...Flat Cargo Berhad: An Auditor’s Conundrum Flat Cargo Berhad (FCB) a well-known and one of the largest air freight companies in Malaysia that operate as air cargo carrier. FCB also registered as an investment holding company with several subsidiaries that operate with the same operating principal of the FCB. Their primary operating principal was to provide air freight transportation which includes air charter and leasing. Started their operation in 1997 and became the only dedicated Intra-Asian overnight express cargo based in Malaysia. The company also had access to an international cargo complex at the Sultan Abdul Aziz Shah Airport in Subang. FCB also have secured agreement with well-established companies. FCB had appointed Kenchana & Associates as their external auditor. In 2006 audit team from Kenchana & Associates found several suspicious finding in finalizing their report. It is also said that FCB can remained as the nation’s leading cargo carrier if not because of the scandal. Mr Chuah Mun Soong, head of the audit team from Kenchana & Associate, is the decision maker or protagonist in this case. Been informed by his subordinate, he show some dissatisfaction towards the FCB due to the scandal. He needs to present the financial report to the audit committee of FCB in two weeks. However, the inconsistencies in the account make him feel restless. Dilemma face by Mr Chuah is that the FCB also might be high possibility involved in fraud. Mr Chuah state that his...
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...FLAT CARGO BERHAD: AN AUDITOR’S CONUNDRUM The case portrayed Flat Cargo Berhad (FCB), a public listed company which known as one of the largest air freight companies in Malaysia. FCB was registered as an investment holding company with several subsidiaries where the subsidiaries primarily provides air freight services and aircraft ground handling services. As the only Intra-Asian overnight express cargo operator based in Malaysia, FCB provides air freight transportation involving aircraft charter and leasing. Due to landing rights in Asia Pacific region, FCB has the opportunity to provide express air services to international integrators, freight forwarders and major airlines within the Asian region. Thus, secure its major landing rights throughout countries in Asia. Moreover, FCB also has well-established customers and offers air freight forwarding services to its major shareholder, Cargo Malaysia Berhad and Bangor Berhad. Meanwhile, FCB was engaged with expansion plan to handle large shipments by expending freighter fleet size in order to cater customers demand. In 2005, FCB’s turnover is expected to be higher than year 2004 due to its expansion plan. However, FCB has higher gearing ratio and weak debt servicing ability. Besides, FCB has governance structure which adhered to the Malaysian Code of Corporate Governance in configuring its Board of Directors. Based on the case, Mr. Chuah Mun Soong is identified as a protagonist where he is one of FCB’s audit team from Kencana...
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...TEACHING NOTES FLAT CARGO BERHAD: AN AUDITOR’S CONUNDRUM ZAKIAH MUHAMMADDUN MOHAMED TAKIAH MOHD ISKANDAR SYNOPSIS Flat Cargo Berhad (hereafter referred to as FCB) was one of the largest air freight companies in Malaysia. It provided freight services to several government linked companies, including Freight Malaysia Bhd. The company began its operations in November 1997 with two aircrafts to provide overnight air express transport services to Singapore for Freight Malaysia Bhd. Its air express market’s impressive growth paralleled with that of its 1997-2004 expansion plans. On 15 September 2001, FCB was listed on Bursa Malaysia. It had several subsidiaries, which included FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV), Cargo Air Services Sdn Bhd and FC Air Ltd. The company’s head office was located in Selangor. Their main activities covered air transportation services, aircraft ground handling services, aircraft engineering, technical and maintenance services, trading and leasing of aircraft and supplying of aircraft spare parts and accessories. Kencana & Associates served as FCB’s auditors. During their audit of the 2006 accounts, the auditors identified several discrepancies. They incurred a number of auditing difficulties, i.e. the inability to verify aircrafts, returned debtors’ confirmation letters, unsupported sales transactions, improper amounts of recorded loan, and unverified abnormal items. The situation posed reconciliation problems to the auditors with...
