PUTRAJAYA (Aug 17): A decision by the Court of Appeal (COA) to uphold the enforcement actions by the Securities Commission Malaysia's (SC) Audit Oversight Board (AOB) against audit firm Afrizan Tarmili Khairul Azhar (AFTAAS) for non-compliance with the auditing standards on fundamental and basic audit procedures was affirmed by the Federal Court on Wednesday (Aug 17).

A three-member Federal Court bench led by Chief Judge of Malaya Tan Sri Azahar Mohamed unanimously dismissed AFTAAS and its three partners' application for leave to challenge the COA decision by posing seven questions of law to the bench for it to be heard on its full merits.

“The bench would like to express our gratitude to the counsels for their comprehensive submissions and our decision is unanimous. In our judgement, none of the questions posed fulfilled Section 96 of the Courts of Judicature Act (CJA).

“We agree with the submission of the respondent (SC) that the applicants or appellants (AFTAAS and three others) do not have a prima facie case for success in this matter,” said Azahar in proceedings conducted online.

The other members of the bench were Federal Court judge Datuk Seri Hasnah Mohammed Hashim and COA judge Datuk Abu Bakar Jais.

The audit firm was also ordered to pay RM30,000 costs to the SC.

On Dec 10 last year, the COA had set aside the 2020 High Court decision to quash the enforcement actions of the AOB against the firm and its three partners.

The enforcement actions included a one-year ban from August 2019 by the AOB on AFTAAS and its partners from auditing and accepting clients, and this action was taken against the firm for several breaches involving non-compliance with the auditing standards on fundamental and basic audit procedures.

Following that, the firm and its partners were prohibited from accepting clients and auditing public interest entities (PIE) or scheduled funds for 12 months.

The three partners are Datuk Mohd Afrizan Husain, Tamili Dulah Kusni and Khairul Azahar Ariffin.

In addition, the AOB also imposed fines of RM455,000 on AFTAAS, and RM88,000 each on Datuk Mohd Afrizan and Khairul.

AFTAAS sought close to RM35 million in damages from the SC, after the High Court set aside the SC's sanctions on the firm for alleged non-compliance of auditing standards.

The firm, in its claim, said that as a result of the AOB decision, it had lost many clients which it had built since 2000, such as Supermax Corp Bhd, Seacera Group Bhd, Mentiga Corp Bhd, and Alam Maritim Resources Bhd.

AFTAAS and its three partners were represented by senior counsel Datuk Dr Cyrus Das, who told the court that the fine imposed was a violation of the principle of proportionality as it should not be imposed on the firm as the initial action was against the two partners.

“Furthermore, the total fines imposed of RM631,000 had exceeded the limit allowed of RM500,000,” he added.

Das, who appeared with Sukhvinder Singh, further said that the action taken on another auditor which was let off by the SC with only a stern warning for an offence that was much greater compared to AFTAAS's showed the disproportionate nature of the punishment.

In addition, the senior counsel also said that the punishment cannot be imposed at the show cause stage and cannot be applied retrospectively.

Meanwhile, the SC's counsel Lambert Rasa-Ratnam argued that the seven questions posed before the court for it to grant leave should not be entertained as it did not arise from the courts below (ie High Court and Court of Appeal).

“It does not meet the requirement of Section 96 of the CJA for the apex court to grant leave,” he added.

Read also:
Appeals court upholds SC’s oversight board’s enforcement actions on audit firm AFTAAS

Note: This story has been amended as the previous copy stated that the prohibition period on the firm and its partners had lapsed. The SC has clarified that the prohibition only comes into effect now as the firm was previously granted a stay of execution pending its appeal.