PRESENTATION OF THE FACT SURROUNDING THE CASE.

PPLC Ltd was a Malaysian company with lumber business in East Malaysia, Kalimantan,
Australia and United State of America (USA). They contributed the fund for capital and operational
expenses with sent their production engineer, marketing manager, purchasing managers and
financial controller. Their joint venture set up in the 1990s with YBLC Ltd, in Antu, China as a
holding company with 51% interest.
YBLC Ltd was a foreign investment company located at Antu in North East China. Antu
township government contributed the land and took up 49% shareholding. They had power the
management and appointed a Chinese general manager (GM) who is familiar with the Chinese laws
custom and culture.
Mr. Zhang appointed as general manager (GM). He is a Communist party member and
company's commissar and not familiar with the International Accounting Standard. Mr. T is a
financial controller (FC), where he assists the general manager (GM) in the day-to-day running of
the operations of the company. He was custodian of the foreign partner's interest in Antu and
responsible on budgetary, accounting and reporting functions.
Mr. Lee it is economic officer (EO) in charge of foreign investment joint venture in Antu.
Therefore, all the documents annual return, including the financial statement, was sent through him
for filing at the Provincial FETC at the provincial capital. Mr. Lee represented the interest of the
Chinese government official supervising foreign joint venture companies, by changing the profit
and loss position from loss to profit, so that he could point a rosy picture in his report of joint
venture performance under his charge.
He could not alter the financial statement if he had followed the International Accounting
Standard and International Financial Reporting Standard, than his financial statement represented '
true and fair view' of the financial position of the company. If he follows the ethical code of the
MIA, he should make a stand on the finalized accounts, by submitting his work for the scrutiny of
the external auditor only.
The accounting issue and some alleged taxes offence, the case study actually raised a whole
range of corporate governance. Corporate Governance encompasses achieving corporate mission or
objective, law compliance, upholding code of best practices and adherence to business and personal
ethics. The corporate governance could be the foundation of a better business world where fraud,
malpractice, corruption could be minimised.

IDENTIFICATION THE KEY ISSUES IN THE CASE.

1. Breach of duty
Mr. Lee as the economic officer cum leader representing the local partners breach his duty by
request his subordinate to alter PPLC Ltd financial statement from showing loss to profit. This is
because the company is in loss for two years. Mr. Lee was very selfish because the main reason he
ask to alter the financial statement is because his superior at the provincial is questioning him. He
does not bother how the others manage the company. It was an action that defined as an act of
corruption of which Mr. Lee attempted to utilize his power for the benefits of self interest. The
request made was generally wrong from the legal and ethical perspective. The impact towards the
company is when the director its self breach his duty, the other management staffs also can breach
their duties. According to this case Mr. Lee breach his duty by asking Mr T to alter the financial
statement from profit to loss that means there also have the chances to Mr T to breach his duty by
altering the figure towards his benefits.

2. Operating Under Capacity

The company was operating under capacity which means the company does not getting
sufficient logs to feed into operation. Mr Chang said in his conversation that the company main
reason to be loss is because of the sufficient of the operating capacity. The company does not
enough capacity in term of resources. As a reason maybe the company does not explore other
available trees that maybe can substitute to the production. The company also can find for the other
resources such as the labour skill. The impact when the company operating under capacity is the
company can lead to loss. The investor also does not want to invest in the company. Besides that,
the company productions are will be closed and there can lead a huge cost to pay the labour cost
whenever there is no production. The company also should pay the fixed cost of the company which
means the rental of the equipment in the production area this lead the company to be in loss.

3. Dilemma in following the accounting standard.

From the legal perspective, the request made by Mr. Lee could potentially violated the law and
accounting standard if it was to be executed by the entity in order to maintain its relationship with
Mr. Lee and preserve his tract record my modifying the financial information of the entity to be
profitable when it is not. A long with corruption behaviour that is consider to be unethical, it is also
deemed to be violating the Law in general. However it must be noted, in the case of China, due to
the fact of culture variance and norms, the executive aspect of the clause may weak. The major
consequence caused would be that the financial information will not reflect true and fair financial
position of YBLC and inevitably mislead its users in making decision.

4.

Lack of Corporate Governance in the Business.

The major issue in this case is regarding the lack of corporate governance within the business.
The solution available would be for Mr. Zhang to have good corporate governance, which can lead
to good internal control, increase productivity, increase profit, will decrease fraud and reduce audit
risk. When establish a company and implement in. All Broad of Director should adhere with CG
rules.CG is system by which companies are directed and controlled. Whereby he Corporate
Governance encompass achieving corporate mission or objective, law compliance, uploading code
of the best practice and adherence to business and personal ethics.

5. Do not have professional ethic

From the ethical perspective relating to the scenario, the request for modification of the
financial information of YBLC for the accounting period by Mr. Lee was unethical. The unethical
act was due to the manipulation of power in attempt to mislead the financial information users from
truthful representation of the information and achieve personal gains at the expense of other user.

LIST OF ALTERNATIVE COURSES OF ACTION THAT COULD

BE TAKEN.

1. The director should be professional and act reasonably

2. The company should find alternatives to achieve maximum capacity
3. Adapt to cultural differences
4. Improve the companys internal control
5. Educate the director and management staff of the company about ethical values

EVALUATION ALTERNATIVE COURSES OF ACTION.

