Corporate governance is considered to be a key element in enhancing Investor Confidence, promoting competitiveness and ultimately improving economic growth. (ICAEW)
We have been writing incessantly about the biggest regulatory scandal this country has faced in 2010, as well as the ongoing fraud by PwC, and the two are united by the fact that PwC is involved in both.
The questions raised regarding the regulatory scandal can be read here on the sad state of corporate governance, here on the events surrounding the appointment of the Director of the Audit Oversight Board, which oversees all auditors of Public Interest Entities in this country, with more questions raised here and here.
Mismanagement in companies like Enron, WorldCom, Satyam and others have caused losses that amount to more than a hundred Billion US Dollars. And in all these cases, the auditors of these companies have played a role by colluding directly with their clients to release false numbers or at the very least turning a blind eye to the deliberate fraud perpetrated by the guilty parties.
In America we saw the enactment of the Sarbanes-Oxley Act in 2002, a direct result of the Enron and WorldCom scandals. The SOX was put in place to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. The unstated reason was to bring back a measure of confidence to the market.
In Malaysia, the Securities Commission decided to set up the Audit Oversight Board, which emulates the first out of 11 points in the SOX.
This was an extremely important decision in improving the confidence in the Corporate Governance framework of Malaysia, seeing that we have also seen accounting frauds within our shores.
The very reason for the formation of the AOB was to regulate auditors, and to ensure that they met the 'fit and proper' criteria spelled out in the Act. But sadly, it was compromised on the very first day of its operations, nay, even before that, by seeing the appointment of a Director from PwC as the person to run it, and then to have that firm registered post haste, making a mockery of the whole process.
Even sadder than that is the silence and lack of action, despite all the talk on changing what this country is about, transformations and whatnot. We are not only facing falling FDI inflows, our money outflow is also increasing. And who can blame the investors, locally or abroad, when it is obvious that we have not even taken a factor as auditor regulation seriously, let alone improve corporate governance.
A growing and healthy economy is as important a factor as any, for any incumbent government to keep ruling. They translate to wealth and jobs, which bring continued peace and stability. All these mean votes. Nothing can make a man switch his vote faster than the loss of his job, and a lack of sound corporate governance makes that risk higher by the day.
One cannot imagine the same things going unchecked in Hong Kong or even Singapore for that matter, if their biggest auditing firm was implicated in a scandal with the very regulatory body that oversees it. The fact that we do not see the same here will only bring about doubt in the minds of the honest citizens of this country, the doubt of whether they have made the right choices so far.
If we cannot enforce something as simple as auditor regulation in what we would like to see as an economy with decent prospects, then the question of whether people have become too comfortable becomes very pertinent. And if we see inaction in the face of very serious allegations, and irrefutable evidence of fraud by an auditor as prominent as PwC, then the question actually becomes moot.
The only question that will remain in the minds of investors is whether there should be a change in not only the players in the game, but also the people that run the stadium.