In Malaysia, financial scandals have occurred due to failure of auditors to report on the truth of the companies state of affairs. This are seen in cases such as Equine Bhd, KYM Holding, MTD ACPI Engineering Berhad, Axis Incorporation Bhd, BSA International Bhd, EkronBhd, JaycorpBhd, London Biscuit Bhd, Syarikat Takaful Malaysia Bhd, Tanjung Offshore Bhd, Talam Corporation Bhd and etc.
Thus, auditors' duties and obligations must be clarified due to the financial scandals. In fact, financial scandals are one of the major reasons for change in company law.  Nevertheless, it should not be a case of learning the wrong lesson from those financial scandals  . The financial scandals prove to show that the auditors have fallen below the expected standards. If a company were to fail within certain months after being audited, the auditors are blamed for asked whenever there has been a financial scandal is, whether the auditors carried out their duties and obligations properly  . On the other hand, distinction should be made between audit failures and business failures. In the former case, the blame should be attached on the auditors. In the later case, there are external factors attached. This is because not all business failures are due to audit failures. This can be seen as regards to General Motors Corp's in the United States of America whereby the auditors of the company, Deloitte &Touche have raised substantial doubts about the company's ability to continue operations.  The auditors have pointed out the company's ability to continue which is not due to the auditors' ineffectiveness in pointing out the wrongdoings.
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On the other hand, in the context of Malaysia, Transmile Group Bhd. which is company controlled by Robert Kuok, sparked of a concern regarding auditors' duties and obligations. Accounting irregularities and fraud were discovered in the company.  The company overstated the accounts to show it made profits of RM75 million and RM158 Million for two consecutive years of 2005 and 2006 respectively. In actual fact, the company was at net loss of RM370 million and RM126 million respectively.  The stock dropped to Rm9.55, which is the lowest in two years.  However, the loss was not detected by Deloitte &Touche who were the auditors of the company but it was detected through a special audit by Moores Rowland as appointed by the company.  However, Deloitte and Touche dismissed the claim that they failed to detect the accounting irregularities. Furthermore, they claimed that it is not practicable to expect audit to represent a 100 per cent check of a company's financial well being.
Transmiles Group was not convinced with such answer and thus, it replaced Deloitte&Touche with Klnveld Peat Marwick Goerdeler  which is another auditing firm.  It should be noted that KPMG is an auditor for some of the companies owned by Robert Kuok.  KPMG offers due diligence and corporate tax advisory services to Perlis Plantation Bhd which is a company owned by Robert Kuok. Such services fall within the purview of non-audit services. Thus, the issue is whether there is conflict of interests and whether the independent of auditors is at stake. However, auditors are free to offer non-audit services as it is not prohibited by the laws namely the Companies Act 1965 and the Capital Market and Services Act 2007. Be that as it may, the question is whether the auditors will be able to act as effective watchdogs.
Always on Time
Marked to Standard
Enron, the Texas-based energy trading company is the first scandal which shook up the auditing profession although there were many cases involving auditors since the 18th century. Enron has caused a crisis to the confidence in auditors (Worden, 2002) and the reliability of financial reporting (Holm &Laursen, 2007). The audit quality and the independence of the auditors were questionable (Davis, 2002). This is because the auditors, who were Arthur Andersen, were not only receiving fees for auditing but for non-audit services too i.e. for consultancy services. In 2001, Arthur Andersen earned US$55 million for non audit services (Brown, 2005). There were regular exchanges of employees within Enron from Arthur Andersen.
A further issue is that although Arthur Andersen was making a report on the company's accounts, they did not report fraud to the stockholders and stakeholders. This is because the fraud was committed by the management. Kenneth Lay took home US$152 million although the company was facing a loss. If the auditors were to report they probably will not be appointed in subsequent years or be engaged for non audit services. They made sure that they were in the management's good books. They maintained confidentiality but for the wrong reasons.
