Embracing A Philosophy That Promotes Mutually Beneficial Strategic Alliances Accounting Essay

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Established in 1981, the Linear Group is a visionary and mission driven organisation dedicated to meeting and exceeding the needs of its clients and partners.

Embracing a philosophy that promotes mutually beneficial strategic alliances with the aim of fusing the strengths and operational efficiencies of its venture partners, Linear has enjoyed great success in its endeavours.

Headquartered in Penang with offices in Kuala Lumpur and Petaling Jaya as well as a distribution network that spans across the globe, Linear is today one of the leading heating, ventilation and air-conditioning (HVAC) solution providers in the ASEAN region.

Flag-shipped by Linear Corporation Berhad, a public company listed on the Main Board of Bursa Malaysia (The Malaysian Bourse). Linear offers market expertise in the areas of manufacturing, marketing, sales and distribution of HVAC products, multi-disciplinary engineering services and integrated HVAC solutions - acting as a single source provider for Clients who require a comprehensive range of HVAC products and the engineering expertise to develop infrastructure required to facilitate them.

By integrating the various activities under a diversified portfolio, the Linear Group has successfully evolved and reinvented itself to prosper and meet the challenges of a constantly changing global economy.

The Linear Group has achieved international recognition.

1.2 Group Structure

The details of the subsidiary companies of Linear Corporation Berhad (288687-W) are as follows:

LCI Global Sdn Bhd (formerly known as Linear Cooling Industries Sdn Bhd)

- Holds Ko Lim BAC Sdn Bhd

Linear Water Treatment Sdn Bhd

Linear District Cooling (GCC) Sdn Bhd (formerly known as Linear Ice Solutions Sdn Bhd)

Linear-TES Sdn Bhd (formerly known as Linear Ventures Sdn Bhd)

PrimeAce Holdings Sdn Bhd

District Cooling Systems Sdn Bhd

Imux (Asia) Limited

BAC Cooling Technology Sdn Bhd

PrimeAce Venture Limited

- Holds Unified Systems Pte Ltd

- Holds Idea-Hub.com Limited

Linear Water Tank Sdn Bhd

Linear Composites Sdn Bhd

- Holds Linear Composites Marketing Sdn Bhd

Linear Cooling Technology Sdn Bhd

Linear Towerline (M) Sdn Bhd

(formerly known as Nihon Spindle (M) Sdn Bhd)

1.3 Board Of Directors

PERVEZ RUSTIM MANECKSHA @ PAUL MANECKSHA

Chairman & Independent Non-Executive Director and member of the Audit Committee

Mr Pervez Rustim Manecksha @ Paul Manecksha, a Malaysian, aged 63, was appointed to the Board on 12 February 2007 and as Chairman on 2 June 2008. He is a Barrister-at-Law of the Honourable Society of the Inner Temple, London, United Kingdom. He was admitted as an Advocate and Solicitor of the High Court of Malaya in 1971 and has been in active law practice since then. He was also admitted as a Barrister and Solicitor in Canberra, Australia in 1978. He is currently the Managing and Principal Partner of the law firm, PR Manecksha & Associates. He is currently not a director of any other public company listed on Bursa Malaysia Securities Berhad

ESWARAMOORTHY PILLAY S/O AMUTHER

Executive Director

Mr Eswaramoorthy Pillay S/O Amuther (Bryann), a Singaporean, aged 43, was appointed to the Board on 8 December 2006 and as Executive Director on 26 December 2006. He holds a Master's Degree in Business Studies from the University of Newport, United States of America and has extensive experience in the field of information technology. He is currently not a director of any other public company listed on Bursa Malaysia Securities Berhad.

MEVIN NEVIS A/L AF NEVIS

Executive Director

Mr Mevin Nevis A/L AF Nevis, a Malaysian, aged 55, was appointed to the Board on 22 February 2008 and as Executive Director on 2 June 2008. He graduated from the INSEAD EURO ASIA International Management Programme in Fontainebleau, France and holds a Master's Degree in Business Administration, Executive Management. He started his career with Standard Chartered Bank Berhad ("the Bank") in 1972. Rising through the ranks under the Bank's Executive Management Trainee program, he has held various executive and senior managerial positions in the Bank during the period from 1980 to 2007 such as Branch Manager, Area Manager for Northern/Central Region, Head of Small & Medium Enterprises, Head of Large Local Corporations and Head of Product Management for Cash Management, Trade & Securities Services. From 1990 to 1992, he was assigned to the Bank's offices in Chicago and Los Angeles in the United States of America as Senior Relationship Manager for multinational corporate businesses. His last posting before he left the Bank in October 2007 was as Director/Head of Transaction Banking. Thereafter, he joined the Linear Group in late 2007. He is currently not a director of any other public company listed on Bursa Malaysia Securities Berhad.

