News
Transmile Fiasco MSWG Intrigued By Deloitte Statements.
26 July 2007
“SHAREHOLDERS, WAKE UP AND UNITE TO DEMAND ANSWERS TO MISMANAGEMENT OF THE COMPANY’S AFFAIRS BY PREVIOUS MANAGEMENT OF MP TECH”
MSWG is intrigued by the press statements attributed to Mr Chaly Mah, who is both Senior Partner of Deloitte Singapore and head of Deloitte Asia-Pacific, in which he defends the work of Deloitte Malaysia in the audit of Transmile.
Whilst some of Mr Mah’s points are well considered, Deloitte has not appropriately addressed the importance of auditing and that poor auditing can hide flaws that have the potential to bring a company to its knees. The market confidence has been marred by these scandals. Companies, directors and auditors need to work diligently to make sure that their books are accurate and audits are conducted with due skill and care. Anything short of this requires swift and effective actions, not from someone outside Malaysia telling us that we are going through “the process of growing up”. Let’s not forget what happened in Barings and China Aviation Oil. Unless Mr Mah has found Harry Potter’s magic wand, it will take more than statements to explain the firm’s Transmile situation.
It is good that Deloitte should speak up. We would however have preferred to see the Deloitte senior partner in Malaysia clarify the matter. He is close to the situation. He could have put more thoughts and needs on issues surrounding improving financial reporting and audit quality. All too often, this has not been addressed head-on: QUALITY.
Quality is the hallmark of an auditors’ trade and competence/integrity. With a number of ‘strikes’ involving Deloitte including Transmile, Nasioncom and Pasaraya Hiong Kong, isn’t the market justified in being wary of the firm’s practical commitment to quality?
In practical terms, a commitment to quality means huge investments in dollars and cents: flying in trainers, and flying out trainees; people seconded to overseas etc in numbers; independent quality reviews which can make or break careers; investment beyond technical training to develop industry skills; investment in specialist technical and methodology teams who do no client-facing work; and yes disciplined partners. In short, any audit firm which has not changed beyond recognition in the last 10 years has not got its quality under control.
All the major audit firms must realise that they often confer a certain amount of respectability on their clients by their very presence. Like it or not, less diligent analysts and shareholders continue to do less due diligence of their own if a major firm is on the job. Therefore, these firms must be careful, especially whilst integrity levels amongst certain of our businessmen seem to remain at ‘developmental’ levels. They must be careful to choose their clients carefully, and to charge the fees which allow them to do excellent work. If the fee is too small, then market-watchers need to beware.
Mr Mah really should not lecture “countries like Malaysia” that we place too much emphasis on the duties of auditors and not enough on the Directors. Anyone who has studied the matter will be aware that Malaysian laws and regulations are very similar to those of the UK and Singapore in this respect, and place the primary responsibility for the running of companies and for the accounts on the Directors. He should also be aware that several Directors/Senior Management of Transmile have been charged by our Securities Commission. Our Code of Corporate Governance is similar to that of Singapore, and has been in place a year longer.
It will be very hard for any audit firm to regain the public’s trust after being associated with several bad client episodes. However, it is not impossible.
Instead of waving Harry Potter’s wand around in a vain attempt to “magic away” the Quality issue, we recommend a more serious approach. We would like to suggest that the major accounting firms adopt, if they have not done so, a simple 5-Point Plan for Quality:
Harsh? Perhaps, but realistic too. For in MSWG’s view, it is intriguing to say the least for the shareholders of Transmile who have lost many millions resulting from the financial fiasco going back a number of years to read the press statements attributed to Mr Mah. The current high profile of governance issues/failures governing irregular accounting will not necessarily last forever and audit could slip back towards being a commodity service sold on price. The profession itself can and should do what it takes to ensure that the value of audit judgement is not undervalued.
Abdul Wahab Jaafar Sidek
Chief Executive Officer
Minority Shareholder Watchdog Group (MSWG)
Dated: 26 July 2007
26 July 2007
“SHAREHOLDERS, WAKE UP AND UNITE TO DEMAND ANSWERS TO MISMANAGEMENT OF THE COMPANY’S AFFAIRS BY PREVIOUS MANAGEMENT OF MP TECH”
MSWG is intrigued by the press statements attributed to Mr Chaly Mah, who is both Senior Partner of Deloitte Singapore and head of Deloitte Asia-Pacific, in which he defends the work of Deloitte Malaysia in the audit of Transmile.
