Caught in the Act:
Why Cutting Corners in Corporate Accounting Doesn’t Pay

As simple and straightforward as accounting is here in Singapore compared to other countries, it’s somehow not surprising to still find companies that feel the need to “simplify things” when it comes to their books.

Ignoble Financial Statements

In a nutshell: Preparing financial statements that accurately reflect a company’s financial health is about as basic as it gets in terms of responsible reporting. But when commodities trading company, Noble Group needed to save itself from bankruptcy last year, the financial statements prepared for this purpose became the subject of a major investigation.

No less than the Monetary Authority of Singapore (MAS), the Accounting and Corporate Regulatory Authority (ACRA) and the Commercial Affairs Department (CAD) of the Singapore Police Force took a closer look at Noble’s paperwork. Noble was working on a 3.5 billion-dollar restructuring deal, and had submitted financial statements to clinch it.

Iceberg Research questioned Noble’s accounting, saying that the Group’s figures were inaccurate. This put the restructuring deal on hold while MAS, ACRA and CAD conducted their investigation. The case wrapped up by the end of 2018, with Noble completing its restructuring process and streamlining its operations to become a smaller, delisted company.

In retrospect: It was Noble’s compliance with accounting standards in the Companies Act that had been called into question, and it had been EY (Singapore) that MAS, ACRA and CAD had asked to present the Group’s audit documents. The company had likewise been accused of non-compliance with the requirements for disclosures in the Securities and Futures Act.

This is why it’s essential to find a reliable audit & assurance services provider who can help you to avoid investigations by conducting a proper audit from the get-go. Being conversant and up to date with Singapore’s audit laws, regulations and standards, such a provider can help ensure accuracy in meeting regulatory requirements and facilitate future transactions.

Request for Client: May we please ask for your feedback and/or input to make sure this section accurately reflects your views on the case, and provides readers with helpful case-related insights and advice

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High Wire Accounting Act

What happened: “Cooking”, “fixing” “padding”, “inflating”, “forging”, “fabricating”, “inventing”, “adjusting”—whatever you call it, it all amounts to the same thing, and it’s still wrong. Yet that’s what allegedly went down at global payments company, Wirecard last year.

Reports in the Financial Times earlier this year say the manager of Wirecard’s accounting planned to make it appear to authorities in Hong Kong that they had enough revenue to justify a licence for becoming a prepaid card provider there. FT went on to add that this wasn’t an isolated incident, but part of an ongoing practice at Wirecard throughout Asia.

Because this plan was said to have been put forward and subsequently acted on in Singapore, investigations were set into motion by internal whistleblowers and Singapore-based law firm, Rajah & Tann. Allusions to shenanigans such as the absence of credible email trails, the use of false addresses and faked profit figures surfaced during these investigations.

Police have since raided Wirecard’s Singapore offices, and the company’s stock price took a nosedive on the heels of the allegations. Wirecard denied any wrongdoing and sued FT soon after the publication of the reports. While the case has yet to be resolved at the time of writing, the company continues to be active here in Singapore and across the globe.

What we can learn: Regardless of the outcome of Wirecard’s suit, the key takeaway from this scenario is simply that honesty is the best policy when it comes to accounting. Working with

Silence in the Face of Flux

The story so far: The moral duty of audit & assurance service providers is to give the public a clear and accurate picture of how well a company is doing. This is so that the public may be better informed when deciding on whether or not they should invest in or transact with that company.

This, in turn, means that if an auditor notices anything amiss with the company’s financial health, they are duty-bound to make that information generally known. But what happens when an auditor notices something, and says nothing?

A recent report in The Independent reveals how ACRA, MAS and the SGX are keeping close tabs on hitherto celebrated water and energy company, Hyflux. Once touted as a rags-to-riches success story, Hyflux’s exponential growth in the 90’s proved unsustainable and was derailed a few years ago by mounting debt, much to the chagrin of small, individual investors.

The three government bodies specifically want to know why Hyflux’ auditors, KPMG, kept quiet in the face of the company’s deteriorating finances. The Independent quotes an NUS associate professor of accounting as saying that investors might’ve had a chance to jump ship if KPMG had revealed the true state of affairs at Hyflux.

The report likewise notes how KPMG has been no stranger to questionable auditing practices for almost 20 years.

The moral of the story: As Hyflux continues to face new challenges and hopes for a new white knight to come to the rescue, the crucial role of audit & assurance in managing a company’s finances comes to the fore. As was the case with Noble, Hyflux auditors have much to answer for, particularly to the thousands of investors that ended up losing their life savings.

And as in the Wisecard case, conscientious accounting also might have had a key part to play. The insight and advice of a good accounting services provider might have helped to mitigate the risks taken by management a few years back, by forecasting the viability of certain investment or expansion decisions.

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Shipping Out for Not Shaping Up

In summation: The Institute of Singapore Chartered Accountants or ISCA has several case studies that the public as well as members may access for reference, and that may also be considered cautionary tales. One of these cases features JSI Shipping, one of whose directors was diverting the company’s profits into his own coffers at the end of the 90’s.

JSI’s auditors supposedly failed to detect these sneaky goings-on, which led to a lawsuit in 2007. The Court of Appeal’s first decision was in favour of the auditing firm, which was said to have performed the audit satisfactorily. A subsequent appeal from JSI led in turn to Court findings that declared the auditors had been guilty of negligence in one area of their duties.

All the same, JSI was found guilty of negligence of its own, as the Court said that the company itself should’ve been able to find out what the director was doing. Because of this, the auditors were only liable for half the resulting damages. The case study ended by considering whether auditors could’ve done more to confirm certain facts concerning the director in question.

In the interests of justice: Two points of interest present themselves in this situation—how closely companies and their auditors need to work together, and how a company can’t “blame everything” on an audit & assurance services provider. Ultimately, a company has to take full responsibility for its own accounting and way its funds are managed.

Locked Up for the Long Term

Solo flight: If you think that only companies can be held liable for accounting misdemeanours on a corporate scale, the case of Chia Teck Leng might still ring a few bells for some of us. The Singapore Infopedia article by Nureza Ahmad relates how Chia came to be sentenced to 42 years in prison for the accounting hocus-pocus he performed to pay off his gambling debts.

Using his various positions such as financial controller and finance manager at high profile banks and companies from 1999 to 2003, Chia forged papers that enabled him to get away with over $117 million dollars from banks both here and abroad. By the end of 2003, Chia faced a grand total of 46 charges including money laundering and criminal breach of trust.

The High Court convicted Chia in April of the following year in Singapore’s biggest case of commercial fraud with the longest prison sentence ever meted out for such a crime. A Straits Times account of the case notes how one of the companies Chia worked for, Asia Pacific Breweries (APB), had been totally unaware of Chia’s illegal activities.

Solutions to be found: Knowing that individuals on your team (as opposed to your entire company) can be held responsible for accounting violations does little or nothing to redress any damage done. Taking Chia’s case as a learning opportunity, companies might be inspired to take a closer look at how a culture of trust and transparency can be cultivated internally.

At U Ventures, it’s been our privilege to help some 300 companies with their corporate accounting needs, including incorporation and corporate secretarial services. We’re happy to use our entrepreneurial and corporate experience as well as our expertise in Singapore accounting and compliance frameworks to help you to grow your businesses the right way.

See, we believe that adhering to standards and doing things in an ethical, upright way doesn’t mean taking a longer way round to profitability or complicating things unnecessarily. Because in corporate accounting, staying on the straight and narrow is to take an expressway to new heights of business success.

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Caught in the Act:Why Cutting Corners in Corporate Accounting Doesn’t Pay