KHOO ENG CHIN

Independent Non-Executive Director

 

Mr. Khoo Eng Chin, a Malaysian, aged 52, was appointed to the Board on 22 February 2010 as Independent Non-Executive Director.  He holds a Bachelor of Economics from La Trobe University, Victoria, Australia.  He started his career with Malaysian International Merchant Bankers Berhad ("MIMB") in 1986.  He was involved in all aspects of Corporate Advisory, Corporate Banking and Money Market operations.  He was with MIMB for 10 years and in 1996, he left MIMB as an Assistant Branch Manager to join ECM Libra Securities Sdn. Bhd. (formerly known as Smith Zain Securities Sdn. Bhd.).  In 2004, he joined Kenanga Investment Bank as the Senior Manager, Corporate Finance and in October 2008, he left Kenanga Investment Bank as an Assistant Vice President.  He is currently not a director of any other public company listed on Bursa Malaysia Securities Berhad.

 

SAW HENG SOO

Executive Director

 

Saw Heng Soo, a Malaysian, aged 54, was appointed to the Board on 7 May 2010 as Executive Director.  He graduated with a Diploma in Commerce from Kolej Tunku Abdul Raman Malaysia in 1980 and completed his examination of Association of Chartered Certified Accountants (ACCA) in 1981.  He has been a member of the ACCA in 1984 and Fellow of ACCA in 2001. Over the last 34 years of his career, he had worked with the International Accounting Firms for 8 years.  He had also served as Group Chief Accountant/Director of Subsidiaries with Chocolate Products Berhad for 5 years.  He was General Manager of Trade Ocean Exporter Sdn. Bhd., an international food exporter, for approximately 2 years.  He was Operations Manager of Berjaya Sports Toto - Philippine Operations for approximately 2 years.  He served as General Manager of Paragon Paper-Mill of Hai Meng Holdings Berhad for approximately 3 years.  He was appointed as Senior General Manager of Golden Frontier Berhad and later promoted to Group Operations Director for 10 years.  He is currently attached to an investment holding company as a Director and is not a director of any other public company listed on Bursa Malaysia Securities Berhad.

 

YAP CHEE KEONG

Executive Director

 

Yap Chee Keong, a Malaysian, aged 55, was appointed to the Board on 7 May 2010 as Executive Director.  He holds a Bachelor of Arts (First Class Honours) degree in Economics from the University Of Leeds, United Kingdom (1978).  He is also a Chartered Accountant of the Institute of Chartered Accountants of Scotland (1981).  He has auditing experience in England from 1978 to 1981.  He also has extensive financial experience gained from his career in merchant banking from 1981 to 1997 with Bumiputra Merchant Bankers Berhad.  He is now a Financial Adviser and Company Director.  He has served as a Director of several public listed companies but is currently not a director of any other public company listed on Bursa Malaysia Securities Berhad.

 

NEOH CHEE KEAN

Independent Non-Executive Director

 

Mr. Neoh Chee Kean, a Malaysian, aged 56, was appointed to the Board on 7 May 2010 as Independent Non-Executive Director.  He graduated as a Chartered Accountant from ACCA in the United Kingdom in 1977 and was admitted as an Associate of ACCA in 1981 and a fellow in 1986.  He was also admitted as a member of the Malaysian Institute of Accountants in 1981.  He has more than 30 years of working experience in accounting, audit, finance, tax, company secretarial and manufacturing which he accumulated in an International Audit Firm, a multinational company and management consultancy firms.  He is currently not a director of any other public company listed on Bursa Malaysia Securities Berhad.

Other Information of BOD

None of the Directors are substantial shareholders of the Company.

There are no family relationships among the Directors and/or substantial shareholders of the Company.

None of the Directors has any conflict of interest with the Company.

None of the Directors has been convicted of any offence, other than traffic offences, within the past 10 years.

1.4 Corporate Philosophy

Our Strategic Vision

Linear's passion is to be a leading multi-country industrial enterprise growing globally through winning partnerships in the field of cooling, heating and its related products and services.

Our aim is to deliver total customer satisfaction by assuring best quality and best cost through operational excellence and continuous innovation.