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...Flat Cargo Berhad (FCB) Introduction FCB obtained listing in Bursa Malaysia on the 15 September 2001. The main core business was to provide air freight transportation within the Asian region. As a fast growing company, FCB secured agreements from well-establish company within the transportation industry such as Worldwide Express, United Parcel Services (UPS), Nationwide Express, City link and others. Issue on FCB 1) The auditors were unable to verify the aircrafts claimed have been purchased by FCB in 2005. The audit team found a non-functional rundown aircraft barely worth 231 million in a hangar. Aircrafts that was claimed have been purchased are categorize as an asset for FCB. It’s because the business nature in providing delivering transportation services to customer that generate income for the company. But acquired an asset must be recorded through legal transaction and within controlled of the company. These items are expected to be used in future activities that will generate cash inflows to the company. From the financial statement in 2005, the account equipment, at cost of the aircrafts acquired is increased and cash decreased for the same amount. But, failing to verify the legal amount of purchased assets, we consider the expenditure was not happening and the amount of fixed asset was overstated and the cash was understated in the balance sheet. Non-functional aircraft barely worth 231 million in the hangar were a huge asset for FCB that within their control...
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...Overview This case is about the dilemma of an auditor, Mr. Chuah Mun Soong who has found suspicious issues that may lead to fraud upon auditing Flat Cargo Berhad (FCB). He was supposed to report to the audit committee of FCB regarding the audit outcomes. However, Mr. Chuah needed to inform the managing partner of his firm with regards to the findings on the inconsistencies of accounts in FCB. Company Background FCB Cargo Berhad (FCB) was established in 1997 operating primarily as an air cargo carrier. FCB providing freight services to the intra-Asia air market. Its services were not only limited to air freight transportation but also included aircraft charter and leasing. FCB was chaired by Dato’ Ibrahim Samad, a former Director General for the Ministry of Transportation and former President of Malaysia Chamber of Commerce. He was the company’s independent Non-Executive Director. The senior management team consist of Mr. Lim Loon Sim as the Chief Executive Officer, Mr. Ali Bin Ahmad as the Executive Director and Mr. Kim Boon Chok as the Chief Financial Officer. Mr. Ali Bin Ahmad also held the position of FCB’s Audit Committee Chairman. In terms of financial growth, FCB demonstrate a tremendous revenue growth from year 2001 to 2005. It is also recorded a 1.5 times increase in revenue amounting to RM550 million in 2005 compared to 2004 and was projected to increase further by 54% to RM809 million in the following year due to its major capacity expansion in 2005. The increase...
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...RECOMMENDATIONS Membership of audit committee According to the Malaysian Code of Corporate Governance, to ensure that no one individual group dominates the board’s decision making, there should be an equal number of executive and non-executive directors (inclusive of independent non-executive directors) in the Board of Directors. However, based on the hierarchy of the Board of Directors in Flat Cargo Berhad, there are more executive directors than non-executive directors. It is unhealthy scenario as non-executive directors’ views might not be taken into consideration in the company’s important decision making process as they have the minority say. On the other hand the Code for an audit committee states that there should at least be 3 members of whom the majority of them should be independent and all members should be non-executive directors. Although the audit committee of Flat Cargo Berhad reveals that the majority of the committee consist of independent directors but they are all not non-executive member. Therefore, Mr. Ali Bin Ahmad is not a suitable candidate of the committee. We should understand the roles of Executive and Non-Executive Directors. As we know, Executive Directors are the internal member of the company who are involve in decision making of the management team and daily operation. Non-Executive Directors are the outside director who may hold or may not hold a share in the company and they may be hired due to their expertise and...
