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adibah aalam

on 3 January 2013

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Transcript of Delima

DELIMA ENTERPRISE CASE Fitria Taslahandayani CEA080707
Mohamed Abdi Amed CEA080716
Adibah Aadawiyah Zainal Aalam CEA090002
Mohammad Shukran Jusoh CEA090054
Nur Azriati binti Othman CEA090083
Nurul Hanim Ramzi CEA090092
Nurul Najihah Ramli CEA090095 ISSUES ARISED Ethical issues
Accounting Information issues
Legislation issues
Corporate Governance issues
Human Resource issues Case Questions Additional Questions DELIMA Company background
Case summary
Ethical issues
Accounting Information issues
Legislation issues
Corporate Governance issues
Case Questions
Additional Questions Outline Founded in 1981, by Encik Zayed
Conducted trading and supplying related products including manpower supplies to the oil and gas industries.
In 2004, the enterprise was incorporated as Delima Enterprise Sdn. Bhd.
Two principle shareholders and controlling directors were Encik Zayed and Puan Hashimah (husband and wife) Company Background In May 2006, the company had secured a contract worth RM750,000 to be implemented over 6 months. Due to shortage of fund, company need to apply loan from Malayan Banking Berhad and CIMB Berhad totalling RM 1 million.

In order to get the loan, they had to provide audited financial statements for the last two years. In July 2006, Encik Zayed engaged the external Auditor Aziz & Co. to perform the statutory audit for period 2003 to 2006. Case Summary ETHICAL ISSUE 1 ETHICAL ISSUE 2 ETHICAL ISSUE 3 Directors tried to negotiate with the auditor to not qualify the financial statements “Each director is expected to deal fairly with the respective company's customers, suppliers, competitors, officers, and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practice”
- Code of Business Conduct and Ethics for Directors Encik Zayed and Puan Hashimah should practice and show more integrity and comply with the applicable laws as they have a duty of being due care and duty to act honest as well as promoting leadership duty as directors in the company. Recommendation Encik Zayed and Puan Hashimah are the principle shareholders and directors.
They also hired their own family members Puan Balqis and Encik Salam as Operations Manager and Human Resources and Administration Manager respectively. “Directors should not engage in any conduct or activities that are inconsistent with the company's best interests or that disrupt or impair the company's relationship with any person or entity with which the company has or proposes to enter into a business or contractual relationship”
- Code of Business Conduct and Ethics for Directors Hire more qualified and incompetent employees to be in the board of organization
Practice independent organization which is free of conflict of interest. Recommendation Encik Zayed was not willing to commit and invest on necessary training to enhance the knowledge of the employees. Directors are responsible to provide corporate social responsibility and oversee management in order to implement an effective ethics corporate programmes to safeguard interest of different stakeholders. Provide annual compliance and ethics training to all employees which is just one element of comprehensive compliance and ethics program. Recommendation ETHICAL ISSUE 4 Directors should at least prepare documents for anything they used for their personal so that later they can pay back to the company. Recommendation Directors make personal expenses using the company’s money.
Withdrawals without proper documentation found which is totaling RM12,500
Personal vehicles expenses by Enzik Zayed and Puan Hashimah totalling RM50,150. “Directors are prohibited from taking for themselves personally opportunities related to the company's business, using the company's property, information, or position for personal gain, competing with the company for business opportunities.” - Code of Business Conduct and Ethics for Directors 1 2 3 MYOB
Not integrated, not processed or generated automatically.
Sales invoices prepared manually, not pre-numbered.
Lead to data losses

Use UBS accounting software AIS Issue 1 Lack of control
the monthly statement of accounts were not sent to the customer on monthly basis.
Salaries are paid in cash.
Send the monthly statements on time to remind the outstanding balances.
Pay salaries using checks or transfer to accounts. AIS Issue 2 Segregation of duty
The employees prepare their timesheets by their own without any manager’s authorization. Puan Hashimah approve and make the payment of the salaries.
Miss Amy maintains Delima’s accounts and finanacial matters including preparation of accounts.