Our Mission

To be the leader in all related market segments

Our Goal

To be the high quality best cost leader in all our products and services

Our Corporate Values & Credo

 Longevity in product quality, business partnerships and employee relations

 Innovative in our quest for continuous improvements and cost reductions

 No barriers in communication with our customers, partners and employees

Excellence and entrepreneurship in all we do

Agile and fast in all our actions

Result orientated and rewarding to our employees and shareholders

2.0 BUSINESS BACKGROUND

2.1 Core Businesses

1. Manufacturing and distribution of HVAC products (condenser, evaporator, cooling tower)

2. Engineering services, after sales and maintenance services, water treatment

3. Design, build and operate district cooling plants

What Linear Offers:

Design and customisation

District cooling plant design

Design audit and professional opinion

Customisation of system requirements based on clients requirements

Construction

HVAC equipment provider

District cooling plant builder

Testing and commissioning of district cooling plants

Controlling and monitoring systems

Operations

District cooling plant management

District cooling plant performance optimisation

Water treatment services for cooling towers

After sales and services for all HVAC products

Funding and ownership

Linear will design, construct and operate district cooling plants on a JV or own

Utility charges will be levied based on usage - with a minimum up-take

Market Reach

Linear's solutions are widely used in:

•    Central business districts

•    Industrial parks

•    Shopping malls

•    Hotels

•    Convention centers

•    Railway stations

•    Airports

•    Hypermarkets and supermarkets

•    Office buildings

•    Universities

•    Hospitals

Major HVAC Product Clients

Project Portfolio

2.3.1 Bandar Perda, Seberang Prai

Owner

Aseania Linear District Cooling System Sdn Bhd (100% owned by Linear)

Rated output capacity of cooling plant

18,000 tons

Water supply/return temperatures

34°F/54°F (1.1°C/12.2°C)

Description of project

22,000 square foot, single level, stand-alone building that contains three 1,905 ton centrifugal water chillers, three 2,180 ton rotary screw compressors chillers and 50,000 ton-hours of external melt ice-based thermal storage.

Plant in-service

2005 (Phase 1)

Linear Group's scope

Design, Build, Operate and Own

Bandar Perda Plant Facility

2.3.2 The Curve

 

Owner

Boustead Linear Corporation Sdn Bhd (40% owned by Linear; 60% owned by Boustead Properties Berhad)

Rated output capacity of cooling plant

7,600 tons

Water supply/return temperatures

34°F/54°F (1.1°C/12.2°C)

Description of project

9,800 square foot, single level plant built on the roof of the 5-storey building. stand-alone building that contains two 850 ton centrifugal water chillers, three 1,224 ton rotary screw compressor dual evaporator chillers and 25,600 ton-hours of external melt ice-based thermal storage.

Plant in-service

December 2004

Linear Group's scope

(a)   engineering, procurement and construction; and

(b)   exclusive operation, maintenance and management

The Curve Plant Facility

2.4 The Business Partners

IR CHUA KENG SENG

B.E. (Hons), MIEM, P.Eng., MASHRAE. MMIM. CPP

Our Leading & Executive Consultant for our HVAC products and District Cooling Projects.

Over the past 25 years, Ir. Chua has been responsible for the design and supervision of construction for more than 5 district cooling projects locally. Ir. Chua, a seasonal lecturer and examiner for the subject of HAVC at various universities, has conducted vast courses and seminars on the subject of thermal storage, co generation systems providing for large cooling systems, cost saving strategies, energy conversion, effective maintenance and trouble shooting, designing and planning air conditioning systems for clients and user buildings. Ir. Chua is one of the leading and preferred District Cooling Plant consultant in this region with a combined output of his projects totally more than 120,000 tons of cooling.

3.0 CORPORATE GOVERNANCE

3.1 BOARD OF DIRECTORS

3.1.1 Board Responsibilities

The Board assumes overall responsibility for the Group's corporate governance and retains full and effective control over the Group's businesses and affairs. As such, it has reserved for itself a schedule of matters for consideration and decision which include inter alia, the Group's strategic business direction and action plans, risks management and internal control measures to ensure the proper conduct of operations, financial and operating efficiency and performance of all business units as well as human resource capabilities within the Group.

3.1.2 Board Composition

The Board currently has 7 members comprising 3 Independent Non-Executive Directors, 1 Non-Executive Director and 3 Executive Directors. The composition reflects that 1/3 of its members are independent. Collectively, the Directors bring to the Company a broad mix of business, management, financial, legal, marketing and technical expertise and experience to provide clear and effective leadership for the Group. Brief descriptions on the background of the Directors are presented on pages 5 and 6 of this annual report.