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...1. Auditors were unable to verify the aircrafts claimed to have been purchased by FCB in 2005. The audit team found around RM231m of non-functional rundown aircraft in hangar. This situation leads to potential fraud bcause those old aircrafts had high price tag.Thus, it will increase the holding cost or storage cost of the assets. Then, the auditor should conduct the common test procedure which includes the examination of vendors’ invoices and receiving reports. The auditor had to perform the physical examination of those assets in order to verify the existence of the assets with the records. It is a must for every purchase to have invoice or grant to verify the purchase. Besides that, for the purchase involving high value of asset, it must have approval from top level of company which is Board of Director. In case the aircraft is non-functional rundown, it must be disposed in order to eliminate the unnecessary expenses for the company. 2. There are increasing in debtors’ confirmation letters were returned. Reasons: those debtors had changed their mailing addresses. Perhaps the company had a phantom client. So, Mr. Chuah need to confirm the account receivable whether the address is updated or real address. Besides that, the company should be using positive confirmation letters. Besides, the service agreement should be reviewed & obtain the explanation from FCB. For control procedure, the auditor needs to review periodically the account receivable trial balance especially...
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...ACT 4197 INTEGRATED CASE STUDY FLAT CARGO BERHAD: AN AUDITORS CONUNDRUM Submit to Prof. Madya Dr Nor Aziah binti Abu Kasim Submit by Ummu Syafiqah binti Yaakob 156756 Lee Liu Kim 157279 Nurhafiza binti Abdul Razak 157458 Tay Yee Joe 159264 Semester 2, 2013/2014 * Table of Contents 1.0 Introduction 1 2.0 Case Overview 2 3.0 Issues Identified in FCB 4 3.1 Material Misstatements in Financial Statements of FCB 4 3.2 Lack of Internal Control 7 3.3 Weaknesses on the Corporate Governance 9 3.4 Ethical Issues of the Top Management and Auditors 11 4.0 Recommended solutions 15 5.0 Conclusion 23 6.0 Appendices 24 Introduction Flat Cargo Berhad (FCB) is an air cargo company, which was listed in Bursa Malaysia on 15th September 2001. It was known to be one of the largest airfreight companies in Malaysia. The company was registered as an investment holding company with several subsidiaries, for which their principal activities ranging from air freight services to ground handling services. FCB was the only dedicated Intra-Asian overnight express cargo operator based in Malaysia and had exclusive excess to an international cargo complex at Sultan Abdul Aziz Shah Airport in Subang. Furthermore, as it has successfully secured the landing rights in Asia Pacific regions, FCB was in ideal niche position to serve the international integrators, freight forwarders, and major airlines within Asian region. However, as highlighted...
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...I. Executive Summary Flat Cargo Berhad (FCB) is a listed company that provides air cargo carrying services within the Asian region. The company owns five fully owned subsidiaries and the major shareholders of this company is Bangor Berhad. The company’s external auditor is Kencana & Associates where the audit team is led by Mr Chuah Mun Soong. On 5th February 2006, Mr Chuah has been informed by his team that there are some inconsistencies in the accounts of FCB. Therefore he has decided to do his own investigation on the company to determine is there any fraud involved before he can report the situation the managing partner of Kencana & Associates, Mr Keong Chee Wah. II. Statement of the Problem One of the issues faced by the company is the inconsistencies in the company’s accounts where they were unable to verify the aircraft that they claim have purchased in the year 2005. The auditor also found a non-functional aircraft in the hangar that does not worth much. It can be said the cause of this problem would the weakness in assets management or internal control system as well as the weakness in the accounting department where the management of the company is able to make false claims. The second issue faced is poor debt management where a lot of debt confirmation letters that were sent was returned due to the changes in debtors addresses. This can be only explained by the company’s weakness in keeping proper records of their debtors as well as their ability...