The U.S government assured the stockholders and the stakeholders that Enron was just a case of one bad apple. Nonetheless, in 2002, WorldCom which is one of the biggest telecommunications company in US collapsed. The company faced US$28 billion in loans and yet Bernie Ebbers who ran the company was given a loan of US$366 million (Banyard, 2002). The auditors were Arthur Andersen. It was found that the auditors did not take proper steps in detecting accounting irregularities (Wong, 2004). Although it is the duty of the auditors to detect accounting irregularities, they failed to do so. Since they failed to do so rightfully they should be liable.
In Australia, the collapsed of HIH Insurance Ltd was seen as the beginning of the reflection into auditors' role, duties and obligations. The auditors were Arthur Andersen. The auditors were providing audit and non-audit services. Furthermore, the auditors ignored a document dated july
5.1 Recent cases against Auditor
The Baptist Foundation of Arizona
Arthur Andersen LLP agreed to pay $217 million to settle a lasuit over its audits for the Baptist Foundation of Arizona. This was the second largest settlement ever agreed to by a major accounting firm. The lawsuit alleged that Andersen accountants failed to detect fraudulent activity at the foundation. 11,000 people, most of them elderly investors, lost $570 million when the Baptist Foundation of Arizona filed for bankruptcy in 1999. The bankruptcy filing was one of the largest bankruptcy filings by a not-for-profit organization. With the money from Arthur Andersen and proceeds from the sale of the foundation assets, investors are expected to recover about 70 cents for each dollar invested.
The Baptist Foundation of Arizona was founded in 1948 to raise money to support Baptist causes and to pay a return for investors. It filed for bankruptcy in 1999 after many of the foundation's executive had been convicted of criminal charges or indicted for fraud.
The lawsuit against Arthur Andersen alleged that Andersen auditors failed to detect fraudulent activity at the Baptist Foundation, including "hiding real-estate losses by transferring overvalued assets to shell companies in exchange for IOUs, and engaging in a Ponzi-like scheme of using new investor funds to make payments to previous investor"  A Ponzi scheme is an investment fraud where early investors are given returns from funds collected from later investors, even though no investment profits have yet been earned. When the trial began, The wall street Journal stated, "For Andersen, the question probably isn't whether the firms is liable at all, but rather how much it should be required to pay." 
Dan Guy an expert witness called to testify against Andersen over the foundation audits, said, "Arthur Andersen did not live up to the minimum requirements in the rules set for auditors."  The lawsuit alleged that Arthur Andersen auditors did little to investigate allegations of fraud from whistle-blowers, and because of this omission they were complicit in keeping fraud concealed from investors. During the trial, Guy testified that he had reviewed Andersen working papers, as well as the depositions from whistleblowers, and determined that the fraud at the Baptist Foundation was not impenetrable. With the information from the whistleblowers, Andersen had an obligation to gather evidence to investigate the charges. Citing a 1997 conversation between Baptist Foundation accountant Karen Paetz and Ann McGath, the Andersen auditor, McGath acknowledged that the client told her that the Baptist Foundation was selling overvalued assets to a related-party company. According to Guy's testimony, this kind of information would prompt a knowledgeable auditor to investigate further.
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Additional evidence related to fraudulent activity that had been disclosed to the auditors was presented during the trial. Two chief financial officers of Texas Baptist Organization and a financial advisor from Mesa, Arizona, testified that they tried to alert Andersen to financial improprieties at the foundation and the likelihood that the foundation was broke.  Andersen had not responded to their calls.
Andersen placed the blame for the foundation collapse on the company's executives, the foundation's law firm, and state regulators who failed to investigate investor complaints in the early 1990s. According to statements by Andersen executives, "There is clear evidence that all members of the Baptist Foundation's senior management and a majority of the Board of Directors engaged in a conspiracy of silence to deny information about the Baptist Foundation's financial condition to the Arthur Andersen auditors." 
The settlement came one week into the trial against Arthur Andersen, sparing Andersen from further court proceedings and allowing it to avoid potentially crippling punitive damages. Under the terms of settlement, Andersen neither admits nor denies wrongdoing. In June 2002, Andersen paid the balance of the $217 million settlement, allowing Arthur Andersen to close the case brought against the firm in connection with the foundation audits.