The AC and Internal Audit Services.

It's CNY, found myself at Open Houses, one of which I was in the midst of Audit Committee members. After the normal blah blah blah, the topic meandered to the new regulations and what was needed to be done. 

It was very comical, I thought, that AC members did not know that their performance needed to be reviewed by the Nominating Committee and that there were those that thought how ironical it was that they would be reviewing themselves, simply because many companies do not have sufficient independent directors to keep the Nominating Committee and Audit Committee membership separate. Oh well, I suppose there will be some creativity, lets wait and see and see what Bursa will do about it.

More interestingly is when the topic of IA quality reviews were discussed I found out that the IIA(M) was peddling this service! I, as with many professional, find this unthinkable, that an institute formed to promote, educate and certify practitioners of a particular profession would themselves be undertaking the very services that they certify. This would be like the Institutes of Chartered Accountants or The Certified Accountants Associations undertaking statutory/external audits! 

To better understand why this Institute was at odds with the norm, I did my Inspector Clouseau stuff and this is what I found out.

1. Yes the IIA(M) undertakes such because the world IIA body does similarly, so its permitted.

2. Does the IIA(M) have a team of professional staff to undertake the engagements? No the rely on a team of contractors.

3. How does the IIA(M) ensure quality, I am told that it is done via its secretriat that has certifiers!

4. I was further told by my informent, "we don't get involved with this becuase it really is a tick the box approach. So much for looking at the qualitative approach, and the SC saying that the MCCG should not be embraced with a tick the box approach! 

I would even place a wager that the Quality Review is based on the Guidance on Internal Audit Function that can be found on BM's website. Personally I thought it was a very poor document and I was totally surprised that BNM, SCM and BM would lend their name to it, this especially so when BNM in the late 90s came out with a GP on IA that was world class.

Finally I wish AC members all the best as under revised rules they will be required to not only approve the Internal Audit Plan but also the IA Program! 

   

Its all about impariment

A large shipping company that is intimately involed with the oil and gas industry recently posted siginificantly lower earnings, the main reason given was that they made higher imparment charges in the fourth quarter.

Now what was missing was whether the impairment was only made in the 4th qtr or whether there were impairment charges made in the 1st, 2nd and 3rd qtrs too. I am told by an ex audit partner friend that impairment needs to be accounted for immediately and its not a year end charge! 

If this be the case, than perhaps,

1. That the Corporate Survillance department of the SC needs to review the accounts and provide assurances that the previous quarterly announcements were not false or misleading(possible painting a rosier picture than it is).

2. I was puzzled by the decision of the Board to declare a dividend. This surprised me because a good part of the announcement related to the bleak situation in the o&g shipping industry citing oversupply etc etc and the challenges relating to o&g. 

Sometimes, no, most times I wonder whether good corporate governace is a myth and whether its just spoken of to say "WE ALSO HAVE IT"

       

A case for the Securities Commission

Over the past month we have been informed that in two of the pure play entities not all is as rosy as it is made out to be.

1. We have been advised that all is not well at the Battersea Power Project, that it requires an injection of aproximately RM8b.

2. Recently we have come to read reports that not all is well with the plantation investment in West Africa.

I tried to locate the prospectus, but till now I have not been able to, simply to see is these risks or other information relating to these were highlighted, after all under the disclosure based regime its all about,

• Governance
• Disclosure
• Diligence.

My simple mind suggest to me that if these material inormation were made know than the market would have talked about it or worse the opposition bloggers would have had a field day. So I am going out on a limb and conclude, rightly or not, that such information was not highlighted.

Now if that be the case should the SCM not take action against the promoters and the IBs for witholding material information in the prospectus. 

I cannot honestly say that I expect any answers because those that are privileged are never taken to task and those that are nobodys are normally the ones paying the price to make up the KPIs!     

So we are expected to believe!

All day long friends and the curious have been messaging me with regards to the Battersea Power Redevelopment Project, that the EPF and PNB are buying into the next phase, or so we are expected to believe!

