Say No To Hudud

Monday, March 14, 2011

Axiata Group Malaysia and the Sarbanes-Oxley Act (SOX)

Letter from the General Counsel of Maxis, Mr Stephen Mead. Received from a Maxis insider.
The auditor independence provisions of SOX were strongly influenced by the fact that Arthur Andersen received $25 million in audit fees and $27 million in consulting fees from Enron in the years prior to its bankruptcy filings. 

Sarbanes-Oxley For Dummies

 By Jill Gilbert Welytok

Axiata Group is just one of the many Public Listed Companies that PricewaterhouseCoopers has 
as its client. As can be seen in the snapshot above of Axiata Group's last audited statement taken 
from the Bursa Malaysia website, the non audit fees paid out by Axiata to PricewaterhouseCoopers 
is greater that the fees paid for the audit work.

"Auditors have grown overly reliant on consulting business from their clients. According to a recent study by University of Illinois professor Andrew D. Bailey, among 563 companies examined under new SEC disclosure rules, only two paid no non-audit fees to their auditor, and, on average, clients reported paying their accountant $2.69 in fees for non-audit services for every dollar spent on audit fees. In some cases, however, the imbalance was far greater. In the most extreme examples, Puget Energy paid PricewaterhouseCooper $17 million for non-audit fees and just $534,000 for its audit.

The lure of this enormous compensation for non-audit services is the reason that the SEC, in 2000, proposed rules severely restricting auditors from providing consulting services to their clients, to ensure that their "public watchdog" role came before their self-enrichment goal. The SEC began its proposal with the following statement: 

"Independent auditors have an important public trust. Every day, millions of people invest their savings in our securities markets in reliance on financial statements prepared by public companies and audited by independent auditors… If investors do not believe that the auditor is truly independent from the issuer, they will derive little confidence from the auditor's opinion and will be far less likely to invest in the issuer's securities. Fostering investor confidence, therefore, requires not only that auditors actually be independent of their audit clients, but also that reasonable investors perceive them to be independent."

The SEC went on to say: "We have become increasingly concerned that the dramatic increase in the nature, number, and monetary value of non-audit services that accounting firms provide to audit clients may affect their independence."

The two most important provisions under the Sarbanes-Oxley Act of 2001 were the setting up of the 
Public Company Accounting Oversight Board (PCAOB), which the Securities Commission of Malaysia 
has attempted to emulate via the Audit Oversight Board, and the prohibition of auditors from performing 
certain non audit services for their audit clients.

The effect of the SOX in restoring public confidence and enhancing corporate governance in America 
is a testimony to the seriousness with which the regulators in the United States viewed the lack of 
proper self-regulation by the accounting firms.

Malaysia has had its share of corporate scandals, some of which are still ongoing, but the critical area of non 
audit fees, has still been left to the accounting firms to self regulate. Even though PricewaterhouseCoopers 
knows it will have a tough time explaining the fees they are earning from the non audit work they perform 
for the Axiata Group, the fact that there is no regulator here to ask them those questions means that they 
can get away with putting profit above questions of independence.

Dato' Sri Jamaludin Ibrahim, Group CEO of Axiata, and former CEO of Maxis
Axiata has a market capitalisation in excess of 41 billion Ringgit. Can there be any questions at all 
regarding the independence of the auditors of a PIE like Axiata, when billions upon billions of the 
rakyat's money is dependent on the audited financial statements?

Former Chairman of PwC, signed a sworn statement that PricewaterhouseCoopers Consulting Sdn Bhd (464379-U) is a member firm of PricewaterhouseCoopers globally.
Chin Kwai Fatt. Till today he has not denied the fraud involving PricewaterhouseCoopers Consulting Sdn Bhd (464379-U)
and the bogus firm and directors of PwC Consulting Sdn Bhd (289801-A)

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