3.1.3 Board Balance

The Board is currently led by the Chairman who is an Independent Non-Executive Director. The Chairman is primarily responsible for the orderly and effective conduct of the Board whilst the Executive Directors are responsible for the making of day to day business and operational decisions and implementation of the Board policies in meeting the goals, vision and direction set by the Board. The Independent Non-Executive Directors are not involved in the day-to-day management of the Group but they play a key supporting role, contributing their skills and knowledge in all major matters and issues referred to the Board for consideration and approval. Their role is particularly important in ensuring that matters proposed to the Board will be fully discussed and examined, taking into account the long term interest of the Company's minority shareholders. Most importantly, their contributions will provide an element of objectivity and independent judgment to the Board.

Mr. Pervez Rustim Manecksha @ Paul Manecksha is currently the designated Senior Independent Non-Executive Director to whom matters of concern may be conveyed.

3.2 Board Committees

To enhance business and operational efficiency as well as to be in line with the best practices prescribed by the Code, the Board had delegated specific tasks to 5 Board Committees, namely Audit Committee, Nomination Committee, Remuneration Committee, Risk Management and Investment Committee and Employees' Share Options Committee, the compositions of which are as follows:-

3.2.1 Audit Committee

(comprising entirely Independent Non-Executive Directors)

Neoh Chee Kean - Chairman

Pervez Rustim Manecksha @ Paul Manecksha - Member

Khoo Eng Chin - Member

3.2.2 Nomination Committee

(comprising entirely Independent Non-Executive Directors)

Pervez Rustim Manecksha @ Paul Manecksha - Chairman

Khoo Eng Chin - Member

3.2.3 Remuneration Committee

(comprising entirely Independent Non-Executive Directors)

Pervez Rustim Manecksha @ Paul Manecksha - Chairman

Khoo Eng Chin - Member

3.2.4 Risk Management and Investment Committee

Saw Heng Soo - Chairman

Mevin Nevis A/L AF Nevis - Member

3.2.5 Employees' Share Options Committee

Saw Heng Soo - Chairman

Mevin Nevis A/L AF Nevis - Member

3.3 Appointments to the Board

The Nomination Committee is charged with the duty to assess and review the suitability of candidates nominated for appointment to the Board based on the candidates' qualifications, skills and experience. In the course of this review, it will ensure that the Board has the required mix of skills and experience for the effective discharge of duties. The Nomination Committee will then make its recommendations to the Board and the final decision on the appointment lies with the entire Board.

3.4 Re-election of Directors

According to the Company's Articles of Association, all Directors appointed to the Board are subject to retirement at the first annual general meeting of the Company. Thereafter, at least 1/3 of the Board is subject to retirement by rotation at every subsequent annual general meeting provided that all Directors including the Managing Director shall retire once in every 3 years in compliance with the Listing Requirements of Bursa Securities ("the Listing Requirements").

The Articles of Association further provides that all new Directors shall retire at the annual general meeting subsequent to their appointment, and that all retiring Directors are eligible for re-election. The Board, upon the recommendation of the Nomination Committee, will normally nominate the retiring Directors for re-election. The Directors standing for re-election at the forthcoming annual general meeting are Mr. Khoo Eng Chin, Mr. Saw Heng Soo, Mr. Yap Chee Keong and Mr. Neoh Chee Kean. They are all eligible for re-election and have offered themselves for re-election. The Board, upon the recommendation of the Nomination Committee, has nominated the retiring Directors for re-election at the Company's forthcoming Sixteenth Annual General Meeting.

4.0 AUDIT COMMITTEE

4.1 Composition

The Audit Committee of Linear Corporation Berhad currently comprises all Independent Non-Executive Directors namely:

Neoh Chee Kean - Chairman

Pervez Rustim Manecksha @ Paul Manecksha - Member

Khoo Eng Chin - Member

4.2 Terms Of Reference Of Audit Committee

The Audit Committee is governed by the following Terms of Reference which are in line with the Malaysian Code on Corporate Governance :-

4.2.1 Composition of members

The Board shall elect the Audit Committee members from amongst themselves comprising no fewer than three (3) directors. All members of the Audit Committee shall be non-executive directors who possess adequate financial knowledge to discharge their functions effectively. A majority of the Audit Committee members shall be independent directors. The term of office of the Audit Committee is three (3) years and may be re-nominated and appointed by the Board of Directors. In this respect, the Board adopts the definition of "independent director" as defined under Bursa Securities's Listing Requirements. At least 1 member of the Audit Committee must be :-

(a) a member of the Malaysian Institute of Accountants ("MIA"); or

(b) if he is not a member of MIA, he must have at least three (3) years of working experience and:-

(i) he must have passed the examinations specified in Part 1 of the 1st Schedule of the Accountants Act,1967; or

(ii) he must be a member of one (1) of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967; or

(c) fulfills such other requirements as prescribed by the Exchange No alternate director of the Board shall be appointed as a member of the Audit Committee.

