Professional Ethics of Auditors: The Case of Serba Dinamik
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Professional Ethics of Auditors: The Case of Serba Dinamik

The recent dispute between a listed corporation, Serba Dinamik Holdings Berhad (“Serba Dinamik”) and KPMG has made waves in Malaysia as the impending legal suit is allegedly linked to negligence, breach of contractual and statutory duties of the audit firm.

Serba Dinamik is a Malaysian-based investment holding company, which manages the Serba Dinamik Group and CSE Global Ltd. The Group provides information technology (IT) solutions, energy and engineering services, mainly to the Oil and Gas (O&G) and power generation industries. The suit commenced after KPMG red-flagged several issues on Serba Dinamik’s bills and transactions in the draft Annual Report for the year ended 31 December 2020. It was understood that KPMG was unable to verify the details of the third parties for these transactions.Citing publicly available information, KPMG has denied the allegations and has stepped down from its duties as the external auditor due to being unable to continue with its duties independently. Upon the legal action taken by Serba Dinamik, five independent and non-executive directors of Serba Dinamik have resigned, with four of them expressing their disagreement over said decision, and on 25 June 2021, the company’s stock price dived to an all-time low of 23%.

Auditors in Malaysia are guided under Section 320 of the Capital Markets and Services Act 2007 (“Act”), which states that auditors are required to report to the Securities Commission Malaysia (“SC”), as well as Bursa Malaysia, any cases that adversely affect the financial position of the public listed company to a material extent, or any breach of securities laws and rules of the stock exchange. It is worth noting that under Section 128(2) and 320(2) of the Act, it posits that auditors are not liable to be sued in any court with respect to any statement submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor. By following the Act, the auditor enjoys these privileges due to its obligations to provide an independent report and not be influenced by other parties.

In order for Serba Dinamik to be successful in their legal claim, the management is required to show proof that KPMG has, in fact, breached its duties, as well as on the grounds of alleged professional negligence, breach of contract and breach of statutory duty. Regardless of the final outcome of the dispute, this audit issue serves as a reminder to the members of the accounting profession to uphold the principles of trustworthiness, transparency, and accuracy in independent financial reporting. Auditors are obligated to report any breaches or irregularities immediately to the SC.

Leaders of accounting firms should serve as role models by ensuring that the codes of conduct filter down through the entire organisation, to fully prepare auditors as they navigate potential ethical dilemmas. It is crucial for auditors to build public trust by advocating professional and personal ethical values to avoid potential publicised failures, which can tarnish the reputation and values of the accounting profession.

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