Deloitte KassimChan, an affiliate of Deloitte Touche Tohmatsu which is the world’s Big Four has been reprimanded by our Securities Commission(SC).

It is understood that this is the first time an accounting firm has been reprimanded by the SC.

The Securities Commission (SC)  has described Deloitte KassimChan’s  non-disclosure of material facts during the restructuring of Ocean Capital Bhd  as “an extremely serious dereliction of duty”. The SC in fact banned Deloitte and will not accept for six months all submissions under Section 32 of the Securities Commission Act 1993 where Deloitte acts as the reporting accountant.

As reported in the Business Time (30/8/06), the details are as follows:

• Deloitte was the accountant for Pasaraya Hiong Kong Sdn Bhd, while Hwang-DBS was the principal adviser for Ocean’s restructuring scheme;
• It was revealed that the audited accounts of Pasaraya Hiong Kong and the accountant’s report submitted to the SC in relation to the proposed restructuring had contained false and misleading information;
• As audited by Deloitte, the company had registered a turnover of RM198.7 million and an after-tax profit of RM8.5 million for its financial year ended March 31 2003. But it was later discovered that Pasaraya Hiong Kong had overstated its sales by RM7.7 million. This amount of overstated sales did not have a corresponding cost attached to it, thus the whole amount was booked to profit;
• If this overstatement being revealed, there would have been significant shortfall in the profit of the company, thus affecting adversely the restructuring scheme of Ocean;
• Deloitte Tax Services Sdn Bhd, the tax agent for Pasaraya Hiong Kong, was fully aware of the overstatement of the sales figures from a tax investigation and settlement but the the information was not made known to the SC by Deloitte.

Questions raised are: