Assignment 3 ICS

FACULTY OF BUSINESS AND ACCOUNTANCY
UNIVERSITI SELANGOR
ASSIGNMENT 3
CASE STUDY 26
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RESTORING TRUST IN CORPORATE GOVERNANCE:
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THE CASE OF HONGWEI HOLDINGS BERHAD
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COURSE NAME : INTEGRATED CASE STUDY
COURSE CODE : PAS3183
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SEMESTER : NOVEMBER 2020 / 32034

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LECTURER’S NAME : PROF MADYA DR. AZA AZLINA MD KASSIM

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GROUP : G1
SUBMISSION DATE : 02 FEBRUARY 2021
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Please fill in the following particulars:

STUDENT’S DETAIL
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NAME STUDENT ID.

NUR QAMARINA BINTI MOHAMAD ASRI 4174017761
NUR IZZAH HAZWANI BINTI NORIZAN 4174017771
NUR HANIS ZULAIKHA BINTI ZULKIFLI 4154001201
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NUR FATINI EZZATY BINTI SHAIFUL HAIRAZAN 4165000101
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QUESTION 1
Identify and explain the issues and weaknesses in relation to corporate governance of Hongwei
Holdings Berhad.
Answer:
Hongwei Holdings Berhad have to employ a good corporate governance to help the
Company to regulate risk and reduce corruption occur in management. However, Hongwei have
low level of corporate governance so this is why they facing problems.
The issue faced by Hongwei Holdings Berhad is where the release of its December 2015
annual report was delayed. This was due to additional work to be done by the auditors because of
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the investigation and verifying process about the expenditure incurred and the bank balances.
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Based on Companies Act 2016 Section 259 stated that a company to lodge its financial
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statements and reports (collectively called ‘the accounts’) with the Registrar of Company (ROC)
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and in the case of a public company, the accounts must be lodged with the ROC within 30 days
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from its annual general meeting (AGM). This is happening because the board had agreed to
notify Bursa Malaysia on the development and set a new deadline of no later than two months
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from the year ended but Hongwei still failed to meet the new deadline and was unable to submit
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the annual report. Due to that, Hongwei’s share price is dropping year by year.
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The next issue is about the Hongwei’s subsidiaries and the inventories. The delayed was
because of the management team of subsidiaries did not give cooperation to the auditors so that,
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auditors can’t solve the problems on the ownership and recoverable amount of the subsidiaries.
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In Companies Act 2016 Section 266 (4) stated clearly about the auditor’s right. Auditor can
access at all reasonable time and can get any information related to the accounting and all the
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company’s record. The auditors also can get any explanation of such information to do the audit
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process. However, Hongwei’s subsidiaries, their team management did not give any commitment
and also fail to provide appropriate evidence to ascertain whether the group still had ownership
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over the inventories. However, the auditor also can’t complete the report because they could not
determine whether all significant event occurring after the reporting period and there was also a
risk that occurs fraud because the financial statement may be misstated by the team management
of subsidiaries and weak of internal control.
The next issue is there was a legal claim by the certain parties against Jinjiang Shoe
Material Ltd and the auditor fails to complete the investigation due to some limitation and were
currently unable to provide required information and comprehensive legal advice. Companies
Act 2016 Section 174 stated that, every auditor of a company shall report to the members on the
accounts required to be laid before the company in general meeting and on the company's
accounting and other records relating to those accounts and if it is a holding company for which
consolidated accounts are prepared shall also report to the members on the consolidated
accounts. In this case, its look like they did not have a good communication between the board
and the subsidiaries. MCCG 2017 stated that, ongoing engagement and communication with
stakeholders builds trust and understanding between the company and its stakeholders. It
provides stakeholders a better appreciation of the company’s objectives and the quality of its
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management.
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Last but not least issues occurred in Hongwei Holdings Berhad were the Company lost its
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company secretary and agent and two out five board members resigned last month due to
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personal reason without notice and the chief financial officer (CFO) also leaving Hongwei.
When these happen, the Company had been left with no proper functioning board with all non-
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executive directors. In corporate governance, a written resignation is deemed to be effective 48

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hours after dispatch. A director resigning at a board meeting should make a clear whether the
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resignation is with immediate effect or from the end of the meeting, as he or she is a party to the
decisions of the board up until resignation and not just left without any notice like other directors
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did. Besides, MCCG 2017 stated that, the board should appoint a competent and qualified
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Company Secretary to provide sound governance advice, ensure adherence to rules and
procedures, and advocate adoption of corporate governance best practices.
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In conclude, Hongwei Holdings Berhad is very lack of corporate governance so it will

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affect the going concern of the Company. When the corporate governance is ineffective, the
shareholders confidence will be affected and a Company with a poor corporate governance
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strategy can have a negative influence on the business market. In this case, Hongwei already
appoint a new director to recognize the importance of corporate governance in running the
operation of the Company and the subsidiaries and build up back the trust of the shareholders
and stakeholders.
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QUESTION 2
Suggest some strategies on how to improve corporate governance in the company.
Answer:
Corporate governance is the system used to directed or controlled companies. The board
of directors is the person responsible for the governance of their companies. Corporate
governance is very important because there is a possibility of conflicts of interest might happen
between stakeholders. Corporate governance also includes the process of the corporate objective
are set and pursue in the context of social, regulatory, and market environment. Therefore, good
governance has a big impact on the non-listed sector where it is about improving transparency
and accountability within the existing system.
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First strategies to improve corporate governance in the company is to appoint a
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competent board member. The nominating committee should put more time in order to identify
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the board members who have enough skills and knowledge to assists the board. There should be
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a board member who have a helpful expertise and who offer a fresh perspective. The priority for
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a board is that it has understanding of what skills it has and skills it requires. A board candidate
should be evaluated on their interpersonal skills where interactions and relationships are the main
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key performance.
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Next strategy is by increasing the diversity in the board member. This company might be
suffered from a serious lack of diversity. Diversity in a board member improves the company
performance. MCCG 2017 stated that the members should consists at least 30% women become
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director. In order to increase the diversity, the company can also establish mentorship programs
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where diversity is very important which also known as a bottom-line issue. The Securities and
Exchange Commission require companies to disclose their diversity policies which can lead to
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increased emphasis on diversity. Ensure timely information is also a strategy to improve