Assign supervisors to manage the timesheets for time in and time out.
Segregates between preparing and maintaining the accounts AIS Issue 3 Director duties
Section 132(1) of Companies Act, a Director of a company shall at all time exercise his power for a proper purpose and in good faith in the best interest of the company.
Encik Zayed tried to negotiate with the auditor to not qualify the financial statement. Legislation Issues 1 Director duties
Section 132(2)(a) of Companies Act where the director cannot simply use the company’s property or asset.
En. Zayed and Pn. Hashimah also use the business property as personal use Legislation Issues 2 Director duties
the Section 132(1A) of Companies Act, the director should be expected to have knowledge, skill and experience.
Encik Zayed and Puan Hashimah were not familiar with accounting standards and the provision of the Companies Act 1965 Legislation Issues 3 The Directors should aware and understand the law and regulations.
The Director need to join any leadership seminar. Principle 1: Establish clear roles and responsibilities Principle 2:
Strengthen composition Malaysian Code on Corporate Governance 2012
Principle 1: Establish clear roles and responsibilities
Principle 2: Strengthen composition Corporate Governance No board charter which shows that the company did not have a strong foundation to start with.

The management responsibilities were not properly controlled as there were no clear roles and responsibilities of the employees.

Directors also make personal expenses under the company’s name, threat to terminate the external auditor. “The board should establish a Nominating Committee which should comprise exclusively of non-executive directors, a majority of whom must be independent.”
neither non-executive director nor independent director mentioned.
no internal audit department, no Audit Committee “The Nominating Committee should develop, maintain and review the criteria to be used in the recruitment process and annual assessment of directors.”
Most of the employees of Delima were not employed up to qualification. Develop a board charter.
Appoint Non-executive, Independent Directors, and Audit Committee and set up an internal audit department.
Employ workers matching to at least minimum qualifications, or provides training to employees with insufficient work experience and qualifications. Provide EPF.
Directors need to update on the laws and regulations plus the accounting standards. Corporate Governance Issue Recommendations Yes.
En. Zayed and Puan Hashimah used company’s money for their personal vehicle expense
Some withdrawal from the company without proper documentation.
A Delima did not provide any training and EPF contribution for their workers.
Encik Zayed and Pn Hasyimah negotiate with the auditor.
Both of them planned to terminate the auditor and appoint a new friendly party auditor.
Encik Zayed and Pn. Hashimah employed their family members with no proper qualification
Both directors are not independent because they have wife and husband relations. Were there any abuses of power by the management and breach the fiduciary? Encik Zayed and Pn Hashimah must pay back the money, RM 50,150 to the company.
For every withdrawal, they have to prepare proper documentation.
Board of director must provide training an EPF contribution for their workers as stated in employment act.
Both of them should not negotiate with the auditor. Recommendations Board of director should be responsible and accountable for this issue. In order to improve the leadership and management of Delima Enterprise, they must:-

Increase the number of board of director and hire independent board of director.
Attend the training for top management
Hire more experienced and knowledgeable workers
Establish audit committee and the auditors must competent and familiar enough with this job. ( internal auditor) Who should be held responsible and accountable? What should be done to improve the leadership and management of Delima Enterprise Sdn. Bhd.? Risks associated with that particular industries may affect the auditor’s assessment of client business risk and acceptable audit risk.
Familiarity with those inherent risks aids the auditor in assessing their relevance to the client.
Many industries have unique accounting requirements that the auditor must understand to evaluate whether the client’s financial statements are in accordance with GAAP. Why auditors need to know factors affecting Industry? Integrity of directors

Management experience

Unusual pressure

Nature of the business

Sales and cash receipt transactions and debtor balances List five inherent risk Dependent on professional judgment to a greater extent, even, than control risk.
SAS 300 (ISA 400) suggests that, recognizing these risks, management frequently adopts extensive internal controls to address them.
The auditors need also to consider the extent to which inherent risks are properly addressed by the internal control system.

Assessment of inherent risk Any Question? Recommendations 1.Qualification of Encik Zayed & Puan Hashimah as Director 2. No policy in
hiring employee 3. Did not provide
training to the
employee 4. Breach of Director’s
Duty in charging their
personal expense into
company account 5. Breach of Director’s
Duty in negotiating with
auditor and try to
terminate the auditor
then change to friendly
party auditor 6. No EPF contribution
to employee Accounting Information Issues Ethical Issues Legislation Issues Corporate Governance Issues Human Resource Issues
Full transcript