Auston and classification of expenses

Auston International Group’s former chief financial officer, Chua Peck Wee, 32, was sentenced yesterday to seven months in jail – for playing a part in the falsification of the company’s accounts four years ago. The charge carries a penalty of a fine and/or a maximum seven-year jail term.

Auston is a listed company in the education business.

What was the accounting falsification done?
The former CFO admitted to instructing its accounts staff to record a payment of $268,525 as ‘academic cooperation fees’ to the Upper Iowa University for FY2003.

This amount was actually a payment made by Auston to the University of Wollongong for university fees for FY2002.

What is the impact?
By falsely recording the amount as academic cooperation fees instead of university fees, Auston could capitalise it as a development cost and subsequently amortise the amount over three to five years from FY2003.

Essentially, Auston had avoided recognising $268,525 as expenses for FY2002. It increased the net profit for Auston’s IPO prospectus in 2003.

The ex-CEO said the ex-CFO had came up with the wonderful idea of smoothening out the expense. The ex-CFO said he was too weak to stand up against the ex-CEO’s demands.

Whatever the circumstances preceding the crime, you Mr ex-CFO had helped to pass the necessary entries. So you got to pay for it!

Reference – Jan 12, 2007, “Ex-Auston CFO gets seven months’ jail”, Business Times, Michelle Quah.

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3 Comments

  1. Hi Edgar,I never knew the value of this article until I met with some problems in my work. This article helps to explain the issues that is staring at me. It becomes a compass in my investigating work. But I still do not understand the importance of playing the figures in this instance because the end result of the expenses would still be expensed off to the profit and loss account, does it really matter in the accounts that it is spread over the years? After all, the expenses is still accounted for in the accounts.

    Reply

  2. Hi Edgar,Can I manipulate the accounts this way:Don’t pay the expenses for FY2002, so that invoice is still outstanding and avoided taking it into the accounts as a liability so that it will not throw up as an issue to the auditors? Ha Ha To the auditors: beware of RISK MANAGEMENT

    Reply

  3. As a standard procedure, auditors will perform a search for material unrecorded liabilities by reviewing unpaid invoices and payments made after year end. Unless you want to lie to your auditors that such invoice does not exist, your auditors will pick up the expense and liability. Lying to auditors is an offence under the Companies Act, Cap. 50.

    Reply

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