Auditor Resignations: Navigating Corporate Governance

The recent resignations of external auditors from Bina Darulaman Bhd (The Edge, Sept 13), Sentoria Group Bhd (The Edge, Sept 5), and Globetronics Technology Bhd (The Edge, Sept 10) are a stark reminder of the critical role of external audits in ensuring transparency and accountability.

External auditors are tasked with forming an independent opinion on a company's financial statements and scrutinizing accounting records and financial risks. Their responsibility is paramount in identifying financial discrepancies or risks that may necessitate adjustments to the financial statements, thereby safeguarding shareholders against misrepresentation.

The resignations of these auditors prompt essential questions about the underlying reasons. The Bursa Malaysia Listing Requirements stress the importance of understanding these reasons, particularly if there are unresolved contentious issues that could impact financial reporting. Any written explanations from the departing auditors must be submitted to Bursa and the Registrar of Companies under Section 284 of the Companies Act 2016 to ensure that stakeholders, including the audit committee and shareholders, are informed of the rationale behind the departure, alleviating concerns about potential financial risks or governance issues.

In the case of Bina Darulaman, KPMG's resignation was portrayed as a mutual decision to bring in new perspectives from another audit firm, BDO PLT, reflecting a proactive approach by the company to refresh its external audit. Sentoria, on the other hand, provided no detailed explanation for Grant Thornton Malaysia's departure, leaving shareholders with unanswered questions about the transition. Meanwhile, Globetronics faced a severe market reaction following KPMG's voluntary resignation, which was tied to the company's new strategic direction under emerging shareholders. This led to significant volatility in its stock price, highlighting investor sensitivity to auditor changes and their potential implications for financial reporting.

Bursa's Paragraph 15.12(2) puts the onus on the audit committee to recommend a new external auditor following such resignations, ensuring the continuity of external oversight. At the same time, these companies have either already appointed or are in the process of selecting new auditors; the circumstances around their departures—whether due to strategic realignments or undisclosed factors—underscore the critical role that audit committees play in managing auditor transitions and maintaining investor confidence.

Ultimately, these auditor changes serve as a forceful reminder of the critical role of rigorous external audits in preserving the financial integrity of companies. Whether driven by mutual consent or other reasons, these transitions demand vigilant scrutiny to ensure that the interests of shareholders and the broader market are protected.

Stop Press: Pharmaniaga's External Auditor Resigns (The Edge, Sept 23)

In a significant development, Pharmaniaga's external auditor has also tendered their resignation. This follows a series of recent events, raising further questions about the company’s financial health and corporate governance.

Clement Ong is an adjunct academician at a private university. He is also a non-practicing Advocate and solicitor and a Chartered Governance Professional.

The information provided in this commentary is intended solely for educational purposes and does not constitute legal advice. While every effort has been made to ensure the accuracy and reliability of the information presented, it should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. The views and opinions expressed in this commentary are those of the author and do not necessarily reflect the opinions of any organization or institution with which the author is affiliated.