OILCORP Bhd management's proposal to shareholders at the company's EGM today to remove Baker Tilly Monterio Heng (BTMH) as its external auditor and to appoint Messrs Horwarth as its new auditor will be keenly watched by investors, regulators and the public.
While the proposal is within management's right, engaging a new auditor would require shareholders' approval as stipulated under the Companies Act.
Observers, including fund managers and analysts say while the sudden need for a change of auditors was one issue, which Oilcorp's management has to explain, there was also an issue of integrity at stake.
A foreign analyst said the motion in favour of one accounting firm over the other could leave the “loser” to be perceived as less competent and professional in carrying out its duties in compliance with proper accounting standards of financial reporting.
“You've got to understand. Both parties (accounting firms) have their reputations at stake,” he said.
The foreign analyst said the presumption here is that both accounting firms should have applied similar procedures in accounting practice to derive their reports.
“But why is there a substantial difference in their valuations over the biodiesel plant project in Kuantan?” he said.
To recap, BTMH had refused to amend Oilcorp's annual audited accounts (AAA) for 2007 pertaining to the construction of the biodiesel plant stipulated by the company to be worth RM110mil.
Moreover, the accounting firm refuted Oilcorp's allegations that its action not to issue any AAA would be detrimental to the company's shareholders.
Oilcorp decided to hire Horwarth, another auditing firm, for an independent verification report, which valued the total contract based on two stages of work done, with the first phase valued at RM90mil and additional work at RM20mil.
Interestingly Horwarth, which conducted the independent review on the biodiesel project, was also the current external auditor for Plant Biofuels Corp Sdn Bhd (PBC) and other parties related to the biodiesel plant project.
In a filing to Bursa Malaysia on Friday, Oilcorp said Horwarth had informed the company that it had no professional conflict of interest in taking up the independent verification report.
Oilcorp added that it was puzzling as to why this point was ever raised by BTMH in the first place.
In the latest reply from BTMH, the accounting firm defended its decision not to issue any AAA on the basis that the confirmation letter from PBC dated April 29 confirming the biodiesel contract worth RM110mil was deemed not acceptable as audit evidence.
“We cannot rely on Horwarth’s report as they have not performed an investigation audit report as requested by us,” said BTMH.
Moreover, the accounting firm said during the finalisation of the 2006 audited accounts, the contract of RM90mil was not made available to the auditors.
Otherwise the issue would not have been raised last year.
A senior accountant with a local audit firm said the earlier appointment of Horwarth as PBC auditor and later also hired by Oilcorp to provide an independent verification report on the biodiesel plant might raise some doubts as to how “independent” the verification report was.
“This is especially so if the contracted value in dispute audited by two accounting companies hired by Oilcorp differs substantially for the same project,” he said.
He said at this juncture it was important for shareholders and especially regulators such as the Securities Commission and the relevant authorities to look at this matter closely as the issue had everything to do with transparency, good corporate governance and the integrity of accounting firms.
“We in the accounting fraternity are definitely keen on this landmark case and will be looking at how the issue is interpreted as well as the outcome,” he added.
Source : The Star
