INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCESDEPARTMENT OF ACCOUNTING

ACC 4291: INTEGRATED CASE STUDY

GROUP CASE STUDY:

TO FIDDLE OR NOT TO FIDDLE

INSTRUCTOR: PROF. DR. SHAMSUL NAHAR ABDULLAH

SECTION: 2

PREPARED BY:

MOHAMED MUAZ RUSLAN 0822261

NURUL HANA ABDUL MUTALIB 0910200

UMMU ATIQAH ZAINULABID 0917154

DATE SUBMITTED: 29nd April 2013

TABLE OF CONTENTS

No Topic Page

1 Summary, Protagonist, Main Issue and Problem 3-5

2 Why is it wrong for the economic officer to make such a request? 5

3 What are the consequences of giving in to the economic officer/s request?

4 How would you ensure „true and fair view‟ of financial reporting?

5 What are the Accounting standards a Malaysian accountant has to comply with?

6 “Those foreign accountants like to show an account making a loss, to avoid paying tax”, alleged the Economic Officer. Can it be true?

6

7 How and with what would you „educate‟ the directors and management staff of the company?

8 References 7

SUMMARY

The case is about a financial controller in a Sino – Malaysian joint venture was asked

by a director representing the interest of the Chinese government, who was also a government

official supervising foreign JV companies, to change the P&L position from loss to profit, so

that he could paint a rosy picture in his report of JV performance under his charge. This case

introduces the scenario in which an accountant may face when he works in a foreign country

in a joint venture. The case also serves to illustrate the importance of corporate governance in

the business world. Corporate governance encompasses achieving corporate mission or

objective, law compliance, upholding code of best practices and adherence to business and

personal ethics. The corporate governance could be the foundation of a better business world

where fraud, malpractice, corruption could be minimised.

PROTAGONIST / DECISION MAKER AND PROBLEM FACED

The protagonist in this case reflected to Mr. Zhang as General Manager

which also as the one who makes the decision. He is the one who

responsible due to accidentally decision making in solving two main

problems which might bring so many causes to the company’s future

decision and performance.. It is either to:

Proceed with Mr. Lee idea to change the P&L position from loss

to profit

Support Mr. T in following the ethical code of Malaysian Institute

of Accountants.

MAJOR ISSUE IN THE CASE

The major issue in this case is regarding the lack of corporate

governance within the business. The solutions available would be for Mr.

Zhang to have good corporate governance, which can lead to good

internal control, increase productivity, increase profit, will decrease fraud,

and reduce audit risk. When establish a company, board of directors set

up corporate governance in the company and implement in. All BOD

should adhere with the CG rules. CG is the system by which companies

are directed and controlled.

PROBLEMS

The dilemma can also faced by an accountant working in a family

owned company in Malaysian, where decision is made by the ever

powerful founder-owner.The case also serves to illustrate the importance

of corporate governance in the business world. Corporate governance

encompasses achieving corporate mission or objective, law compliance,

upholding code of best practices and adherence to business and personal

ethics. The corporate governance could be the foundation of a better

business world where fraud, malpractice, corruption could be minimised.

CASE ANALYSIS (TO FIDDLE OR NOT TO FIDDLE):-

(a) Why is it wrong for the economic officers to make such request?

The request made by Mr Lee as a district economic officer cum team leader

representing the local partners, was unquestionably wrong from various perspectives. It was

an action that is defined as an act of corruption of which Mr Lee attempted to utilize his

power for the benefit of self-interest. The request made was generally wrong from the legal

and ethical perspectives and may further be elaborated respectively.

Ethical Perspective

From the ethical perspective relating to the scenario, the request for modification of

the financial information of YBLC for the accounting period by Mr Lee was unethical. The

unethical act was due to the manipulation of power in attempt to mislead the financial

information users from truthful representational of information and achieves personal gains at

the expense of other users.

Legal Perspective

From the legal perspective, the request made by Mr Lee could potentially violated the

law and accounting standards if it was to be executed by the entity in order to maintain its

relationship with Mr Lee and preserve his track records my modifying the financial

information of the entity to be profitable when it is not. Along with corruption behaviour that

is considered to be unethical, it is also deemed to be violating the Law in general. Every

judiciary systems usually have specific clause that attempt to deal with corruption. However,

it must be noted, in the case of China, due to the fact of cultural variance and norms, the

execution aspect of the clause may be weak. Additionally, the from the accounting standards

legislative point of view, the request also deemed to be illegal and violating the standards as

it fails to maintain the objective of transparent representation of financial information to

reflect true and fair view.

(b) What are the consequences of giving in to the economic officer’s request?

