TO FIDDLE OR NOT TO FIDDLE

CASE REPORT PRESENTATION

Case 5

It is wrong for the economic officer make such a request as it breaches the fiduciary duty a director has towards the company.

Fiduciary duty is a legal obligation of the directors to act in the best interest the company.

Fiduciary duty has two main duties; duty of care and duty of loyalty, referring to due diligence and no personal gain respectively.

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

Therefore, Mr. Lee’s request of changing the current year losses to profits for his own personal gains breaches his fiduciary duty to the company, and the consequences of such an action are severe and not in the best interests of the company.

The consequences include:• disqualification,• restoration of the company’s property, • liability for all profits received by the director,• the damages or compensation where the company has suffered a loss,• rescission of any contract where the director failed to disclose an interest.

What are the consequences of giving into the economic officer’s request?

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

‘True and fair view’ financial reporting can be ensured through the placement of internal controls to maintain the integrity.

This includes processes and policies, as well as meeting regulations and complying with standards.

The company can conduct an internal audit to identify areas of improvement of controls.

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

The company can also set up the audit committee that assess the controls.

Lastly, it can be ensured through the practice of good corporate governance

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

The Malaysian accountants have to follow the International Financial Reporting Standards (IFRS), replacing the Malaysian Financial reporting Standards (MFRS), on 1st January 2012.

The standards serve as a common global standard, for better understanding and comparison of business affairs across borders

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

No, this cannot be true as Mr. T clearly states that he is unwilling to act .

He is committed to complying with the standards as well as maintaining the best interests of the foreign partner and company.

Furthermore, non compliance will result in termination of license to practice, and tax evasion is also serious matter

How and with what would you ‘educate’ the directors and management staff of the company?

The directors and management staff need to be educated on the merits of good corporate governance, by developing strategies that introduce the concepts and reflect the importance in daily operations.

By providing examples of companies that practiced good corporate governance, and the companies that did not practice good corporate governance and the consequences they face. The consequences of the breach of fiduciary duties will also be highlighted.