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...Table of Contents Introduction……………………………………………………………………………………..1-2 Issues………………………………………………………………………………………………2 The Discovery of Fraud……………………………………………………………………..…..3-4 Corporate Governance of FCB……………………………………………………………………5 Auditor Dilemma……………………………………………………………………….……….5-7 Using the Fraud Triangle Model to analyze the situation in Flat Cargo Berhad……………..…8-9 Who is responsible in the fraud of Flat Cargo Berhad ……………………………………..…10-11 Prevention Measures for Fraud ……………………………………………………………….12-13 Detection Measures for Fraud…………………………………………………………...……14-15 Recommendation…………………………………………………………………….……….16-17 Conclusion…………………………………………………………………………...……….18-19 References………………………………………………………………………………………..19 Introduction The case is related to one company known as Flat Cargo Berhad (FCB), FCB was one of the largest air freight companies in Malaysia which servicing several government linked companies including Freight Malaysia Berhad. FCB is a listed company and was registered as an investment holding company with several subsidiaries. Among its subsidiaries are FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV) Ltd, Cargo Air Services Sdn Bhd and FC Air Ltd. FCB started its operations in 1997 with two aircrafts: a Boeing 737-200F and a Cessna Grand Caravan. FCB’s major shareholder in 1997 had been Bangor Berhad, which was part of a diversified international family owned conglomerate, the Miri Group. On September 2001 the company was listed in Bursa Malaysia. The...
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...Flat Cargo Berhad Presented by: ABDUL RAHMAN BIN YAACOB AFIFAH BINTI HALIM MAZIAH BINTI MOKHTAR MOHAMMAD AZWAN BIN BASHIRUN MOHD ZUBAIR BIN NOR AZMAN AC088467 AC088398 AC088445 AC088323 AC086470 Presented to: SIR AZWAN ABD RASHID NABILAH BINTI SAAD AC088349 INTEGRATED CASE STUDY ACSB 413 INTRODUCTION Company Background 1997 Started operations with 2 aircraft - Boeing 737-200F - Cessna Grand Caravan Operating Primarily -Air cargo carrier Principal activities of FCB Subsidiaries -Air Freight Service and Aircraft Ground handling service 15 September 2001 -Obtained listing in Bursa Malaysia Auditor -Kenyans & Associates In 2001 to 2004 -the have a fast growing at intra- Asian air express market -demand for express transportation Services increased. -give best delivering quality services and satisfying customer demand. FCB Wholly Owned Subsidiaries Cargo management Sdn Bhd Fc Spare Sdn Bhd FCB Wholly Owned Subsidiaries FC Air Ltd FCB (SPV) Ltd Cargo Air Service Sdn Bhd FCB secured agreements with well-established companies Up to 2005 Bax Global United Parcel Service (UPS) Express Worldwide Nippon Express CityLink Nationwide Express Top Management Team Dato’ Ibrahim Samad • Chairman • Independent non-executive director • Former of Directors General for Ministry of Transportation • As a Malaysia chamber of commerce’s former president Mr Lim Loon Sim • Chief Executive Officer (CEO) • Founder for FCB • Board...
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...COMPANY BACKGROUND Flat Cargo Berhad (FCB) was established in 1997 as the mean of providing air freight services to the Intra-Asia air market. FCB’s services were not only limited to air freight and aircraft ground handling but also included aircraft charter and leasing. FCB was chaired by Dato’ Ibrahim Samad, a former Director General for the Ministry of Transportation and former President of Malaysian Chamber of Commerce. He was the company’s Independent Non-Executive Director (INED). The top management team consisted of Mr Lim Loon Sim as the Chief Executive Officer, Mr Ali Bin Ahmad as the Executive Director and Mr Kim Boon Chok as the Chief Financial Officer. Mr Ali Bin Ahmad also held the position of FCB’s Audit Committee Chairman besides being a member of Employee’s Share Option Scheme FCB Wholly Owned Subsidiaries Cargo management Sdn Bhd Fc Spare Sdn Bhd FCB Wholly Owned Subsidiaries FC Air Ltd FCB (SPV) Ltd Cargo Air Service Sdn Bhd FCB secured agreements with well-established companies Up to 2005 Bax Global United Parcel Service (UPS) Express Worldwide Nippon Express CityLink Nationwide Express Top Management Team Dato’ Ibrahim Samad • Chairman • Independent non-executive director • Former of Directors General for Ministry of Transportation • As a Malaysia chamber of commerce’s former president Mr Lim Loon Sim • Chief Executive Officer (CEO) • Founder for FCB • Board member since 1997 • Executive...
