Auston was a Sesdaq listed education services provider.
Its then CEO Ken Yeo and CFO Chua Peck Wee have been charged for crimes under the Securities and Futures Act.
They have allegedly overstated profits for the year ended 31 July by SGD 374k in the IPO prospectus in April 2003.
In particular an entry for SDG 268,525, payment of “university fees” to University Wollongong was falsely put through the book as “academic cooperation fees” paid to Upper Iowa University (amortised expense over 3 to 5 years).
Mr Chua, a Non practising member of ICPAS is subsequently found in breach of Rule 40.1 liable to disciplinary action for guilty of misconduct.
IPO – high risk for misstatement of profits by inflating sales or under reporting of expense?
Was the IPO due diligence rigorous enough to uncover it before it was allowed to be listed?
Corporate governance issues – Again where is the controls and warnings from the Independent directors? Recruitment of CEO & CFO needs to be strengthened
Considerations by Auditors:
~ Pay attention to internal audit reports and recommendations, compare their draft reports to the final reports to see if any issues were dropped, downplayed.
~ Corporate governance structure – assess whether it is robust and actually working.
~ Higher risk assignments – IPO due diligence. To meet listing requirements or to make the offering attractive there are risks of window dressing and misstatements by client.
~ Management integrity – how do we assess?
~ Short term vs long term remuneration practices / rewards systems. May be insightful to look at the number of shares to be awarded or options given to key managers, shareholder directors etc to have an idea how much is riding on a successful listing for particular individuals/ officers, and therefore the potential compromise to their objectivity.