INTRODUCTION-DELIMA CASE STUDY

Topics: Board of directors, International Financial Reporting Standards, Audit Pages: 14 (2971 words) Published: November 13, 2014
1.0 INTRODUCTION

Based on case study A Delima, students are required to identify issued based on certain topics. Before that, we are required to present our ideas and evaluate plans and strategies to overcome problems by applying relevant techniques during our class. In this case relate to the concept of true and fair view of Financial Statement and focused on skills and attitudes of people in an organization. Moreover, this case make us understand and shows accountant should comply with the Malaysia Financial Reporting Standard (MFRS) and International Financial Reporting Standard (IFRS) respectively to show the reliability of Financial Statement. Besides, we are able to know the importance of corporate governance in the business world. A part from that, we are notice about the principle of separation of ownership and management in the company relating to the director’s fiduciary duty to the company. Plus, we need to recognize the code of ethics for Company Secretary. Last but not least, we should consider other aspects in this case to reflect the best recommendation to achieve the effectiveness and efficiency of the business management.

2.0 OVERVIEW OF THE CASE
A Delima case is about family businesses that are set up by Encik Zayed and Puan Hashimah. It conducted trading and supplying related products including manpower supplies to the oil and gas industries. Later in 2004, due to encouraging business growth, the enterprise was incorporated as Delima Enterprise Sdn Bhd (DESB). The two principal shareholders and controlling directors are Encik Zayed and Puan Hashimah (husband and wife). The company activities had expanded into provision of engineering services as part of their business diversification and expansion plans. The company had maintained a very lean organization with basic functional positions, with Encik Zayed as the Managing Director and his wife Puan Hashimah as the Chief Operating Officer. Puan Balqis work as the Operations Manager and Encik Salam as the Human Resource and Administrative Manager which are family members of the directors. In May 2006, Cik Amy was appointed and responsible for maintenance of the accounting and financial matters, including the preparation of accounts. Luckily in May 2006, the company had secured a contract worth RM 750,000 to be implemented over duration of six months. Due to shortage of funds, the company had submitted applications to Malayan Banking Berhad and CIMB Bank Berhad for banking facilities totaling RM 1 million. The banks required the company’s Audited Financial Statements for the last two years. Unfortunately at that time Encik Zayed realized that the company never performed the statutory audit. In July 2006, Encik Zayed engaged the external Auditor Aziz & Co (Chartered Accountant) to perform statutory audit for the period 2003 to 2006. The conflicts starts when the Auditors want to qualify the Financial Statement due to several unresolved issues but Encik Zayed and Puan Hashimah tried to negotiate to not qualify the Financial Statements. They also do not familiar with Accounting Standards and the provisions of the Companies Act 1965, including their roles and duties as Company Directors. The company had maintained a very lean organization and had employed family members as employed plus did not have the necessary working experience.

3.0 ISSUES AND RECOMMENDATIONS

3.1 Is there any abuse of power by the management and breach of fiduciary on the part of the directors? Section 132 of the Act provides that a director of a company shall exercise his power for a proper purpose and in the good faith for the best interest of the company. According to the ‘Company Law in Malaysia’, a director of a company is required to fulfill the criteria in performing his duty in the company. Firstly, exercise his power honestly and with integrity in what they believe to be the best interest of the company. Secondly, Directors must act in the...
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