- Relevant to F8(ACCA) and P1 (ACCA)
- PLEASE CAREFULLY CHECK THE ANSWERS "AFTER" YOU ATTEMPTED THEM
BTMH (Baker Tilly Monteiro Heng) asserts that Oilcorp client is overestimating its valuation of biofuel plant by RM10million to RM110million. The client insisted that was the fair valuation. However, BTMH replied that there was insufficient audit evidence and the sum in dispute of RM10 million is material that will impact on Oilcorp Berhad’s earnings.
Picture : Oilcorp's EGM to remove BTMH auditors
Oilcorp resorted to take another auditor, Horwath, to make an independent report on the findings. The latter gave a report consistent with company’s directors valuation of the asset. This pits both accounting firms against each other. BTMH countered that Horwath didn’t explain the inconsistencies it discovered.
Criticism from analysts is that Horwath has self-interest as it is given the offer to take the appointment as new auditors the client. The client announced that it wanted to replace BTMH through an EGM. Naturally, Horwath defended that their report is "strictly professional" and is ready to accept the appointment as Oilcorp’s new auditors. Shouldn’t the firm still decline the offer as they should also must be seen as independent?
Interesting twist to the ongoing politics, Horwath declined the new appointment as BTMH failed to give it professional clearance. Stating advice from the Malaysian Institute of Accountants, Howarth said a new external accountant must obtain the consent from the auditor it was replacing before it could take over.
Discursive issues:
a) What are the professional ethics principles that oblige auditors? Are there any threats? If so, are there any associated safeguards that you identified as threats? [12 marks]
b) What are the proper procedures for appointing new auditors? [8 marks]
Additional References :
Doreen Leong, 2008, theedegedaily.com, http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_4dcbdea3-cb73c03a-9c8c3f00-b27cccce, Visited on : 4th August
Doreen Leong & Jonathan Lim, theedegedaily.com, http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_48e5c0be-cb73c03a-d964af00-1b7200c3, Visited on : 4th August
Thestar, 2008, Bursa action against Oilcorp,
http://biz.thestar.com.my/news/story.asp?file=/2008/7/23/business/21895512&sec=business, Visited on : 4th August
Jagdev Singh Sidhu and Loong Tse Min, 2008, Oilcorp EGM Over Accounting Dispute Open To All, http://biz.thestar.com.my/news/story.asp?file=/2008/7/22/business/21884466&sec=business, Visited on : 4th August
Doreen Leong, 2008, BDO to take up role as Oilcorp’s auditor http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_bf127b3a-cb73c03a-cbd8dc00-e628a126 , 14th August
7 comments:
sir.
should i type my answers here?
its kinda long...i think ;p
What is the final outcome of the case? is the asset valued according to BHMT or the director's valuation?
Does it mean if incumbent auditors refuse to give professional clearance, the client will never get to hire a new 'ethical' auditor to replace the previous?
And the directors has to comply with the incumbent auditors' request even if it is bias?
Who is there to judge whether the audit firm, ie BHMT is doing the right thing? security commission? MIA?
ultimately, the government will step in with new laws. before that MIA offers recommendations on code of practice. Security commission has immediate powers because threat to de-list Oilcorp prove disastrous. shares not tradeable in public will destroy investors' confidence. so at SC level will suffice.
interesting that i pose questions, you pose more. well attempt the discursive questions before the answers arrive.
When professional clearance is not obtained, it does not mean that the client will never get to hire a new "ethical auditor". In fact, and "ethical auditor" would AND should not accept appointment whenever a professional clearance is not obtained. This would mean that the company is risky, and the firm wouldnt want to be associated with a risky company wouldnt it?
On the other hand, Horwath actually breached the ethics by coming out with a second opinion. I think in F8, it has been taught that second opinion should not be seeked in the first place, as they(horwath) will not have the whole evidence in hand, and thus biassed evidence will only lead to biassed decisions. Therefore, i wouldnt call the new auditor as "ethical" in the first place.
My comment is just a partial reply to "anonymous's" question above.
From the way it looks, Oilcorp will be delisted and may lose its competitiveness as many had speculate they are in fact trading in fraud.
By right, Oilcorp need to inform BTMH about inquiring for 2nd opinion. After that, the 2nd auditor need to acquire the 'professional clearance' from BTMH before accepting the audit appointment. There is no need for the MIA or ROC or the government to step into this matter.
Most of the time, the SC would deal with this type of matter. Ethical is very subjective, it is only a guideline for the auditors to practice and it is very often ignored in the real world.
When it comes down to reporting to the shareholder during the AGM, who wants to hear about auditor's ethical point of view? They rather know whether there was any fraudulent trading that may have reduce the shareholders' wealth.
Sir, your question on "What are the professional ethics principles that oblige auditors?",may i know wether we should answer it in a general manner by listing out all the POCIP or specific to the case study given here by identifying the risk of certain POCIP encountered by the auditors in this case study?
I think your question just need to include the statutory ethics(POCIP) and the additional ethics(IOI) plus the safeguards(SSFAI).
The question kinda tough to answer if you look at the notes while doing it. There is so much to write especially for the safeguards, just look at Self-Interest.. it's just so much to write.
Good luck attempting.
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