4.2.2 Retirement and resignation

If a member of the Audit Committee resigns, dies, or for any reason ceases to be a member with the result that the number of members is reduced below three (3), the Board shall within three (3) months of the event appoint such number of the new members as may be required to fill the vacancy.

4.2.3 Chairman

The Chairman of the Audit Committee, elected from amongst the Audit Committee members, shall be an independent director. The Chairman of the Committee shall be approved by the Board of Directors.

4.2.4 Secretary

The Secretary of the Audit Committee shall be the Company Secretary. The Secretary shall be responsible for drawing up the agenda with concurrence of the Chairman and circulating it, supported by explanatory documentation to members of the Audit Committee prior to each meeting. The Secretary shall also be responsible for keeping the minutes of meetings of the Audit Committee, circulating them to members of the Audit Committee and to the other members of the Board of Directors and for following up outstanding matters.

4.2.5 Meetings

The Audit Committee meetings shall be conducted at least four (4) times annually, or more frequently as circumstances dictate. In addition, the Chairman may call for additional meetings at any time at the Chairman's discretion. In the absence of the Chairman, the other independent director shall be the Chairman for that meeting. The members of the Audit Committee, General Manager (Corporate Affairs, Finance and Administration), Finance Manager and the head of internal audit will normally be in attendance at the meetings. Representatives of the external auditors are to be in attendance at meetings where matters relating to the audit of the statutory accounts and/or external auditors are to be discussed. Other Directors, officers and employees of the Company and/or Group may be invited to attend, except for those portions of the meetings where their presence is considered inappropriate, as determined by the Audit Committee. However, at least twice a year the Audit Committee shall meet with the external auditors without any executive board member present. Minutes of each meeting shall be kept and distributed to each member of the Audit Committee and also to the other members of the Board of Directors. The Audit Committee Chairman shall report on each meeting to the Board of Directors.

4.2.6 Quorum

The quorum for the Audit Committee meeting shall be the majority of members present whom must be independent directors.

4.2.7 Reporting

The Audit Committee shall report to the Board of Directors, either formally in writing, or verbally, as it considers appropriate on the matters within its terms of reference at least once a year, but more frequently if it so wishes. The Audit Committee shall report to the Board of Directors on any specific matters referred to it by the Board for investigation and report.

4.2.8 Objective

The principal objective of the Audit Committee is to assist the Board of Directors in discharging its statutory duties and responsibilities relating to accounting and reporting practices of the holding company and each of its subsidiaries. In addition, the Audit Committee shall :-

(a) evaluate the quality of the audits performed by the internal and external auditors;

(b) provide assurance that the financial information presented by management is relevant, reliable and timely;

(c) oversee compliance with laws and regulations and observance of a proper code of conduct;

(d) determine the quality, adequacy and effectiveness of the Group's control environment; and

(e) develop and maintain an effective risk management system and processes are applied in the day to day business and activities.

4.2.9 Authority

The Audit Committee shall, in accordance with a procedure to be determined by the Board of Directors and at the expense of the Company:-

(a) authorise to investigate any activity within its terms of reference. All employees shall be directed to co-operate as requested by members of the Audit Committee;

(b) have full and unlimited/unrestricted access to all information and documents/resources which are required to perform its duties as well as to the internal and external auditors and senior management of the Company and Group;

(c) obtain, at the expense of the Company, other independent professional advice or other advice and to secure the attendance of outsiders with relevant experience and expertise if it considers necessary;

(d) be able to convene meetings with the external auditors whenever deemed necessary;

(e) be able to make relevant reports when necessary to the relevant authorities if a breach of the Listing Requirements occurred;

(f) be kept informed as soon as possible of any adverse development arising from any event such material litigation; and

(g) the Audit Committee shall have the power to establish Sub-Committee(s) and delegate its powers to such Sub-Committee(s) for the purpose of carrying out certain investigations on its behalf in such manner as the Audit Committee deems fit and necessary and, to appoint any person(s) as member(s) of the Sub-Committee(s) and/or as Head of Internal Audit who shall report directly to the Audit Committee.

4.2.10 Duties and Responsibilities

The duties and responsibilities of the Audit Committee are as follows:-

(a) To review the maintenance and control of an effective accounting system.