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corporate governance in the company where it is resulted in better decision making. In order to
have a proper supervision and direction senior management need to provide a timely
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information. However, board member should not be overwhelmed with information where they
need to be balance between necessary information and irrelevant information. It is a must to have
a conversation between senior managers and the board to ensure that sufficient information is be
given to the board. Board member have rights to request more information and it is senior
manager’s responsibility to provide it for them.
Strategy that can be used to improve the corporate governance is by prioritize risk
management. Every board member should establish an effective system for risk control and
management. Board member should also need to make sure that proper systems are in place to
enhance the accountability, promote risk management and internal controls. This can be done by
having a competent audit and risk committee that review and control the processes. Furthermore,
board member can ensure that the financial done on time and reliable to the financial reporting
standards.
Last but not least is to evaluate the board performance. This is to ensure that the company
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has a framework which gauge with the Malaysian Code on Corporate Governance 2017. The
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boards need to identify their own strength and weaknesses. The board need to conduct a self-
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evaluation process including the performance of individual directors. The evaluation that be done
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is to identify the weaknesses and to improve the board performance. The evaluation should be
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wide where they should cut off all issues and personnel and also include senior management
interactions with board member. They need to make sure that the board member is not appointed
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for more than nine years where MCCG 2017 stated that an independent director does not exceed
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a cumulative term limit of nine years. After completion of the nine years, an independent director
may continue to serve on the board as a non-independent director. The board should seek annual
shareholder's approval through a two-tier voting process. Which is Tier 1 only the large
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Shareholder of the company, and Tier 2 Shareholders other than large shareholders votes.
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In conclusion, a comprehensive corporate governance structure is often being avoided in

start-ups and small companies where they assume that it is only being used in large
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organisations. The truth is every business are all the same, they will find good in corporate
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governance where it ensures the longevity of the business and taking it to the next level
especially in dealing with financial opportunities.
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QUESTION 4
How would you perceive Hongwei Holdings Berhad’s internal control?
Answer:
Internal Control can be characterized as a system developed, implemented and operated by top
management companies and managers to provide a high level of protection in achieving business
goals, while complying to policies and regulations, protecting properties, maintaining efficiency
and effectiveness in routine operations, and maintaining financial statements' reliability.
Therefore there have several of the internal control that been study in this case.
First internal control that been perceived is where the situation in the company been
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clearly that the board of directors does not do their responsibility as the company's directors,
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as the remaining directors, in which that the directors commit a lot of violations in corporate
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governance, international listing standards, disclosures, and compliance with the Bursa Malaysia
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Securities Directives. In other word, they also refuse to meet with Malaysia's regulators and new
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board even though as a director it was one of the duties as specified in corporate governance.
Next internal control that been founded is no proper Standard Operating Procedure
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and regulation that been implemented in the company. In the Hongwei Holding Berhad, there
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have no proper Standard Operating Standard that been implemented due to many people resign
without prior notice and this also affects the way the management team performs their duties. A
negative example can be seen when the team refuses to provide the auditors with a promise to
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confirm ownership and recoverable subsidiary quantities.

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Furthermore, one of the internal control issues is the failure to receive adequate
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assurance that there were no significant flaws in the internal accounting control system and
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there was no possibility that financial statements might be significantly misrepresented as a

result of fraud. Last but not least the internal control that been perceive is the lack of the proper
documentation. The auditors have also reported the lack of sufficient documentation for any
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company transactions that have occurred. These circumstances show on how the auditors were
unable to ascertain the completeness of all legal cases and the magnitude of the liability that may
occur is an example. In the other words, due to the lack of sufficient documentation, auditors
were unable to assess if all the major incidents that occurred after the reporting period were
properly discussed in the financial statements.
Conclusion all these internal control issues are been led to the going concern of Hongwei
Holding Berhad. Due to the issued that been raised show that the existence of a material
uncertainty that may cast significant doubt the group’s and company’s ability to continue as
going concerns.
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FACULTY OF BUSINESS AND ACCOUNTANCY

SEMESTER : NOVEMBER 2020 / 32034

LECTURER’S NAME : PROF MADYA DR. AZA AZLINA MD KASSIM

Please fill in the following particulars:

NAME STUDENT ID.

NUR FATINI EZZATY BINTI SHAIFUL HAIRAZAN 4165000101

executive directors. In corporate governance, a written resignation is deemed to be effective 48

In conclude, Hongwei Holdings Berhad is very lack of corporate governance so it will

increased emphasis on diversity. Ensure timely information is also a strategy to improve

In conclusion, a comprehensive corporate governance structure is often being avoided in

How would you perceive Hongwei Holdings Berhad’s internal control?

confirm ownership and recoverable subsidiary quantities.

there was no possibility that financial statements might be significantly misrepresented as a

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