CIMB Group - Non-Audit Fees Dilemma

CIMB Annual Report 2009

"Where a statutory audit client is an entity of significant public interest, the significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards such as those in 290.206 should be considered and applied as necessary to reduce the threat to an acceptable level in all cases where:

(a) the amount of the fees received for the non-audit services compared to the total annual audit fees is 50% or more;or

(b) the total size of the non-audit fees paid for the services is significant."
SG290.206B (Accounting and Corporate Regulatory Authority, Code of Professional Conduct and Ethics Consultation Document 2007)

CIMB has managed to reduce the size of the fees paid for non-audit services from 8.03 million Ringgit in 2008 to 3.3 million Ringgit in 2009. Nevertheless, by Singapore's guideline, the payment of 2.36 million Ringgit for non-audit services to PricewaterhouseCoopers Malaysia, will be considered significant.

Since this large payment will not be allowed in Singapore, why do it in Malaysia?

In 2008, PricewaterhouseCoopers Malaysia earned RM 1.19 in non-audit fees for every Ringgit of audit fees it was paid by CIMB. In 2009, it still earned RM 0.77 in non-audit fees for every Ringgit in audit fees it collected from CIMB.

The following is a question asked by the International Federation of Accountants in their Good Practice Guidance, released in October of 2010.

Does the Firm deliver non-audit services to the entity in a manner that non-audit fees may exceed audit fees or be seen to impair auditor independence?

The same guide also quotes the Australian oversight body as saying;
"Across most Firms, we continue to note deficiencies in the application of policy for both the adequacy of documentation supporting the decision to provide non-audit services for audit clients…"

CIMB must ask itself which is more important; the fees its external auditor, PricewaterhouseCoopers Malaysia, earns from doing non-audit work for CIMB, or the interests of its shareholders?

Can CIMB assure its shareholders that the external auditors, PricewaterhouseCoopers Malaysia, is totally immune to the threat of self-interest? Is there any business entity in the world that is immune to profit?

When PwC Malaysia does not even adhere to its own code of conduct, can CIMB then assure the shareholders that PwC will adhere to the code of conduct of the International Federation of Accountants?

When even the regulators turn a blind eye towards the fraud perpetrated by PwC in Malaysia, can CIMB then assure the shareholders they get the best possible in terms of an independent audit every year?

The shareholders will act based upon their own perception of the value of a company. No company, large or small, must ever forget that.

Chin Kwai Fatt, MD of PwC Malaysia. 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)