(b) To review the Group's public accountability and compliance with the law.

(c) To review and evaluate the adequacy and effectiveness of the internal and external audit procedures, and to ensure that they have the necessary authority to carry out their work.

(d) To evaluate the quality of external auditors and make recommendations concerning their appointment and remuneration and to consider the nomination of a person or persons as external auditors.

(e) To provide liaison between the external auditors, the management and the Board of Directors and also to review the assistance given by the management to the external auditors.

(f) To review the findings of the internal and external auditors and to ensure that appropriate actions are taken on the recommendations of the auditors.

(g) To review the quarterly results and financial statements and annual report prior to submission to the Board of Directors.

(h) To monitor and to review any related party transactions that may arise within the Group and to report, if any transactions between the Group and any related party outside the Group which are not based on arms-length terms and on terms which are disadvantageous to the Group.

(i) To verify the allocation of share options under the Employees' Share Option Scheme ("ESOS") as being in compliance with the criteria set out in the ESOS By-Laws.

(j) To report its findings on the financial and management performance, and other material matters to the Board of Directors.

(k) To act in line with the directions of the Board of Directors.

(l) To consider and examine such other matters as the Audit Committee considers appropriate.

(m) To review the reports of management in relation to the integrity and adequacy of the process for identifying principal risks and ensure the implementation of appropriate systems to manage these risks.

(n) To review any appraisal or assessment of the performance of members of the internal audit function who are full-time employees of the Group, if any.

(o) To approve any appointment or termination of senior staff members of the internal audit function who are fulltime employees of the Group, if any.

(p) To take cognizance of resignations of internal audit staff members who are full-time employees of the Group, if any, and provide such resigning staff member an opportunity to submit his/her reasons for resigning.

5.0 THE RELATED EVENT

5.1 Reports from Audit Committee

The Audit Committee met 5 times during the financial year ended 31 December

2009 and has met with the external auditors twice in the same financial year without the presence of any executive board member. All Audit Committee meetings were duly convened with sufficient notice given to all Committee members together with the agenda, reports and proposals for deliberation at the meetings. Details of attendance of the Audit Committee members at the Audit Committee meetings held during the year ended 31 December 2009 are as follows:

Audit Committee Member Attendance

Pervez Rustim Manecksha @ Paul Manecksha 5 out of 5

Heinrich August Diehl (Resigned: 11.09.09) 2 out of 4

Kok Seng Loong (Resigned: 14.09.09) 4 out of 4

See Keng Leong (Appointed: 11.09.09, Resigned: 12.11.09) Not applicable

Chan Weng Kwong (Appointed: 11.09.09, Resigned: 23.12.09) 1 out of 1

Khoo Eng Chin (Appointed 22.02.10) Not applicable

Neoh Chee Kean (Appointed 07.05.10) Not applicable

Summary Of Activities Of The Audit Committee

During the financial year ended 31 December 2009, the Audit Committee carried out the following activities in the discharge of its duties:-

• Reviewed all unaudited quarterly financial results and the audited financial statements of the Company before recommending them to the Board for approval;

• Reviewed the external auditors' scope and approach of audit as presented in their audit plan before commencement of audit;

• Reviewed the external auditors' audit report and considered the areas of concern raised by the external auditors;

• Reviewed all recurrent related party transactions on a quarterly basis;

• Reviewed the status of employees' share option allocations on a quarterly basis.

• Verified the allocation of options pursuant to Employee Share Option Scheme ("ESOS") of the Company.

The Audit Committee noted that the Company has a total of 1,137,000 shares available under the Company's ESOS to the employees of the Company and the options have not been exercised as at 31 December 2009. The exercise price of the ESOS shares is RM1.16 and the ESOS is valid until 13 August 2013.

5.2 Internal Audit Function

The internal audit function is independent of the auditable areas in the organization and report to the Audit Committee. The responsibilities include reviewing the adequacy of the systems of internal controls and evaluating the various financial and operational risks faced by the organization.

5.3 Statement On Internal Control

The Board of Directors ("Board") of Linear Corporation Berhad ("Linear") is pleased to set out below the Statement of Internal Control pursuant to paragraph 15.27(b) of the Listing Requirements of Bursa Malaysia Securities Berhad ("Bursa Securities"). It is prepared in accordance with Bursa Securities' Statement of Internal Control - Guidance for Directors of Public Listed Companies. The Board acknowledges its responsibility to maintain a sound system of internal controls to safeguard the Linear Group("the Group")'s assets in accordance with the Malaysian Code on Corporate Governance ("the Code"). The Board is committed to taking appropriate initiatives to further strengthen the transparency, accountability and efficiency of the Group's operations. The Board believes that the practice of good corporate governance is an important continuous process and not just a matter to be covered as compliance in its annual report.

