Was it a Wise Decision? Was Serba Dinamik wrong to sue KPMG, suggesting that the external auditors should have sought to iron out the issues with it instead of going to the authorities? While Muhammad Shafee appears confident of the companys chances in the event it goes to trial, other experts are not as certain. A prominent member of the accounting fraternity is of the opinion that everything under the law allows the auditor to report what the auditor believes, in his or her professional judgement, to be a breach of the law or a possible fraudulent transaction being conducted. What Serba Dinamik should then do is to resolve the matter to the satisfaction of the auditors, and the approach should be to get another firm to look at the matter from a fresh perspective and provide its opinion. After that, the incumbent auditor will proceed to conclude the audit and issue the audit opinion, whatever that may be. As the relationship between the auditor and Serba Dinamik is now strained, the logical course of action after finalising the audit would be for the auditors to resign and a new firm can be appointed. That is how true professionals on both sides of the divide should behave. Both the Malaysian Institute of Certified Public Accountants (MICPA) and the Malaysian Institute of Accountants (MIA) had made statements reiterating the role of the auditors, which seemed to suggest that KPMG had done nothing wrong. MICPA said the audit of a listed company is guided by the International Standards on Auditing (ISA), the Companies Act 2016, and the requirements of Bursa Malaysia and the SC. It added that under Section 320 of the Capital Markets and Services Act 2007 (CMSA 2007), the auditor is required to immediately report to the SC and Bursa if there is a breach which may adversely affect, to a material extent, the financial position of the listed entity that is being audited.MIA president Dr Veerinderjeet Singh said in its June 24 statement: In carrying out their statutory duties, auditors as members of the MIA are bound by the ISA and the professions code of ethics. Furthermore, the auditors of public interest entities are required to comply with Capital Market and Securities regulations and are subject to oversight by the Audit Oversight Board. As such, auditors are required to comply with the requirements of the ISA as adopted by the MIA and exercise professional scepticism in the conduct of their audits. The objective of audits can be achieved when auditors can perform their audits within a good corporate governance ecosystem and render their independent opinion without fear or favour.The SC said on June 30, that under the CMSA 2007, auditors are bound by a statutory obligation to report anything that may constitute a breach or non-performance of any requirement of securities laws, rules of the stock exchange, or matters which may adversely affect to a material extent, the financial position of the listed company. External auditors play an important role in promoting confidence in the quality and reliability of audited financial statements in Malaysia. As such, auditors should be allowed to carry out their responsibilities and render their independent opinion without fear or favour, and discharge their duties free from any retaliation, the SC said.Frontline regulator Bursa Malaysia, meanwhile, stated that it is imperative that Serba Dinamik appoint an independent reviewer to address the uncertainty brought about by KPMGs flagging of the issues, which would provide clarity to the market to address the uncertainty surrounding the veracity and accuracy of the matters as highlighted. On June 24, Bursa Malaysia issued a query to Serba Dinamik, requesting an update and time frame on the appointment of independent reviewer Ernst & Young Advisory Services Sdn Bhd, which was proposed by KPMG. Serba Dinamik in its response said that the findings raised by KPMG were not substantive in nature and questioned the need for an independent review, saying that KPMGs issues were attributable to its own negligence and audit process. At the press conference, it was also hinted that the appointment of Ernst & Young Advisory Services as recommended by KPMG may not take place.Minority Shareholders Watch Group (MSWG) CEO Devanesan Evanson says, There are two matters that are of concern to minority shareholders. Firstly, the matters highlighted by the external auditors, which need to be resolved in a timely manner. Secondly, the audited financial statements should be issued in a timely manner. The audited financial statements will take some time to be issued. The pressing need now is the resolution of the audit matters highlighted by the external auditors. This information is vital information for the minority shareholders to see the whole picture and make their informed investment decisions. Without the satisfactory resolution of these matters, there will be much speculation as to the truth and veracity of these audit matters. It should be noted that, generally, rumours tend to abound where there is a vacuum of information, he says. MSWG favours Bursa Malaysias view that Serba Dinamik should appoint the independent reviewer immediately.

1. What are the characteristics of ethical leaders? Discuss the characteristics that Mohd Karim Abdullah has breached in this story.
2. Is Serba Dinamiks action of suing its auditor, KPMG PLT a programmed or non-programmed decision? Discuss both the short-term and long-term implications of such decision on the companys business.
3. After reading the case and what you have learnt from this course discuss the issues surrounding the resignation of four of the seven independent directors from the board of Serba Dinamik.