Of Professional Service Providers and Standards of Conduct

Of recent past the auditing fraternity, especially in the UK, has been under intense scrutiny  particularly with regards to their quality of work and their business conduct. Articles have come out in the broadsheets, in some reports it has been suggested that the Big 4 are willing to share their knowledge infrastructure with the Top Ten, probably to thwart the regulators from acting on their stranglehold over their market space.  

Even at home there are growing concerns over their services and the value that auditors give. Recently we came to know that with regards to the audit report of a much talked about state fund, it was not one but two auditors that had retracted their reports. Of course this begs the question as to whether their audits were of so poor quality that they issued reports without satisfying themselves sufficiently. One audit partner told me that the audit files of at least one of these auditors have been with the profession's institute for investigation and that nothing was moving. 

If one is wondering why the AOB has not been involved, again I am told that the AOB had decided that the state fund is not under the sphere of their auditor performance reviews, which I thought strange as performance and standards are performance and standards and the fact that the SC had advocated in their recent MCCG that state and statutory bodies should embrace the MCCG. Furthermore the SC uses the term public interest entities, not plc, so why should not this particular audit not fall under the AOB's purview. 

Concerns therefore about the standards of conduct of these professional service providers are not misplaced. 

Recently the chairman of a big 4 was reported as being made the chairman of the new executive committee of 1MDB and it was reported that this was part of the scope and services. Now if you ask anyone, they would probably scratch their heads and ask how come and probably add "most unusual arrangement, never heard it done before". This begs the question as to how problems will be resolved since the advisory team will be going to one of their own in trying to resolve matters and yet this one of their own must act in the best interest of the company as he is an executive and hence a director! Under any circumstances this is a major conflict of interest. Where would the check and balances that auditors famously like to quote be? 

It reminds me of another instance where similar shenanigans took place, this was at the inception of the AOB. Like all new organisations the AOB needed staff and naturally the profession was tapped. However at the senior level of the AOB, a staff of senior ranking was seconded to the AOB from one of the firms(imagine the laughing emoji here, many of them). Many to this day believe that this was the reason that the firm in question was never hauled up for their non qualification of a glc that lost billions in the middle east. For those interested, the secondee has returned to the mothership and is now a partner earning big money, so who says loss of ethical and moral values does not pay.

Similarly there are those of us waiting for the new BNM Governor to make a statement either endorsing or categorically stating that the professional services firm saying RM7m as a pass through in an account is ok, because if it is, than surely the case against the previous regime for money laundering must be in doubt and it would open up opportunities for another service offering in the financial services industry.

Point: External Auditors must remember that they are people with green pens placing green ticks, they issue reports that are so ring fenced that it is becoming meaningless, they earn a lot of money for this and they should stay satisfied with this opportunity. 

Finally has the MOF and the two SOs thought about this conflict, or have they embraced the philosophy of the previous government: we can also be as arrogant and do as we please, after all we convinced the rakyat to vote us in and as such they will believe us as long as we utter the magic word "1MDB" 

LET'S NOT FORGET THAT PERCEPTION IS 90% OF REALITY.