UNIVERSITY NAME.

QUESTION AUDITORS’ LEGAL LIABILITY Malaysia’s securities regulator, the Securities Commission (SC) is still reviewing the conduct of auditors in relation to 1Malaysia Development Bhd (1MDB) audits. 1MDB was wound up after losing billions of dollars in a scandal. 1MDB is the subject of money laundering investigations in at least six countries, including the United States and Malaysia. The US Department of Justice has alleged that over US$4.5bil (RM18.5bil) was stolen from 1MDB by top officials of the fund and their associates between 2009 and 2014. Required: Discuss on the following: (a) Based on any current development, does this case represent a business failure, and audit failure, or both?

LEGAL LIABILITY OF AUDITORS 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

LEGAL LIABILITY OF AUDITORS 2
This case shows a business failure of the 1MDB company. The current development of corporate
governance must be practised by businesses (DeZoort & Harrison, 2018, pg. 858). The main aim of
corporate performance is to balance the interest of all the stakeholders in the company like the
suppliers, employees and others. However, with this company, the wealth maximisation interest of the
shareholders was not safeguarded but instead the interest of other parties considered for instance the
board of directors of the company approved RM 49.9 million to be paid to the prime minister of
Malaysia by the virtue of his office. The managers of the company collude with the prime minister to
obtain RM 90 million which is surpassing RM 49 million which is not ethical under the corporate
governance. The other aim of Corporate governance in a company is to steer the company forward by
utilising long term value and attaining prudent management which has not been adhered to by the
company and its interested parties for instance, The Royal Malaysia police confiscated an unknown of
money and jewellery from the Najib Luxurious Condo in Pavilion Residences (Firth & Wong, 2012, Pg.
58). The police issue a certification of apprehension against the Job low and his father who are the
defendants of the charges of Anti-laundering and Anti-Terrorism Financing Act. In my view, this is
business failure to a greater extent in that the management which is separate and independent fail to
prevent involvement of the government through the office of the prime minister in the company affairs
which made the company to be financially wound up. The board of directors were influenced to make
decisions that are favourable to the government which is a single party interested in the affairs of the
company.

LEGAL LIABILITY OF AUDITORS 3
REFERENCES.
Firth, M., Mo, P.L. and Wong, R.M., 2012. Auditors’ organizational form, legal liability, and reporting
conservatism: Evidence from China. Contemporary Accounting Research, 29(1), pp.57-93.
DeZoort, F.T. and Harrison, P.D., 2018. Understanding auditors’ sense of responsibility for
detecting fraud within organizations. Journal of Business Ethics, 149(4), pp.857-874.