CASE STUDY 2 PA 304 COMPANY LAW TOPIC : ACCOUNTS , REPORTS AND AUDITS

TOPIC: ACCOUNTS , REPORTS AND AUDITS Ardisco & Associates were appointed as the company auditor of Fiona Group Holding Berhad which deal in seafood import and export in Kota Kinabalu . During the year , the company set up a subsidiary company in Southern Philippine to increase the company supply of seafood from the region . Fiona Groups seafood products are sold locally but 70% of the product are sold to another subsidiary in China . During the audit , Ardisco & Associates found that there were tremendous increase in the Groups sales and purchases during the year when compare to the previous year . The matter was discussed with the Groups director who explain that the tremendous increases were due to the setting up of the new subsidiary in Southern Philippine which increase the Groups supply of seafood . When checking the purchases documents of the Groups seafood supplies , Ardisco & Associates were unable to find a proper supporting documents of the purchase invoices which according to the director are hold by the subsidiary in Southern Philippine . As the tax dateline will be just in few days , the Groups was unable to provide the supporting documents but at the same time they act aggressively toward the auditor to provide them with Unqualified Audit Report . Ardisco & Associates also noticed that the Groups had financial difficulties in recent years , of which they delayed loan payents to a few creditors . Suspecting that , there is something wrong with Groups accounts especially the trading accounts , the auditor took the initiative to report to the matter to the relevant authorities . This however anger the Groups managements which promptly react by taking legal action against the auditor for a breach in code of conduct and professionalism of auditor , by revealing company confidential information to others without their consent .

You are required to ; 1) Discuss the above case by relating to the auditors duties and responsibilities in financial reporting as stated in Company Act 1965 . (10 marks) 2) Explain the Groups management responsibilities in preparing financial statements . (5 marks) 3) Decide whether the auditor is guilty or not guilty for giving out confidential information to others without the Groups consent . Support your answer with the right provision/section in the Company act 1956 . (5 marks)

Question 1 : Discuss the above case by relating to the auditors duties and responsibilities in financial reporting as stated in Company Act 1965 .(10 marks) Answer : Duties and responsibilities of auditors in financial reports according Company Act 1965 Section 174 are Ardisco & Associates shall report to the members on the accounts required to be laid before the company in general meeting and on the company's accounting or other records relating to those accounts and if it is a holding company for which consolidated accounts are prepared shall also report to the members on the consolidated accounts. Example , Ardisco & associates has report all the financial statement to the management group in fews days before the general meeting. Ardisco & Associates as an auditor of a company has a right of access at all reasonable times to the accounting and other records (including registers) of the company, and is entitled to require from any officer of the company and any auditor of a related company such information and explanations as they desires for the purposes of audit. Ardisco & Associate has the right to look at all the financial statement of the company(Fiona Group Holding Bhd) at all time. An auditor of a holding company for which consolidated accounts are required has a right of access at all reasonable times to the accounting and other records (including registers) of any subsidiary, if necessary, and is entitled to require from any officer or auditor of any subsidiary, at the expense of the holding company, such information and explanations in relation to the affairs of the subsidiary as he requires for the purpose of reporting on the consolidated accounts.According to the case , Ardisco & Associate has the right to look for the trading account from the account groups of Fiona Group Holding Bhd. Besides , the auditor's report shall be attached or endorsed on the accounts or consolidated accounts , if any member requires to read the endorsed accounts before the company in general meeting and shall be open to inspection by any member at any reasonable time. All the information can be read by company member of Fiona Group Holding Bhd . This is to ensure about the financial flow of the Fiona Group Holding Bhd . In this case Ardisco & Associates had shown their integrity in forming an auditor duties and responsibilities by reporting to the relevant authorities about the hiding of financial

information from auditing. According the duties and responsibilities that had mentioned in the Company Act 1965 where the auditor has the responsibilities to the shareholder, under the common law it say that an auditor must carry out duties with integrity .

Question 2 : Explain the Groups management responsibilities in preparing financial statements . ( 5 marks ) Answer : Responsibilities of Groups management in preparing financial statement are provide full financial statement to the auditor . Where Fiona Group Holding Bhd has the responsibilities to collect all the financial statement from Southern Philippine(SubsidiaryCompany) and sent to head office at the Kota Kinabalu to let auditor , Ardisco & Associates audits their financial statement . Besides , the Groups management should not hide the financial document from be audited by auditor . Fiona Group Holding Bhd should be provides that they had made tremendous increases due to the setting up of the new subsidiary in Southern Philippine which increase the Groups supply of seafood . Groups management also must should investigate first the problem before taking an legal action to the auditor . When Ardisco&associate has reported to the relevant authorities about the account group that had make a mistake in the trading account,so the group

management got angry and take legal action to the auditor says that the auditor had breach in code by revealing the company confidential , but the truth is the auditor is doing the right thing to the company , Fiona Group Holding Bhd .

Question 3 : Decide whether the auditor is guilty or not guilty for giving out confidential information to others without the Groups consent . Support your answer with the right provision/section in the Company act 1956 . (5 marks) Answer : According to this case the auditor , Ardisco & Associates is not guilty because their had exercise the duties and responsibilities of an auditors under the Section 174 of the Company Act 1965 and the auditor had to obtain reasonable assurance that the financial statement are free from material misstatements,and also to examine and form an opinion whether the financial statement give a true and fair view of the financial position of the company as of the financial year end and of its financial performance and cash flow or the year Under the common law,show that Ardisco & Associates has shown an integrity of carrying out duties and also exercise skill and care and document all finding .