1. The Director Should Be More Professional And Act Reasonably.
Based on this case we have found that there are misconduct that is intentionally done
by the Economic Officer cum Director, Mr Lee. In order to improve the action of the
Economic Officer cum Director, Mr Lee, to be more professional with his duty, he should
focus on the directors responsibility.
Directors responsibility is to ensure that the company maintain full and accurate
accounting record and to act within powers in accordance with the company constitution and
to use those powers only for the purpose for which they conferred, which in this case the
Economic Officer cum Director, Mr Lee should not misconduct his power from requesting
the subordinate to manipulate the financial reporting. Directors are responsible for ensuring
that the company complies with statutory control, it is his duty as a director to exercise
reasonable care and skill.
Besides that, directors are also responsible to promote the success of the company for
the

benefit of its member and not to accept benefit from third parties, but based on this

case, we can see that the Economic Officer cum Director, Mr Lee, has requested the
subordinate to alter the financial reporting from showing loss to profit because of his
promised to Provincial of China and because of the self-interest towards the merit system
which means if he shows a good record he will get a fast promotion.

2. Adapt To Cultural Differences.

Cultural backgrounds influence how people think, act and interpret information during
business activities. Thus, the potential for success or failure depends on the ability of
organizations and leaders to make appropriate decisions within a framework of cultural
diversity.
The company must understand and become proficient in intercultural communication
and should be flexible to change. Besides that, developing a strategic plan that can be
understood and embraced by all levels of the organization can help in adapting to the
unfamiliar culture. The company can try to build a culture where everyone is part of the
team. This would introduce a good communication system within the company.
The main advantage of doing so in general makes for more possibilities. It opens the door
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for discussion and consideration of different points of view, different ways of thinking, and
different ways of living.
In adverse, cultural diversity means that people need to learn more about people
unlike themselves, and be more cognizant of how they present something might offend
someone, or may be misunderstood (this misunderstanding could range from a different
interpretation by that culture to a language barrier).

3. The Company Should Find Alternatives To Achieve Maximum

Capacity.
Second key issues was discussing about the company operating under capacity in
terms of insufficient resources. There are two ideas that can be done. One is by finding other
resources such as using other types of trees. There are lots of other trees that can be used as
log, for examples Jati, Meranti, Cengal and more. Reason why the company is
operating under might be because of lack of skill labour. Theres not enough skill labour to
search for other alternatives if there are not enough trees. If there is not enough skill labour,
they are lacking in ability to access the forest. On top of that, YBLC also can consider to
replanting the trees.
The second idea is by using Cost-Volume Analysis. Its a useful tool for comparing
the alternatives by estimated the income under different operating condition. Cost-Volume
Analysis simplifies the computation of breakeven in break-even analysis, and more
generally allows simple computation of target income sales. It simplifies analysis of short
run trade-offs in operational decisions.

4. Improve The Companys Internal Control.

One of the key issue that been discussed in this case was lack of corporate
governance. The alternative course of action that been taken can be improve the internal
control. One of the ways to improvise is by providing training to employees. The company
should provide guidance and training to new employees so that they are aware about
companys objectives, vision and mission.
Other than that, company should introduce risk management and internal control in
the company by regulating new standard operating procedures and segregations of duties.
All decisions should follow the standard operating procedures that been introduced. Each of
the documents that need to approve, must be review by at least 2 persons to make avoid
mistake and fraud. By doing this, it shows that there is segregation of duties.
The cons, it takes a lot of time just to get a simple approval.

5. Educate The Director And Management Staff Of The Company

About Ethical Values.
As in this case, its a joint venture project between Chinas company and Malaysias
company. Malaysias company hold 51% shares compare to China, 49%, making the
Malaysias company is a holding company. As a holding company, their act and standards
should also be practiced by their subsidiaries, in this case YBLC. The first thing the we
could do in order to educate the director and management staff are by making everyone
familiar with:

Business law

Financial reporting standards for Malaysia

Principles of international taxation

Tax avoidance vs. tax evasion

Corporate governance

Code of ethics for MIA members

Second thing is by providing training or seminar to the director. Attending training

and seminar will make the director more aware about their responsibilities and the dos and
donts as a director. Mr. Zhang should know how to avoid Mr. Lees favor if he has
knowledge and skills.
The only problem to educating the staff is its required longer in order to make sure
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they have enough knowledge and skills. Other than that, the cost incurred to provide training
and seminars are quite expensive.

RECOMMENDATIONS.
First of all, Mr Lee should retract his misleading instructions given to Mr Zhang to avoid a
breach of the professional conduct and practices. When you realize that you spoke in error, it is wise
to take back what you said to avoid repercussions. Mr Lee should realize his errors and how it will
affect him on an ethical and professional level. If he does not retract his statement, he will be in
breach of his duties as a director to the company.
Secondly, Mr Zhang should take a strong stand on ethics and integrity. As a top management
employee, he should lead by example. By taking a stronger stand on ethics and integrity and voicing
out his concerns on unethical behaviour regardless of who does it, he can ignite a more ethical
environment in the company. In doing so, there will be a reduction of unethical behaviour whether
intentionally or unintentionally.
Finally, Mr Tee should not fiddle with the financial statements as per instructed by Mr Lee
through Mr Zhang. Mr Tee knows of the fact that if he changes the financial statements, he is
committing an unacceptable and unethical behaviour that might have a severe repercussion towards
him and the company. He should rectify the situation by going against the unethical instructions.

CONCLUSION.
In conclusion, when we are faced with ethical dilemmas in a company, regardless of our
position, we must take a step back and analyse the situation and the consequences that will follow
each action taken. When faced with adversity, one must have a strong stand on their ethics and
integrity. Furthermore, rectifying an unethical situation will avoid adverse reactions that might
damage the companys good reputation.

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