Question

CORPORATE LAW

OK Sdn Bhd had appointed Razif to audit the company's account. While doing the audit, Razif discovered several invoices that showed signs of having been altered. He also found that some files were missing from the file cabinets in the accounts office. He enquired about it and the company's managing director, Tuan Suhaimi, told him that the company's office was broken into a few weeks before and some files had been stolen. Tuan Suhaimi also informed Razif that the altered invoices were due to some clerical mistakes.

Razif accepted the explanation and without investigating it further, he then prepared a report which was tabled at the company's annual general meeting. It turned out that Tuan Suhaimi had siphoned nearly RM 1.4 million from the company and transferred them to his personal account. Tuan Suhaimi had since migrated to Australia taking the money with him. Mona, who relied on Razif account report has subsequently subscribed and paid for the shares in the company and she suffered losses.

The company and Mona now wish to take action against Razif. Advise Razif.

Answer 1

                                                    Corporate law (also known as business law or enterprise law or sometimes company law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corporations, or to the theory of corporations. Corporate law often describes the law relating to matters which derive directly from the life-cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.

              In this case of Tuan Sashimi’s company is un systematic use of accounts and internal control system .many mistakes are included in the books of accounts. There are included vouching mistakes.

1. “Internal Controls” refer to the methods and procedures adopted by an entity to assist in efficient conduct of its operations and help in preventing fraud & errors

2. Those Internal controls which ensure validity & accuracy of the accounting records and financial statements are also referred to as “Accounting Controls”

2.

internal control aims at ;(elements of internal control )

1. Segregation of Duties

                                -Separation of accounting and custodial functions

                                -No single person should handle a transaction from beginning to the end

                           2. Securing proper documentation at each stage

                            • Correctly Recording the transactions in the books of accounts on a timely basis

                           3. instituting sufficient Internal checks under each transaction/ operations – work                                         

                               of one person should get automatically checked by other

4. Specifying proper authority to enter into the various transactions and making payments/ signing cheques (i.e. clear Delegation of Power)

                               • Fixing responsibility for the work and responsibility for deviations

Accounting controls relating to various financial/ operational transactions including:

1. Cash Transactions

2. Bank Transactions

3. Expenditure Control

4. Procurement

5. Inventory/ Stock

6. Fixed Asset

7. Advances

8. Others Administrative Controls

                                           Vouching is a technical term, which refers to the inspection of documentary evidence supporting and substantiating a transaction, by an auditor. It is the essence of Auditing.

It is the practice followed in an audit, with the objective of establishing the authenticity of the transactions recorded in the primary books of account. It essentially consists of verifying a transaction recorded in the books of account with the relevant documentary evidence and the authority on the basis of which the entry has been made; also confirming that the amount mentioned in the voucher has been posted to an appropriate account which would disclose the nature of the transaction on its inclusion in the final statements of account

                                  Verification of entries in the books of account by examination of documentary evidence or vouchers, such as invoices, debit and credit notes, statements, receipts, etc. The object of vouching is to establish that the transactions recorded in the books of accounts are in order and have been properly authorized and are correctly recorded. “Simple routine checking cannot establish the same accuracy that vouching can. In routine checking, entries recorded in the books only show what information the bookkeeper chooses to disclose, however these entries can be fictitious without any vouching or vouchers. By using a vouching or a voucher system a company will have concrete and solid documentation and evidence of expenses, capital, and written proof in audits.