Thu, Jul 22, 2004 page11

• Accountants target flawed laws

  MORALITY PLAY While accountants are hired by management, they are responsible to investors, a National Taiwan University professor noted about the Procomp case

  • By Jackie Lin / STAFF REPORTER
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  Structural flaws in the accounting system must be addressed, an accounting professor said yesterday at a seminar in Taipei. He also urged accountants to exercise professional self-discipline to reduce frauds and strengthen corporate governance.

  Although accountants are hired by companies to verify financial statements, these professionals should manifest their independence and competence to hold their clients accountable to the companies' current and future shareholders, said Ko Chen-en (柯承恩) of National Taiwan University.

  Ko said the defective accounting system can become an accomplice to corporate financial irregularities when company leaders intend to cover up wrongdoing. Ko is also director-general of the Corporate Governance Association Taiwan (中華公司治理協會).

  "Because the party that pays money [to accountants] and the party that [the accountants] should be responsible to are different, these professionals face difficulty in maintaining their supervision quality when they're sometimes under pressure from higher-ups," he said.

  Speaking at a crowded seminar held by Standard & Poor's Ratings Services, Ko said a better way would be for companies' auditing committees, composed of independent board members, to directly communicate with accountants.

  Ko spoke to review the aftermath of Procomp Informatics Ltd's (博達科技) unexpected default on a corporate bond payment worth NT$2.98 billion on June 16 despite financial reports showing that it had NT$6.3 billion.

  Nearly 10,000 of Procomp's more than 38,000 investors had been affected by the default, Vice Minister of Finance Gordon Chen (陳樹) said last month.

  Several Procomp investors demanded the government compensate them for their losses yesterday at a press conference organized by Democratic Progressive Party legislators Charles Chiang (江昭儀) and Chen Mao-nan (陳茂男).

  Liang Hsi-tsung (梁錫聰), a Procomp investor, urged the government to expedite the investigation, freeze the assets of top Procomp managers, including chairwoman Sophie Yeh (葉素菲), and press charges against the accountants and others involved in the fraud.

  "We bought Procomp's corporate bond because we believed that the Securities and Futures Bureau conducted a detailed examination before allowing Procomp to raise more capital," Liang said.

  Therefore, Liang and other affected investors said they would also demand compensation from the Securities and Futures Bureau and from the Taiwan Stock Exchange Corp for alleged negligence.

  Yeh was detained on June 27, and four accountants were punished last week by the Financial Supervisory Commission for their negligence in certifying Procomp's financial documents.

  "All these problems boil down to morality," Ko said.

  To nip such fraud in the bud, Ko said, corporate governance should be stressed and become a reference indicator for the government to manage financial institutions and listed companies.

  "The Procomp fraud is only a beginning, not an independent case," said Tony Tsai (蔡東松), an analyst at the Taiwan Ratings Corp (中華信評) on Tuesday. Taiwan Ratings is a local arm of S&P.

  "I believe this case has sent shockwaves through and served as a warning for the investment trust sector," Tsai said. He said the sector requires further risk controls or it will risk rejection by investors.

  (With additional reporting by Debby Wu)
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