5.3.1 Board Responsibility

The Board affirms the overall responsibility for maintaining a sound system of internal controls and for reviewing its adequacy and integrity so as to safeguard shareholders' investment and the Group's assets. Due to inherent limitations in any system of internal control, the system is designed to manage and control risk appropriately rather than eliminate the risk of failure to achieve business objectives. Accordingly, the internal control system provides reasonable assurance and not absolute assurance against material misstatement or loss, and therefore risks should be continually monitored and managed at all times. The Board takes cognizance of the improvement points highlighted by the external auditors and recognizes that reviewing and enhancing the Group's system of internal control is a continuing process.

5.3.2 Internal Control

Key elements of the system of internal controls are as follows:-

Operating structure with clearly defined lines of responsibility

The operating structure includes defined delegation of duties and responsibilities to the various Board Committees, the Executive Board members, the Management and operating units.

Independence of the Audit Committee

The Audit Committee, which comprises entirely Independent Non-Executive Board members, holds regular meetings to deliberate on audit findings and recommendations and reports to the Board.

Employee competency

Proper procedures are in place in respect of recruitment and termination of employees. Emphasis is placed on the quality and abilities of employees with continuing education, training and development being actively encouraged through various programs.

Financial reporting

Regular monitoring and review of financial results by the Management and formulation of action plans to address areas of concern before they are being reported to the Audit Committee and the Board.

Insurance

Adequate insurance on major assets such as stocks, buildings and machineries belonging to the Group, is in placed to ensure that the Group is sufficiently covered against any mishap that may result in material losses affecting the Group.

Weaknesses in Internal Controls that Results in Material Losses

There were no material or significant losses incurred during the financial year ended 31 December 2009 as a result of weakness in internal control. Notwithstanding, the Board remains committed to strengthen the Group's control environment and processes and its quest for continuous improvement is ongoing and, appropriate action plans will be put in place, when necessary, to further enhance the Group's system of internal controls.

5.3.3 Statement On Internal Audit Function

Due to the Group's restructuring exercise, we were unable to engage an independent body to undertake the internal audit function. However, this function will be filled for the financial year 2010.

5.4 Reports from Auditor

5.4.1 Report on the Financial Statements

We have audited the financial statements of Linear Corporation Berhad, which comprise the balance sheets as at December 31, 2009 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year ended December 31, 2009, and a summary of significant accounting policies and other explanatory notes, as set out on pages 31 to 89.

Directors' Responsibility for the Financial Statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter

Without qualifying our opinion, we draw our attention to Note 23 of the notes to the financial statements that the Group had defaulted on the bank borrowings. The management is currently in the process of negotiating to dispose certain property, plant and equipment and prepaid land lease to repay the bank borrowings.

Basis for Qualified Opinion

We are unable to satisfy ourselves on the collectability of the advance of RM36 million reflected in other receivables, as mentioned in Note 15 and Note 39 of the notes to the financial statements. However, the management is of the view that this amount can be recovered. In the event that the said amount cannot be recovered, the shareholders' equity will be decreased by the said amount and in the absence of additional capital being injected into the Company and/or future profits generated by the Group, the Company may be classified as an Affected Listed Issuer pursuant to the amendments to the Listing Requirements of Bursa Malaysia Securities Berhad in relation to Practice Note 17/2009.

Qualified Opinion

In our opinion, except for the effects on the financial statements of the matter described in the Basis for Qualified Opinion paragraph, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at December 31, 2009 and of their financial performance and cash flows for the year then ended December 31, 2009.

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report the following:-

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

(b) We have considered the accounts and the auditors' reports of the subsidiaries of which we have not acted as auditors, which are indicated in Note 9(b) of the notes to the financial statements.

(c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

(d) The audit report on the accounts of LCI Global Sdn. Bhd. (formerly known as Linear Cooling Industries Sdn. Bhd.) contains qualified opinion made under Section 174(3) of the Act. The audit report of remaining subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

Other Matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. The financial statements for the preceding year were audited by another firm and are presented merely for comparative purposes.

