, London Biscuit Bhd, Syarikat Takaful Malaysia Bhd, Tanjung Offshore Bhd, Talam Corporation Bhd and etc.
Therefore, hearers ‘ responsibilities and duties must be clarified due to the fiscal dirts. In fact, fiscal dirts are one of the major grounds for alteration in company jurisprudence. However, it should non be a instance of larning the incorrect lesson from those fiscal dirts. The fiscal dirts prove to demo that the hearers have fallen below the expected criterions.
If a company were to neglect within certain months after being audited, the hearers are blamed for asked whenever at that place has been a fiscal dirt is, whether the hearers carried out their responsibilities and duties decently. On the other manus, differentiation should be made between audit failures and concern failures. In the former instance, the incrimination should be attached on the hearers.
In the ulterior instance, there are external factors attached. This is because non all concern failures are due to scrutinize failures. This can be seen as respects to General Motors Corp ‘s in the United States of America whereby the hearers of the company, Deloitte & A ; Touche have raised significant uncertainties about the company ‘s ability to go on operations.
The hearers have pointed out the company ‘s ability to go on which is non due to the hearers ‘ ineffectualness in indicating out the errors. On the other manus, in the context of Malaysia, Transmile Group Bhd. which is company controlled by Robert Kuok, sparked of a concern sing hearers ‘ responsibilities and duties. Accounting abnormalities and fraud were discovered in the company.
The company overstated the histories to demo it made net incomes of RM75 million and RM158 Million for two back-to-back old ages of 2005 and 2006 severally. In existent fact, the company was at net loss of RM370 million and RM126 million severally.
The stock dropped to Rm9.55, which is the lowest in two old ages. However, the loss was non detected by Deloitte & A ; Touche who were the hearers of the company but it was detected through a particular audit by Moores Rowland as appointed by the company. However, Deloitte and Touche dismissed the claim that they failed to observe the accounting abnormalities. Furthermore, they claimed that it is non operable to anticipate audit to stand for a 100 per cent cheque of a company ‘s fiscal well being.
Transmiles Group was non convinced with such reply and therefore, it replaced Deloitte & A ; Touche with Klnveld Peat Marwick Goerdeler[ which is another scrutinizing house. It should be noted that KPMG is an hearer for some of the companies owned by Robert Kuok.KPMG offers due diligence and corporate revenue enhancement advisory services to Perlis Plantation Bhd which is a company owned by Robert Kuok. Such services autumn within the horizon of non-audit services.
Therefore, the issue is whether there is struggle of involvements and whether the independent of hearers is at interest. However, hearers are free to offer non-audit services as it is non prohibited by the Torahs viz. the Companies Act 1965 and the Capital Market and Services Act 2007. Be that as it may, the inquiry is whether the hearers will be able to move as effectual watchdogs.
Enron, the Texas-based energy trading company is the first dirt which shook up the scrutinizing profession although there were many instances affecting hearers since the eighteenth century. Enron has caused a crisis to the assurance in hearers ( Worden, 2002 ) and the dependability of fiscal coverage ( Holm & A ; Laursen, 2007 ) .
The audit quality and the independency of the hearers were questionable ( Davis, 2002 ) . This is because the hearers, who were Arthur Andersen, were non merely having fees for scrutinizing but for non-audit services excessively i.e. for consultancy services. In 2001, Arthur Andersen earned US $ 55 million for non audit services ( Brown, 2005 ) . There were regular exchanges of employees within Enron from Arthur Andersen.
A farther issue is that although Arthur Andersen was doing a study on the company ‘s histories, they did non describe fraud to the shareholders and stakeholders. This is because the fraud was committed by the direction. Kenneth Lay took place US $ 152 million although the company was confronting a loss. If the hearers were to describe they likely will non be appointed in subsequent old ages or be engaged for non audit services. They made sure that they were in the direction ‘s good books. They maintained confidentiality but for the incorrect grounds.
