Does MSWG speak for the Big 4 accounting firms?

IN a recent report in a business daily, Devanesan Evanson – the CEO of the Minority Shareholders’ Watchdog Group (MSWG) – was quoted to have said in an email response to the daily that there is a difference between opinion shopping and genuine seeking of a second opinion.

It augurs well for the company that the second opinion that they are seeking is from a firm associated with a Big Four accounting firm.

He was also quoted to have said there is no need to second-guess the wisdom of the board in appointing three new independent directors and an independent advisory firm to resolve the issues pertaining to a company that is listed on Bursa Malaysia.

In one short statement, Devanesan has cast doubts and put into question the integrity of the 40-plus members in the Audit Oversight Board (AOB), the entire audit profession and regulators who oversee the audit profession nationwide, notwithstanding the fact that the requirements from the AOB for accounting firms to be accredited are rigorous.

I do not wish to assume or second-guess but it is clear that he is saying only another Big 4 accounting firm has the `stature, professionalism, work ethics and integrity’ to conduct a review of another Big 4 accounting firm and not anyone else even if the said firm possesses all the requisites.

Or is Devanesan saying market characteristics that can serve to enhance corporate governance are not found in Malaysia?

The MSWG may well be reminded that the Big 4 accounting firms were involved directly or indirectly in two decades of financial disasters from Enron’s collapse in 2001 to Wirecard AG’s meltdown leaving problems that regulators in those jurisdictions were still struggling to resolve with many remaining under investigation.

Even Wirecard’s own auditor, EY called the fraud committed by their client an “elaborate” fraud that even a very rigorous probe may not have discovered.

Whether it is a Big 4 accounting firm or another firm of a smaller nature does not matter. If the company or client intends to commit a crime, even the most robust and extended audit procedures may not uncover it regardless of the stature of the accounting firm.

The term ‘opinion shopping’ loosely translated implied that a client is shopping for an adviser or consultant willing to provide a favourable view of a matter.

I believed no one in all honesty dared to deny that this doesn’t exist at all in all facets of businesses.

Even in litigation, some clients who – after opinion shopping with several solicitors – only engaged solicitors who, in their opinion, tell them what they want to hear, that the solicitors believed the client has a strong case, when in actual fact, the case has only a slim or negative chance of winning.

Maybe it is the feel-good factor that prompted some of these clients to behave in such a way, but is it wrong for the client?

Similarly, when a person received a medical opinion from a doctor regarding a major personal health issue, it is normal for that person to seek a second, third or even maybe a fourth opinion from different specialists of the same discipline.

There is also a possibility that the person would not stop seeking until he or she obtained a favourable opinion. Is he or she opinion shopping or genuinely seeking an opinion?

Seeking out a second opinion doesn’t necessarily always mean that something is amiss. As in other professions, auditors can have different opinions about the many interpretations and judgment calls that are involved in preparing the financial statements of large, complex corporations.

Companies are free to consult with other accountants. They might, innocently, opt to choose a new auditor more in tune with their way of doing business or to save on audit fees by choosing a cheaper competitor.

It is not easy to determine if changes are made purely to engineer more favourable opinions unless intent is determined and proven.

Similarly, we could also question if the MSWG, which was set up to create awareness and provides minority shareholders with more credibility in challenging management, is truly independent and looks after the interests of the minority?

It has connections with the government and is sponsored by institutional investors. Therefore, what is the compatibility of the incentives of the MSWG to those of the minority shareholders it represents?

There is no straightforward way to verify its assertions of independence. For example, the chairman of the MSWG is from a government-sponsored institutional investor.

Hence, will the board members of the MSWG be willing to act against the very corporation that nominated them?

In other words, how can the MSWG which also has similar fiduciary duties as with other institutional investors – duty of care to the shareholders and bring about changes in the corporate governance practices in public listed entities – assure the public that it really seeks the interests of minority shareholders?

Unless the MSWG clarified the statement by Devanesan, it reinforces the perception among the investing market that the big 4 accounting firms, that have become “too big to fail”, will soon dominate the public listed company market of which presently 45% of companies were audited by audit firms other than the Big 4 accounting firms. – June 17, 2021.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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