SC will not tolerate “superficial” investigative audits, PN4 companies must cooperate with auditors
The PN4 investigative audit findings submitted to the Securities Commission (SC) have been superficial and lacked “investigative element”, the SC said today.
“The SC will not accept superficial reports as fulfillment of the condition of having completed investigative audits,” SC Chairman Datuk Ali Abdul Kadir said.
Datuk Ali said companies would have to redirect their investigative auditors to probe further, if the conditions of investigative audits were not fully met. Non-compliance with the investigative audit condition will constitute a breach of Section 32 (6) of the Securities Commission Act 1993.
“Quality investigative audits should effectively identify the causes that led companies to their distressed financial state, and serve as a basis for further action by the companies to recover their losses. The companies should also learn from the issues of the past and avoid recurrences,” said Datuk Ali.
“However, the two investigative audit reports we received so far merely state the obvious. Although the findings answered some of the ‘what’s and ‘when’s, they do not explain the ‘why’s, ‘who’s and `how’s’ which could provide vital information that can lead us to the possible perpetrators,” he said.
He said the SC was already providing guidance to investigative auditors by meeting them prior to the start of their work, to discuss the scope of work, the deliverables, key financial areas for attention and action, the minimum coverage expected and the likely periodic enquiries by the SC on the progress of the audit.
The SC Chairman met with over 100 PN4 company directors, and accounting professionals, including independent auditors appointed by some of the companies, at the SC today. The meeting was also an opportunity for the participants to raise practical issues relating to investigative audits.
He said one of the reasons given for poor quality reports by investigative auditors were the lack of cooperation by the PN4 companies.
He urged PN4 company directors and management to provide all the required information and documentation to their investigative auditors, and reminded them of their fiduciary duty to initiate actions to determine the reasons for their companies’ past losses and to take steps to recover these losses.
He added that one company failed to provide full documentation to its investigative auditor, thereby contradicting its (the company’s) own latest audit report that all its accounting records were properly kept as required under the Company’s Act.
He also reminded the companies that for transparency, the findings of investigative audits must be announced. The requirement for announcement is one of the conditions of approval of PN4 restructuring plans.
Datuk Ali said the SC’s own surveillance and investigation were not dependent on the investigative audits but the investigative audits were complementary to SC’s own enforcement work in weeding out wrong-doings. He reiterated that the rationale for the investigative audit is for the company to identify the reasons behind the losses and to take appropriate action against the wrong-doers.
“In exercising our responsibilities as a regulator who place priority on investor protection and market integrity, we will take action against the transgressor if the findings reveal possible violations of securities laws,” Datuk Ali said.