Category / News

by Edgar

Auditors to pay $775,000 damages

Who sue who and for what?
Gaelic Inns (of Muddy Murphy’s Irish Pub and Penny Black of Boat Quay) sued Patrick Lee Public Accounting Corporation for $1 million losses suffered by Gaelic Inns.

How was the monies stolen?
The then Group Finance Manager, Ms Denise Ang did not banked in the daily bar takings between March 2003 and May 2004.

What is the Hon Judge Belinda Ang’s decision and basis?
The Judge ruled in favour of Gaelic Inns and awarded $775,000 plus interest.

Judge said “while an auditor is not expected to be a detective, the duty to audit carries with it an incidental duty to warn… managementt or the directors of fraud or irregularities uncovered”.

Was it uncovered by the auditor?
The audit was in progress in March 2004 while the crime was still in progress.

Mr Lawrence Phong, the audit manager in charge then, was reviewing the bank reconciliation statements. There was a discrepancy of about $680,000 noted between cash balance as per accounts and actual cash in bank!

Mr Phong was faulted for not doing an indepth investigation immediately upon its discovery, tardy in follow-ups and lastly for not highlighting the matter to the management.

Conclusion
Does this decision further increase audit risk to the auditors? Lawyer Philip Fong, representing Gaelic Inns, seems to think so. The decision highlighted the need to review process and audit procedures of cash, particularly in F&B or retail businesses.

However, such annual audits are still not expected to discover frauds unless specially commissioned to do so. In this case, the auditor had laid his hands on the most glaring documents highlighting the crime ie. bank recon statements. And thus the decision.

Good night.

P/S – Pic of December’s rain clouds
by Edgar

“Brave New World” in Financial Reporting


The world’s biggest accountancy firms united in their call to make financial statements more meaningful for investors on 9 Nov 2006.

What are some of the proposed changes?

  • They are pushing to include more non-financial information.
  • They want quarterly financial statements to be replaced by real-time Internet-based reporting.
  • They want to create and present a menu of fraud audit proposals at different pricing.
  • Individual auditors (instead of the firm) be subject to penalty for faulty audits.

Who are the parties to this 24-page proposal?

PricewaterhouseCoopers, KPMG, Ernst & Young, Deloitte, Grant Thornton and BDO

Basis to include non-financial information

KPMG Singapore’s head of audit, Tham Sai Choy explained the close link between non-financial information and valuation of a company. Example of non-financial information – the changes to a company’s oil reserves, a telco’s subscriber numbers, an airline’s load factor etc. Is there a need for these numbers to be audited too as they become more and more meaningful in giving guidance to investors on its performance?

Basis for Internet-based reporting

The report has also suggested that information be easily accessed by users through new Internet-based reporting technologies. The main reason for the lag is the need to assure quality and reliability of business information to users. Till then, paper-based financial statements will prevail as the only legitimate form of communicating performance.

Basis for fraud audit proposals at different pricing

  • to close the expectation gap with clients to expect auditors to discover frauds and errors under current audit programmes
  • to provide clients with a choice on the level of intensity of investigative work needed

My Conclusion

It is an amazing effort for so many key players of the auditing industry to be able to come together present a united front. But what is the true underlying driving this cohesion? Is the auditing profession looking at how they can enhance their relevance to the business community and thus ensure their continued economic existence? One of the proposals highlighted the need for individual auditors (instead of the firm) be subject to penalty for faulty audits.

In any industry, the industry players are encouraged to do some self-regulation to ensure service quality and fair existence before the strong arms of the LAW come in and take full control of its destiny.