The U.S authorities assured the shareholders and the stakeholders that Enron was merely a instance of one bad apple. Nonetheless, in 2002, WorldCom which is one of the biggest telecommunications company in US collapsed. The company faced US $ 28 billion in loans and yet Bernie Ebbers who ran the company was given a loan of US $ 366 million ( Banyard, 2002 ) . The hearers were Arthur Andersen. It was found that the hearers did non take proper stairss in observing accounting abnormalities ( Wong, 2004 ) . Although it is the responsibility of the hearers to observe accounting abnormalities, they failed to make so. Since they failed to make so truly they should be apt.
In Australia, the collapsed of HIH Insurance Ltd was seen as the beginning of the contemplation into hearers ‘ function, responsibilities and duties. The hearers were Arthur Andersen. The hearers were supplying audit and non-audit services. Furthermore, the hearers ignored a papers dated July.
Arthur Andersen LLP agreed to pay $ 217 million to settle a lasuit over its audits for the Baptist Foundation of Arizona. This was the 2nd largest colony of all time agreed to by a major accounting house. The case alleged that Andersen comptrollers failed to observe deceitful activity at the foundation. 11,000 people, most of them aged investors, lost $ 570 million when the Baptist Foundation of Arizona filed for bankruptcy in 1999. The bankruptcy filing was one of the largest bankruptcy filings by a not-for-profit organisation. With the money from Arthur Andersen and returns from the sale of the foundation assets, investors are expected to retrieve approximately 70 cents for each dollar invested.
The Baptist Foundation of Arizona was founded in 1948 to raise money to back up Baptist causes and to pay a return for investors. It filed for bankruptcy in 1999 after many of the foundation ‘s executive had been convicted of condemnable charges or indicted for fraud.
The case against Arthur Andersen alleged that Andersen hearers failed to observe deceitful activity at the Baptist Foundation, including “ concealing real-estate losingss by reassigning overvalued assets to blast companies in exchange for IOUs, and prosecuting in a Ponzi-like strategy of utilizing new investor financess to do payments to old investor ”. A Ponzi strategy is an investing fraud where early investors are given returns from financess collected from ulterior investors, even though no investing net incomes have yet been earned. When the test began, The wall street Journal stated, For Andersen, the inquiry likely is n’t whether the houses is apt at all, but instead how much it should be required to pay. ”
Dan Guy an expert informant called to attest against Andersen over the foundation audits, said, Arthur Andersen did non populate up to the lower limit demands in the regulations set for hearers. ” The case alleged that Arthur Andersen hearers did small to look into allegations of fraud from whistle blowers, and because of this skip they were complicit in maintaining fraud concealed from investors. During the test, Guy testified that he had reviewed Andersen working documents, every bit good as the depositions from whistle blowers, and determined that the fraud at the Baptist Foundation was non impenetrable.
With the information from the whistle blowers, Andersen had an duty to garner grounds to look into the charges. Mentioning a 1997 conversation between Baptist Foundation accountant Karen Paetz and Ann McGath, the Andersen hearer, McGath acknowledged that the client told her that the Baptist Foundation was selling overvalued assets to a related-party company. Harmonizing to Guy ‘s testimony, this sort of information would motivate a knowing hearer to look into further.
Extra grounds related to deceitful activity that had been disclosed to the hearers was presented during the test. Two main fiscal officers of Texas Baptist Organization and a fiscal adviser from Mesa, Arizona, testified that they tried to alarm Andersen to fiscal impropernesss at the foundation and the likeliness that the foundation was broke. Andersen had non responded to their calls.
Andersen placed the incrimination for the foundation prostration on the company ‘s executives, the foundation ‘s jurisprudence house, and province regulators who failed to look into investor ailments in the early 1990s. Harmonizing to statements by Andersen executives, There is clear grounds that all members of the Baptist Foundation ‘s senior direction and a bulk of the Board of Directors engaged in a confederacy of silence to deny information about the Baptist Foundation ‘s fiscal status to the Arthur Andersen hearers. ”
The colony came one hebdomad into the test against Arthur Andersen, saving Andersen from farther tribunal proceedings and leting it to avoid potentially disabling punitory amendss. Under the footings of colony, Andersen neither admits nor denies wrongdoing. In June 2002, Andersen paid the balance of the $ 217 million colony, leting Arthur Andersen to shut the instance brought against the house in connexion with the foundation audits.