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...1.0 Case Summary Flat Cargo Berhad (“FCB”) was one of the largest air freight companies in Malaysia. FCB was registered as an investment holding company with several subsidiaries and the principal activities included air freight services and aircraft ground handling services. FCB’s wholly-owned subsidiaries included FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV), Cargo Air Services Sdn Bhd and FC Air Ltd. FCB started operations in 1997 and had been an overnight air express transport service for Freight Malaysia Berhad to Singapore. Flat Cargo Group obtained listing in Bursa Malaysia on 15 September 2001. Between years 2001 to 2004, FCB’s expanded due to the fast growing intra-Asian air express market. With an array of landing rights in the Asia Pacific region, FCB was in the idea niche position to offer express air services to international integrators, freight forwarders and major airlines within the Asian region. It managed to secure major landing rights in various countries in Asia including China, Japan, Thailand, Singapore, India, Indonesia, Taiwan, Sri Lanka, Philippines, Korea, Myanmar and Cambodia. Up to 2005, FCB secured agreements with well-established companies such as Worldwide Express, United Parcel Services (UPS), Nationwide Express, Citylink, Bax Global and Nippon Express. The composition of the Board of Directors was in adherence to the Malaysian Code of Corporate Governance. The chairman of FCB was Dato’ Ibrahim Samad who was also an independent...
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...Table of Contents 1.0 Introduction 1 2.0 Discussions 3 2.1 Leadership and Culture 5 2.2 Internal Control 8 2.3 Internal Audit 13 2.4 External Audit 16 2.5 Board of Director (BOD) 19 3.0 Conclusion 21 4.0 Biliography 22 1.0 Introduction WorldCom is a profit organization that specialized in local, long distance and international plans, high cable internet, prepaid cards, and provided telecommunications to customers nationwide with business corporations making up the majority of the 20 million customers they served. LDDS began operations in 1984 offering services to local retail and commercial customers in the southern states. It was initially a loss making enterprise, and thus hired Bernie J. (Bernie) Ebbers to run things. It took him less than a year to make the company profitable. By the end of 1993, LDDS was the fourth largest long distance carrier in the United States. After a shareholder vote in May 1995, the company officially came to be known as WorldCom. WorldCom primary business goal was to achieve long term revenue-growth by maintaining the achievement of E/R ratio. However, the industry began to deteriorate in 2000 due to economic recession and other reasons, such as overcapacity and heightened competition. Despite the falling in revenue, the management of WorldCom tend to manipulate the accounting entries by accrual releases and capitalization of line cost in order to achieve the targeted performance. The scheme lowered line costs (the company’s largest single...
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...Introduction WorldCom is a telecommunications company which was lead by CEO, Bernard Ebbers and CFO, Scott Sullivan. In 1999, WorldCom was not melting Wall Street’s revenue and earnings expectations, and it appeared that the coming year would produce more bad news. The CFO argued for setting realistic targets. However the CEO insisted that the company needed double digit growth, and pushed for aggressive targets. These aggressive targets were not supported by historical data or strategic assessments. In order to meet these targets, WorldCom began boosting its revenue through a wide range of accounting measures, including drawing down on reserves set aside for expenses. The economic situation at the time was not taken into account when implementing these aggressive accounting measures. Other similar companies were reporting declining revenues. It was identified that the management who were making the aggressive accounting decisions, were also posting the journals to the general ledger, and reviewing and approving the reporting. Pressure was placed on personnel who did not support the aggressive targets. A great deal of focus was put on “teamwork” and being a strong “team player”, which is said to have been a strategy to reduce dissenting opinion, eventually leading the organization to follow a “groupthink” attitude. In 2000, the telecommunications industry entered a downturn and WorldCom’s aggressive growth strategy suffered a serious setback. However, due to the accounting...
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