My response to all was the same,

1. Is not PNB the major shareholder of Sime Darby and SP Setia, hence are they not buying what they already own save for the minority.

2. Is the EPF not an original consortium partner?

3. If 1 and 2 are correct than would there not be questions asked with regards to the ethical and moral persuasions to this deal. Have directors of companies not been charged for criminal breach of trust for these types of deals.

4. Now one of the issues that was mentioned for cost escalation were the fact that the four chimmenys need rebuilding and the asbestos issue. For such an old property and taking into consideration that the power station had to be maintained and its age, was not a technical due diligence underaken? What happened to the smart people in Sime and SP Setia, did they not know what they were buying?

5. Who are the lead managers and have they been updating the board?

6. If 5 above is a yes was this information disclosed when Sime was being restructed, if not would not the parties to the restructing have committed an offence under the CMSA?

I can understand that PNB has alot of face saving to do and therefore had to sell what effectively is a bale out disguised as a purchase, but what is the EPF doing, bailing out itself? 

To me its yet again nothing more than another example of incompetency. Maybe we have a long way to go to being a developed nation!

Who is Accountable?

We all read that The Group wanted to do a group restructuring that involved merging their engineering and their energy vehicles into their holding company. The result was that the engineering company, mired with all sorts of problems voted yes, whilst the energy company which is the healthier of the two said no. 

In corporate exercises of this nature there are a host of advisors, from financial reporting accountants to the independent advisors that vet the data, drawn up the various documentation for submission to the regulators and finally present them to the shareholders to be voted on. 

The curiousity is why were the shareholders of the energy entity, only armed with information presented  to them, astute enough to reject the proposal, was it as the actual the offical line suggest, that oil prices were moving north and as such they did not want the deal, or was it simply that the shareholders thought that they were not willing to use their money to bail out the non performing engineering company, lets not forget that the auditors of the enginerring company issued their last report with a "going concern" reservation, the engineering company has issues with their contracts both locally and abroad, etc, etc.

To me this is a classic case for a governance case study,

1. Did the directors of the energy company discharge their duties and reponsibilities as required by law and in the best interest of the comapny on which they sit?

2. Did all the advisors similarly fulfill their responsibilities as professionals, or were they naive enough to believe if the offer was attractive enough shareholders were bodoh enough to approve the scheme.

3. Did the regulators do their own due d and question the deal in depth. The talk was that all that was happening was using good money to try and cover a sink hole. Are our regulators not pandai enough?

4. What was the single largest shareholder doing, why did they let it happen, were they just interested in letting things go by, its not our problem approach. Since becoming the single largest shareholder they don't seem to have done anything, the same management team that was the cause of the problems are still there. Says much about this corporate shareholder and their perceived reputation for good management.

5. The MSWG too chooses to remain silent. This is a case for them to defend the minorities, who else is there? 

On the surface it seems that from the directors to the advisors to the regulators have questions to answer, but I suppose silence will prevail and nothing happens!

So much for the regulators, the exchange and all those that actually want is to believe that cg in Malaysia is improving!   

When will the noises (bitching) stop?

“All I and AirAsia have ever tried to do was to make it cheaper for the average man to dream and fly like those with money. One day airports, regulators and politicians will understand,” he said alluding to the controversy over the increase in passenger services charges (PSC) at klia2, which is the main hub for AirAsia.“I’m probably one of the most unpopular men for being outspoken and trying to make flying affordable. But won’t stop till the slogan I came up with in the shower becomes true. ‘Now Everyone Can Fly’. The battle must never stop,” he wrote on his FB page.

How many times have we heard the same scratched record being played. Ironically it's loudest when there is something happening that we are not meant to know, so lets create the smoke screen!  

