INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES

ACC 4291: INTEGRATED CASE STUDY

GROUP CASE STUDY: TO FIDDLE OR NOT TO FIDDLE INSTRUCTOR: PROF. DR. SHAMSUL NAHAR ABDULLAH SECTION: 2

PREPARED BY: MOHAMED MUAZ RUSLAN NURUL HANA ABDUL MUTALIB UMMU ATIQAH ZAINULABID 0822261 0910200 0917154

DATE SUBMITTED: 29nd April 2013

TABLE OF CONTENTS No 1 2 3 4 5 6 7 8 Topic Summary, Protagonist, Main Issue and Problem Why is it wrong for the economic officer to make such a request? What are the consequences of giving in to the economic officer/s request? How would you ensure true and fair view of financial reporting? What are the Accounting standards a Malaysian accountant has to comply with? Those foreign accountants like to show an account making a loss, to avoid paying tax, alleged the Economic Officer. Can it be true? How and with what would you educate the directors and management staff of the company? References 6 Page 3-5 5

SUMMARY

The case is about a financial controller in a Sino Malaysian joint venture was asked by a director representing the interest of the Chinese government, who was also a government official supervising foreign JV companies, to change the P&L position from loss to profit, so that he could paint a rosy picture in his report of JV performance under his charge. This case introduces the scenario in which an accountant may face when he works in a foreign country in a joint venture. The case also serves to illustrate the importance of corporate governance in the business world. Corporate governance encompasses achieving corporate mission or objective, law compliance, upholding code of best practices and adherence to business and personal ethics. The corporate governance could be the foundation of a better business world where fraud, malpractice, corruption could be minimised. PROTAGONIST / DECISION MAKER AND PROBLEM FACED

The protagonist in this case reflected to Mr. Zhang as General Manager which also as the one who makes the decision. He is the one who responsible due to accidentally decision making in solving two main problems which might bring so many causes to the companys future decision and performance.. It is either to: Proceed with Mr. Lee idea to change the P&L position from loss to profit Support Mr. T in following the ethical code of Malaysian Institute of Accountants.

MAJOR ISSUE IN THE CASE

The major issue in this case is regarding the lack of corporate governance within the business. The solutions available would be for Mr. Zhang to have good corporate governance, which can lead to good internal control, increase productivity, increase profit, will decrease fraud, and reduce audit risk. When establish a company, board of directors set up corporate governance in the company and implement in. All BOD should adhere with the CG rules. CG is the system by which companies are directed and controlled. PROBLEMS

The dilemma can also faced by an accountant working in a family owned company in Malaysian, where decision is made by the ever powerful founder-owner.The case also serves to illustrate the importance of corporate governance in the business world. Corporate governance encompasses achieving corporate mission or objective, law compliance, upholding code of best practices and adherence to business and personal ethics. The corporate governance could be the foundation of a better business world where fraud, malpractice, corruption could be minimised.

CASE ANALYSIS (TO FIDDLE OR NOT TO FIDDLE):-

(a)

Why is it wrong for the economic officers to make such request? The request made by Mr Lee as a district economic officer cum team leader

representing the local partners, was unquestionably wrong from various perspectives. It was an action that is defined as an act of corruption of which Mr Lee attempted to utilize his power for the benefit of self-interest. The request made was generally wrong from the legal and ethical perspectives and may further be elaborated respectively. Ethical Perspective From the ethical perspective relating to the scenario, the request for modification of the financial information of YBLC for the accounting period by Mr Lee was unethical. The unethical act was due to the manipulation of power in attempt to mislead the financial information users from truthful representational of information and achieves personal gains at the expense of other users.

Legal Perspective From the legal perspective, the request made by Mr Lee could potentially violated the law and accounting standards if it was to be executed by the entity in order to maintain its relationship with Mr Lee and preserve his track records my modifying the financial information of the entity to be profitable when it is not. Along with corruption behaviour that is considered to be unethical, it is also deemed to be violating the Law in general. Every judiciary systems usually have specific clause that attempt to deal with corruption. However, it must be noted, in the case of China, due to the fact of cultural variance and norms, the execution aspect of the clause may be weak. Additionally, the from the accounting standards legislative point of view, the request also deemed to be illegal and violating the standards as it fails to maintain the objective of transparent representation of financial information to reflect true and fair view. (b) What are the consequences of giving in to the economic officers request? There are several repercussions to giving in to the economic officers request as described in the scenario. The major consequence caused would be that the financial information will not reflect true and fair financial position of YBLC and inevitably mislead its users in making decisions. Accounting standards board require all financial report to be recorded and constructed according to the accounting standards to ensure reliability of the information provided to the users through transparency and relevance. It attempts to provide the users with financial information that represent true position of the entity for the users to make the best possible decision. Internal and external users that are depending on the financial information would be misled into making decision that are not well informed and not in the best of their interest. Investor and Potential investors would be led to believe that the company has started to become profitable and expect return. Additionally, this misrepresentation of the financial information to show profitability would also require the entity to pay the amount taxable from the stated profit and increase the amount of liability of the entity. The attempt to fulfil the request will only save the economic officer in the short-term as YBLC would have to prepare itself for negative snowballing effects from the ethical, legal and economic consequences that largely possible from fulfilling the request. Matters such as the credibility of the foreign investor (PPLC) in the perspective of local business and

