Deloitte Touche Tohmatsu has broken a business taboo by showering contempt on the
Securities and Exchange Commission, Siriporn Chanjindamanee and Thanong
Khanthong write.
THERE are certain taboos in Thailand: You don't criticise a judge's verdict; you don't
argue with traffic police; you don't sue the Bank of Thailand; and you don't pour contempt
on the Securities and Exchange Commission.
Deloitte Touche Tohmatsu, the international accounting firm, has breached one of these
taboos by showering contempt on the Thai exchange watchdog in defence of one of its senior
partners, Professor Toemsakdi Krishnamra. The Office of the SEC has deemed that Toemsakdi,
who is also dean of Chulalongkorn University's Sasin School of Business Administration,
failed in his professional duty to properly audit the books of the now-defunct Finance One
Plc, and decided to suspend his auditing licence for six months.
Toemsakdi has failed three times in appeals to the SEC for a reversal of the decision,
despite his argument that his auditing of Finance One was based on the accounting
standards acceptable to the Bank of Thailand at the time.
On Tuesday, Robert Campbell, a Deloitte managing partner, issued a statement in defence
of Toemsakdi, charging that the SEC's decision reflects its failure to understand the
financial reporting practice in Thailand at the time.
''The decision constitutes an attempt by the Office of the SEC to punish Prof Toemsakdi
for failing to comply with practices which were not applicable in Thailand,'' he said.
''The decision reflected a fundamental misunderstanding of the auditors' role in financial
reporting practice in Thailand and the extent to which it has contributed to Thailand's
current difficulties.''
Campbell's statement touched a raw nerve with the SEC. For if the SEC could not
understand the financial reporting practice in Thailand, how could it regulate the
Bt1.3-trillion capital market?
The SEC would understand Campbell's point if he came up with arguments to defend
Teomsakdi, but it could not accept the charges made by Campbell or Deloitte that, as
regulator of the capital market, it did not have an understanding of the financial
reporting in Thailand.
Indeed, after the systemic failure of the financial system, questions have been raised
over the role of auditors, who are also blamed by the investing public for their lax
standards. If the auditors adopted tougher accounting standards on the companies,
investors would have been given an early warning about their actual financial positions.
The auditing industry is now undergoing a revamp.
Dr Prasarn Trairatvorakul, the deputy secretary-general of the SEC, stood firm on the
SEC's decision on Toemsakdi, insisting that the regulatory officials have relied on the
opinions of both internal and external experts before arriving at the final decision that
Toemsakdi failed to strictly comply to the Generally Accepted Accounting Principles (GASP)
in Thailand and the Generally Accepted Auditing Standards (GAAS).
For instance, the Office of the SEC found that Toemsakdi failed to scrutinise Finance
One's policy of interest rates charged to related companies as required by the auditing
standard.
''There was a settlement transaction between loans granted to related companies and
repayment made by such related companies, with the interest rate charged to related
companies being considerably lower than that charged to other companies even though the
loans were granted on the same day,'' the SEC statement said.
According to GAAS, such practices were regarded as being highly unusual and could lead
to the siphoning off of benefits among related companies. ''Such standards require the
auditor to examine the policy adopted by the company on interest rates,'' the SEC
statement said.
Prasarn said the Office of the SEC would ask Deloitte's headquarters whether Campbell's
statement in defence of Deloitte's accounting and auditing practice for Finance One was a
''particular case'' or whether it was a ''general practice'' of Deloitte.
''If they say that it was a particular case, whose local opinions might differ, then we
will not pursue the matter further. But if they insist that the Finance One case is a
general practice of Deloitte's policy, then I feel extremely concerned about Deloitte's
worldwide standard,'' he said.
Prasarn did not rule out the possibility that the SEC would bring up the case of
Deloitte's accounting practice to the attention of the International Organisation of
Securities Commission and International Federation of Accountants.
Finance One was a colourful saga. The SEC and Deloitte are not the first antagonist
pair. In March 1997, Dr Amnuay Viravan, the then finance minister, and Rerngchai
Marakanond, the then governor of the Bank of Thailand, tried to force a marriage between
the troubled finance company and Thai Danu Bank, hoping that the merger of the two would
restore confidence in the sagging Thai financial system.
Finance One appointed Dhana Siam Finance & Securities as its financial advisor for
this merger deal, while Thai Danu Bank hired Phatra Thanakit. After Dhana Siam went
through Finance One's books, it asserted that Finance One still had a positive net worth
of Bt5 billion. Phatra Thanakit also cross-checked on Finance One but found that Finance
One was insolvent with a negative net worth of Bt5 billion.
Both Amnuay and Rerngchai were at their wits' end over whose financial reports were
more believable. Naturally, the merger deal collapsed and it triggered another round of
the baht attack because foreign currency speculators read that the Thai authorities did
not have a credible game plan to deal with the insolvent financial system.
Finance One now goes into the historical record of Microsoft Encarta 99, which is the
most popular multimedia encyclopaedias, as one of the major causes of the Thai financial
crisis.
An industry source said it appears that Deloitte, among the world's top five accounting
firms, intends to further challenge the SEC's decision point-by-point because it has its
global reputation to protect. Since Deloitte is insisting on waging the war against the
SEC, one can expect to see a very nasty outcome indeed.