Now if I want to create a low cost organisation, logic will tell me that there are two costs that I am required to give my attention too, 

A. Cost that are outside my control(external), primarily these are the cost that I incur from my suppliers because I need goods and services. These costs I manage by employing frameworks like Supply Chain Management, Just in Time, Bulk Buying, Long Term Supply Agreements, Heavy Discounting, etc, etc. But ultimately there is a level beyond which the supplier will say, "Sorry ole chap, I cannot do that as I would be making a loss!"

B. Then there are internal costs, cost that are within my control. Again there are various solutions I could employ to keep a tight reign on the costs. I could employ large scale IT systems to increase productivity, making front line personnel cleaners(never thought about the hygiene situation - one minute cleaning, next serving food) keeping head counts to a minimum, doing fanciful things like hedging and getting rid of the trappings of grandeur.   But this will entail leadership and setting the tone at the top, the very top! That means giving up the Bombardier private jet that in itself incurs a bag load of money. After all why should it not be them using their own product, would not the towkays be great ambassadors for the organisation?  

C. The pass through "financial items(costs)" that organisations are required NOT to incur in their own right but are mere de-facto collection agents of other organisations or the government, like PSC(a consumer tax levied on the passenger), GST(a consumer tax levied on the user of goods and services) or PCB( tax deducted at source for salary I the employee earns). These cost have nothing to do with the organisation and its costs structure. Does anyone remember the times when we went to the airport to check in, at the time of checking in we had to hand over cash for our passenger service tax, there are still countries that employ this method. This has nothing to do with the airlines!

So stop all this noise, concentrate on A and B, if you feel that you are not getting what you pay for, than please go talk to MAHB, don't treat your customers as being less informed. Anyway what happened to the Muhibbah Dinner that the organisation had with MAHB?, I suppose MAHB may once again need to suggest making public the debtors position of its various clients!    

For 2018 I hope towkay remembers that not only ‘Now Everyone Can Fly', but also everyone went to school, can read and rationalise. 

Happy New Year Towkays!

Of Youth, Skills and Relevant Experience.

This is what was contained in the filing with Bursa:

"Neelofa Mohd Noor has been at the helm of NH Prima Sdn Bhd for the last 3 years as its director. Under her leadership, the brand Naelofar Hijab is sold in more than 23 countries including Brunei, Indonesia, Australia, UAE, United Kingdom and Europe. As an actress and TV host, she acted in a number of blockbuster movies and hosted popular TV shows. She had also produced her own reality TV show. Neelofa has a strong presence on social media with more than 5 million followers on Instagram. She has received many local and international awards including being listed as Forbes Asia 30 Under 30 Class 2017, SME 2017 Celebrity Entrepreneur of The Year, MSMW 2017 Social Media Celebrity of The Year and In Trend Malaysia InTrend Gala Night 2017 Most Charming Celebrity of The Year, The Inspiring Woman Award and The Iconic Role Model Award. She has been invited to speak at forums and talks, most notably at the 2017 Forbes Asia Summit in Manila, 2017 UNDP-MiSK in New York and 2017 Forbes Summit in Boston. Many international brands like Lancome, Swarovski and Titan have recognised her achievements thus signing her as their ambassador."

Another public interest entity appointed two directors to replace the top man as he was appealing a 5 year prison sentence and a fine for insider trading, one is a 29 year old female the daughter of the man in hot soup, not much information other than academic qualifications, the other is a 39 year old gent, the nephew, again primary information on academic qualifications and that he has been involved with the company since 2000.

My amusement is how both companies can say ( in the case of both ladies) that these appointments meet the requirement of persons with relevant skills and experience that will contribute to the business of the companies. This is not just a requirement of The Malaysian Code of Corporate Governance 2017, but a requirement of CA 2016 with regards to the application of Duties and Responsibilities of Directors.

Needless to say I am sure there are many valid reasons that are unknown to me, I wonder if it includes *%#@ to the r_g______s ? People sometimes forget that a plc is a different kettle of fish, there are fiduciary responsibilities, oh well,Malaysia Boleh.