Whilst some of Mr Mah’s points are well considered, Deloitte has not appropriately addressed the importance of auditing and that poor auditing can hide flaws that have the potential to bring a company to its knees. The market confidence has been marred by these scandals. Companies, directors and auditors need to work diligently to make sure that their books are accurate and audits are conducted with due skill and care. Anything short of this requires swift and effective actions, not from someone outside Malaysia telling us that we are going through “the process of growing up”. Let’s not forget what happened in Barings and China Aviation Oil. Unless Mr Mah has found Harry Potter’s magic wand, it will take more than statements to explain the firm’s Transmile situation.
It is good that Deloitte should speak up. We would however have preferred to see the Deloitte senior partner in Malaysia clarify the matter. He is close to the situation. He could have put more thoughts and needs on issues surrounding improving financial reporting and audit quality. All too often, this has not been addressed head-on: QUALITY.
Quality is the hallmark of an auditors’ trade and competence/integrity. With a number of ‘strikes’ involving Deloitte including Transmile, Nasioncom and Pasaraya Hiong Kong, isn’t the market justified in being wary of the firm’s practical commitment to quality?
In practical terms, a commitment to quality means huge investments in dollars and cents: flying in trainers, and flying out trainees; people seconded to overseas etc in numbers; independent quality reviews which can make or break careers; investment beyond technical training to develop industry skills; investment in specialist technical and methodology teams who do no client-facing work; and yes disciplined partners. In short, any audit firm which has not changed beyond recognition in the last 10 years has not got its quality under control.
All the major audit firms must realise that they often confer a certain amount of respectability on their clients by their very presence. Like it or not, less diligent analysts and shareholders continue to do less due diligence of their own if a major firm is on the job. Therefore, these firms must be careful, especially whilst integrity levels amongst certain of our businessmen seem to remain at ‘developmental’ levels. They must be careful to choose their clients carefully, and to charge the fees which allow them to do excellent work. If the fee is too small, then market-watchers need to beware.
Mr Mah really should not lecture “countries like Malaysia” that we place too much emphasis on the duties of auditors and not enough on the Directors. Anyone who has studied the matter will be aware that Malaysian laws and regulations are very similar to those of the UK and Singapore in this respect, and place the primary responsibility for the running of companies and for the accounts on the Directors. He should also be aware that several Directors/Senior Management of Transmile have been charged by our Securities Commission. Our Code of Corporate Governance is similar to that of Singapore, and has been in place a year longer.
It will be very hard for any audit firm to regain the public’s trust after being associated with several bad client episodes. However, it is not impossible.
Instead of waving Harry Potter’s wand around in a vain attempt to “magic away” the Quality issue, we recommend a more serious approach. We would like to suggest that the major accounting firms adopt, if they have not done so, a simple 5-Point Plan for Quality:
- Call in a Quality Review of all aspects of the firm - not just Audit Quality, but Tax, HR, Risk Management, Independence and overall Firmwide Management. The benchmarks should be Global standard.
- Implement the recommendations in full. Penalise partners and staff who do not measure up. The modern accountancy firm is not a collection of individuals doing as they please. The partners follow rules and adhere to strict standards, or face the consequences.
- Import 2 or 3 partners to bring up the day-to-day quality. Staff secondments are normal in the large firms. They cost money, but fines and loss of reputation cost many times more.
- The firms should keep the market abreast of the steps taken. We all know it is a journey, but openness will be more believable than denial.
- Repeat 1-4 for two years. That should do it.
Harsh? Perhaps, but realistic too. For in MSWG’s view, it is intriguing to say the least for the shareholders of Transmile who have lost many millions resulting from the financial fiasco going back a number of years to read the press statements attributed to Mr Mah. The current high profile of governance issues/failures governing irregular accounting will not necessarily last forever and audit could slip back towards being a commodity service sold on price. The profession itself can and should do what it takes to ensure that the value of audit judgement is not undervalued.
Abdul Wahab Jaafar Sidek
Chief Executive Officer
Minority Shareholder Watchdog Group (MSWG)
Dated: 26 July 2007