government and also the legal consequences from violating the laws could potentially harm the investment and joint-venture initiative in the long term.

(c)

How would you ensure true and fair view of financial reporting? True and fair view is one of the most prominent principles of accounting. It suggests

that an enterprise should provide a true and fair view about its financial conditions and operating results. True and fair view of financial reporting can be described as ensuring and assessing whether accounts do indeed portray accurately the business' activities. Financial statements are a product of managements judgments and estimates. The principle of true and fair view requires comparative truth about the enterprises picture. True and fair view is thought to be accomplished by complying with all other lower accounting standards. So, to the term True and Fair View can be ensure with these statements should be presented fairly and should follow accurate and unbiased views with respect to the Financial Position, Financial Performance and Cash flow of an entity so as to avoid any possible susceptibility. Moreover, this is the responsibility of the Auditor to determine whether statements are true and fair, and this statement will be presented to the Management / CEO for approval.

(d)

What are the Accounting standards a Malaysian accountant has to comply with? In Malaysia, there is an accounting board which is called as the Malaysian

Accounting Standards Board (MASB). Malaysian accountants have to comply with the accounting standards issued by MASB. In Malaysia,

(e)

Those foreign accountants like to show an account making a loss, to avoid

paying tax, alleged the Economic Officer. Can it be true? No, it is not true. Basically, the company actually incur losses because of not have enough experience due to just few years enter this market. Moreover, it stated in this case that the company also faces loss due to insufficient material (e.g; logs) to allocate in operations.

Here, it is not necessary that if the company making losses, so they will pay less tax. It is possibility that the company will need to pay taxes to next year profit if it make loss in this year. Tax avoidance has been branded by some as an immoral and unethical practice that undermines the very integrity of the tax system. As result, if the company choose to alter P/L position from loss to profit, here the consequences that may occur:i. ii. iii. again. Lack of integrity as accountant. If he found guilty, he might lost his practice license If he not found guilty, there might be a high possibilities of repeating the same fraud

(f)

How and with what would you educate the directors and management staff of

the company? The first thing that we could do in order to educate the director and the management staffs of the company are by everyone should familiarise themselves with: Business law, Financial reporting standards for Malaysia, Principles of international taxation Tax avoidance vs. tax evasion Corporate governance Code of ethics for MIA members Secondly, the company should sponsor them to go for training. Training refers to the acquisition of knowledge, skills, and competencies. As we all know, training is necessary to the achievements of a business as it will bring benefits not only for the company itself, but also the staffs. Probably its most positive benefit is better employees. This is due to training be able to encourages their improvement of giving better performance. Consequently, good training is just as important as a good benefits package for an employee. By going to the training, it will help in developing their capability, capacity, and performance that will benefit

the company indirectly. For instance, relate the accounting training to date to explain the concept of true and fair view of financial statements in order to improve staff skill and attitude. Besides, the company also can send their director and management staff to attend the seminar. Seminars are essentially arranged to discuss current issues and problems or to share ideas. Usually, a seminar is in a small group of discussion in a formal setting together with the clear agenda. From the seminar, the director and management staff can learn new information from the presenter as it will brainstorm their idea and they can get immediate feedback on any issues that bothering them. This seminar can build their foundation to be a superior employee. Moreover, it also helps in improving their technical knowledge that will give aid in managing the company in order to ensure its effectiveness and efficiency. Other than that, the company should tighten their policy. A company policy is a documented set of basic principles and associated guidelines, formulated and enforced by the governing body or an assigned committee of an organization that direct and limit a companys decisions and actions in pursuit of its objectives. This policy will help the company to drive strategic planning, and help set expectations and performance objectives. It also ensures it accountability and creates transparency. So, an accountant must comply with the Malaysian accounting standards in order to understand and appreciates the government efforts.

REFERENCES

1. Messier/Glover/Prawitt/Margaret Boh, Auditing and Assurance Services in Malaysia, McGraw-Hill Education (Malaysia), 2007. 2. http://www.youtube.com/watch?v=WcCFMX5HiVU 3. Case Studies for integrated case study course ,MIA