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by Lim Guan Eng
(Petaling Jaya, Saturday): The latest accounting scandals in Southern Bank Bhd and Transmile group where revenue and profits are falsified through creative accounting indicates 3 structural failures in regulatory oversight and full disclosure of our capital markets, unreliability of financial statements and poor corporate governance in Malaysia. These financial scandals show how poor the climate of accountability in corporate governance in Malaysia despite the preventive measures put in place following the Enron and Worldcom financial accounting scandals in US many years ago.
Barely getting over the shock of falsified accounts in Transmile, Malaysians celebrated our Kingís birthday with the shocking news that SBB net assets had been overstated by RM 160 million. PricewaterhouseCoopers (PWC) reported that in its review of SBBís auditied financial statements for the year ended Dec 31, 2005 there was inappropriate accounting treatment amounting to RM 160 million as follows:-
∑ Inappropriately valuing certain derivative financial instruments and not writing down in full the collateral value;
∑ wrongly writing back specific provisions made on certain foreclosed properties; and
∑ capitalizing instead of expensing certain costs.
If even a bank is involved in falsifying financial reports then the sting of companies caught for such wrongdoings such as such as Transmile, GP Ocean, Nasioncom and Ocean Capital Bhd, represent only the tip of the of the iceberg.
Transmile announced that a special audit showed the groupís sales revenue might have been overstated by RM333mil in FY06, and RM197mil in FY05. Transmileís filed unaudited FY06 results showed the groupís revenue jumped 80% to RM989.2mil from RM550mil a year earlier. Net profit more than doubled to RM157.5mil against RM74.8mil in FY05.
In the event Transmile fully provides for this overstatement, it could reverse its pre-tax profit of RM 120mil and RM207mil in FY05 and FY06 to a loss of RM77mil and RM126mil respectively. Transmile shares dropped RM 2.90 or 32.6% yesterday, causing losses of hundreds of millions in market capitalization.
The company's major shareholder, the Kuok Group(17%), has initiated a probe into the management led by chief executive officer Gan Boon Aun and chairman Ling Liong Sik, a former Malaysian transport minister. Even though Bursa Malaysia said that action will be taken, this is small consolation to the losses borne by shares investors.
Prime Minister Datuk Seri Abdullah Ahmad Badawi should undertake a full review as to how to restore public and investor confidence into our public financial records and corporate governance. The fear is whether there are more companies who have also followed what these companies have done in falsifying their financial statements.
* Lim Guan Eng, Secretary-General of DAP