There are several repercussions to giving in to the economic officer’s request as

described in the scenario. The major consequence caused would be that the financial

information will not reflect true and fair financial position of YBLC and inevitably mislead

its users in making decisions. Accounting standards board require all financial report to be

recorded and constructed according to the accounting standards to ensure reliability of the

information provided to the users through transparency and relevance. It attempts to provide

the users with financial information that represent true position of the entity for the users to

make the best possible decision. Internal and external users that are depending on the

financial information would be misled into making decision that are not well informed and

not in the best of their interest. Investor and Potential investors would be led to believe that

the company has started to become profitable and expect return. Additionally, this

misrepresentation of the financial information to show profitability would also require the

entity to pay the amount taxable from the stated profit and increase the amount of liability of

the entity.

The attempt to fulfil the request will only save the economic officer in the short-term

as YBLC would have to prepare itself for negative snowballing effects from the ethical, legal

and economic consequences that largely possible from fulfilling the request. Matters such as

the credibility of the foreign investor (PPLC) in the perspective of local business and

government and also the legal consequences from violating the laws could potentially harm

the investment and joint-venture initiative in the long term.

(c) How would you ensure ‘true and fair view’ of financial reporting?

True and fair view is one of the most prominent principles of accounting. It suggests

that an enterprise should provide a true and fair view about its financial conditions and

operating results. True and fair view of financial reporting can be described as ensuring and

assessing whether accounts do indeed portray accurately the business' activities. Financial

statements are a product of management’s judgments and estimates. The principle of true and

fair view requires comparative truth about the enterprises picture. True and fair view is

thought to be accomplished by complying with all other lower accounting standards.

 So, to the term True and Fair View can be ensure with these statements should be

presented fairly and should follow accurate and unbiased views with respect to the Financial

Position, Financial Performance and Cash flow of an entity so as to avoid any possible

susceptibility. Moreover, this is the responsibility of the Auditor to determine whether

statements are true and fair, and this statement will be presented to the Management / CEO

for approval.

(d) What are the Accounting standards a Malaysian accountant has to comply with?

In Malaysia, there is an accounting board which is called as the Malaysian

Accounting Standards Board (MASB). Malaysian accountants have to comply with the

accounting standards issued by MASB. In Malaysia,

(e) “Those foreign accountants like to show an account making a loss, to avoid

paying tax”, alleged the Economic Officer. Can it be true?

No, it is not true. Basically, the company actually incur losses because of not have

enough experience due to just few years enter this market. Moreover, it stated in this case that

the company also faces loss due to insufficient material (e.g; logs) to allocate in operations.

Here, it is not necessary that if the company making losses, so they will pay less tax.

It is possibility that the company will need to pay taxes to next year profit if it make loss in

this year. Tax avoidance has been branded by some as an immoral and unethical practice that

undermines the very integrity of the tax system. As result, if the company choose to alter P/L

position from loss to profit, here the consequences that may occur:-

i. Lack of integrity as accountant.

ii. If he found guilty, he might lost his practice license

iii. If he not found guilty, there might be a high possibilities of repeating the same fraud

again.

(f) How and with what would you educate‟ the directors and management staff of

the company?

The first thing that we could do in order to ‘educate’ the director and the management

staffs of the company are by everyone should familiarise themselves with:

• Business law,

• Financial reporting standards for Malaysia,

• Principles of international taxation

• Tax avoidance vs. tax evasion

• Corporate governance

• Code of ethics for MIA members

Secondly, the company should sponsor them to go for training. Training refers to the

acquisition of knowledge, skills, and competencies. As we all know, training is necessary to

the achievements of a business as it will bring benefits not only for the company itself, but

also the staffs. Probably its most positive benefit is better employees. This is due to training

be able to encourages their improvement of giving better performance. Consequently, good

training is just as important as a good benefits package for an employee. By going to the

training, it will help in developing their capability, capacity, and performance that will benefit

the company indirectly. For instance, relate the accounting training to date to explain the

concept of ‘true and fair view’ of financial statements in order to improve staff skill and

attitude.

Besides, the company also can send their director and management staff to attend the

seminar. Seminars are essentially arranged to discuss current issues and problems or to share

ideas. Usually, a seminar is in a small group of discussion in a formal setting together with

the clear agenda. From the seminar, the director and management staff can learn new

information from the presenter as it will brainstorm their idea and they can get immediate

feedback on any issues that bothering them. This seminar can build their foundation to be a

superior employee. Moreover, it also helps in improving their technical knowledge that will

give aid in managing the company in order to ensure its effectiveness and efficiency.

Other than that, the company should tighten their policy. A company policy is a

documented set of basic principles and associated guidelines, formulated and enforced by the

governing body or an assigned committee of an organization that direct and limit a

company’s decisions and actions in pursuit of its objectives. This policy will help the

company to drive strategic planning, and help set expectations and performance objectives. It

also ensures it accountability and creates transparency. So, an accountant must comply with

the Malaysian accounting standards in order to understand and appreciates the government

efforts.

REFERENCES

1. Messier/Glover/Prawitt/Margaret Boh, Auditing and Assurance Services in Malaysia,

McGraw-Hill Education (Malaysia), 2007.

2. http://www.youtube.com/watch?v=WcCFMX5HiVU

3. Case Studies for integrated case study course ,MIA