6.0 FINDING OF THE CASE OF LINEAR

The financial statement of Linear Corporation starting in 2005 shows that company was in financial distress. They are loss about RM 50 million. In 2006, the company was reported a net loss about RM 20 million. However, the conditions of financial in 2007 become better. The company was reported net profit about RM 4 million. But, in 2008 the financial position net profit was decrease RM 700 thousand. Then, the financial statement in 2009 shows a bad position. The company was reported net loss about RM 17 million. Therefore no dividend has been recommended, paid or declared by the Company since the end of the previous financial year.

The company has released their annual report to the public on the 4th of June 2010. From the annual report the auditor mentioned that they are unable to satisfy their selves on the collectability of the advance of RM36 million reflected in other receivables, as mentioned in Note 15 and Note 39 of the notes to the financial statements. However, the management is of the view that this amount can be recovered. In the event that the said amount cannot be recovered, the shareholders' equity will be decreased by the said amount and in the absence of additional capital being injected into the Company and/or future profits generated by the Group, the Company may be classified as an Affected Listed Issuer pursuant to the amendments to the Listing Requirements of Bursa Malaysia Securities Berhad in relation to Practice Note 17/2009. This company is in financial distress when Bursa Malaysia issued PN17. Companies that fall within the definition of PN17 will need to submit their proposal to the Approving Authority to restructure and revive the company in order to maintain the listing status.

After the company has released their annual report to the public, the auditor was revealing the fraud made by board of director. The company problem began when the former director Alan Rajendram has signed a letter of award with Global Investment Group (GIG) on December 29, 2009 for the dome project and was paid to GIG as performance consideration for a RM1.6 billion King Dome project. The project of King Dome is the cooling plant that would be supplying chilled water for the air-conditioning system in Manjung Perak. He has informed the board of directors after he has transferred out the money. In February 2010, the internal auditors advised the GIG to return the money, which the latter followed through. This is because the money could not be transferred without the approval of the board. Again Alan Rajendram has transferred out the money of RM36 million once more to GIG in April without notifying the board. He gives explanation was that there was pressure from GIG on him to transfer the money to be used as a performance consideration payment for the RM1.6 billion King Dome project. Therefore, he used the autocratic manner to make the decision. This happen because there were no proper procedures for projects to be prepared and submitted for approval by the board. According to Linear Corp executives director Mervis Nevis, prior to this, for three years, they were no proper procedures for project to be prepared and submitted for approval.

Linear's troubles began when there was no progress made after the company signed a letter of award with GIG on Dec 29, 2009 for the dome project and the RM 36 million was paid out to GIG as "performance consideration". Besides that, Linear defaulted on its loan obligations. According to Executive director C.K. Yap, the payment to GIG was to show that Linear Corporation had the ability to undertake the King Dome projects. The company now wanted to sell its cooling system-manufacturing plant in Prai Industrial Estate and used the proceeds as working capital. The company also would study whether the King Dome project was still workable. If the project can proceed, there will no problem in getting financing. If it not, Rajendram had given an indemnity letter to say that the RM 36 million will be returned to Linear by November 30.

Bursa Malaysia was immediately appoint a special auditor to investigates the company, particularly its financial matters and identify any potential irregularities.

When the case began, the executive director of a public listed company was charged in the Sessions Court on five charges of abetting three individuals to cheat and commit criminal breach of trust (CBT) involving nine million share amounting to RM 23 million.

According to case of Linear Corporation, the prior problem in this company was weak in internal control. The transfer of money can easily be made because there were no proper procedures for projects to be prepared and submitted for approval by the board. Linear also admitting its recent problem were "self-inflicted" by internal weaknesses.

To solve this problem, there were calls for annual general meeting. From this AGM, they will carry on with their restructuring exercise with the usual framework of capital reduction, reduction of indebtedness followed by injection of new equity funds. The second recourse is to recover the money from its former director Alan Rajendram Jeya Rajendram, who has issued a statutory declaration and a letter of indemnity (LOI) on June 17 to deliver the project or indemnify the company in the event of any losses. He has until Nov 30 to do so. Linear will restructuring efforts include tightening other loopholes, with any decisions involving more than RM10,000 requiring the approval of the board. Therefore, all contractual arrangements must also be vetted and prepared by external legal advisers before being brought to the board for deliberation.

7.0 CONCLUSIONS

BKAF 5043

FINANCIAL ACCOUNTING THEORY AND REPORTING PRACTISES

Case Study:

LINEAR CORPORATION BHD.

PREPARED FOR:

PN. ROHANA @ NORLIZA YUSOF

PREPARED BY:

NURUL FARIDA BINTI ABDULLAH (801920)

ZURAINI BINTI ZAKARIAH (802990)

DATE ON SUBMISSION: 1 AUGUST 2010

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