A Delima

Topics: Auditing, Financial audit, Audit Pages: 5 (1910 words) Published: October 28, 2013
Questions
1) Were there any abuses of power by management and breach of fiduciary on the part of the directors? 2) Who should be held responsible and accountable?
3) Could the Audit be completed soon without any qualification? 4) What should be done to improve the leadership and management of Delima Enterprise Sdn. Bhd.? Answers
‘A Delima’ is a case where it is happened in an enterprise called Delima Enterprise, founded by family members. Later on, the enterprise was incorporated as Delima Enterprise Sendirian Berhad (Sdn. Bhd.). Its shareholders were mainly the directors, Encik Zayed and Puan Hashimah, which they were husband and wife. They were involved in the management of the company, assisted by their own family members. The company conducted trading and engineering services to the oil and gas industries. Due to expanded company activities, the company had limited financial resources. To acquire proposed financial resources, audited financial statements were needed. Based on the audit findings, the company did not kept their business records properly. Furthermore, there were no proper management procedures and financial system. The management itself eas lacked internal control. Subsequently, the auditors were not able to express a true and fair view on the Delima Enterprise Sdn. Bhd.’s accounts and recommended to qualify the audited accounts. For the first question, the answer is yes, there were abuses of power by management and breach of fiduciary on the part of the directors. The management itself was improperly segregated the duties and functions. The internal control of the management was lacked as approval and authorization was only upon them. For the directors, they were lacked understanding about Companies Act 1965, especially matters regarding incorporated companies and powers upon themselves and other parties. According to Cieri, Sullivan and Lennox (1994), the directors must have all material information that can be obtained by them and then act with adequate care in carrying their duties. So, they lacked the competencies as the directors. For the second question, the answer is directors and all management levels should be held responsible and accountable. The company wholly was lacked of every aspect of proper management, especially matters regarding internal control and business processes. All the particulars will be explained in the answer of last question, including improvement that can be done. For the third question, the answer is no, the audit cannot be completed soon without qualification. But it can be completed soon, with the audit report be classified as qualified opinion report due to several unresolved issues. If the auditor audited the rest of the financial statements and is reasonably sure that they confirm with Generally Accepted Accounting Principles (GAAP), then the auditor simply states that the financial statements are fairly presented, with the exception of the issues which could not be audited. Finally, the last question’s answer will cover all level of management. For the basis of the management, there was no proper organizational chart. It had few positions the in chart and the chart also not included distinct departments to show the organization by departmental functions. The chart should be properly drawn with distinct functional departments to show separate job description for each department and several important positions should be added to ensure effective and efficient control. The position and its functions should be clarified clearly as the company was a lean organization with basic functional position. On the other hand, the company only had missions which a short term goal to achieve. The company also did not clearly state their vision as well as the objective itself. It actually affected the performance of their employees as they did not know what to achieve. The top management should set and state clearly the company’s mission, vision and objectives. All of these must...

References: Cieri, R. M., Sullivan, P. F., & Lennox, H. (1994). The fiduciary duties of directors of financially troubled companies. Journal of Bankruptcy Law and Practice, 3(4), 405-422.
Zhang, Y., Zhou, J., & Zhou, N. (2007). Audit committee quality, auditor independence, and internal control weaknesses. Journal of accounting and public policy, 26(3), 300-327.
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics, 32(1), 237-333.
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