In the context of Malaysia, Transmile Group Bhd, which is a company controlled by Robert Kuok, sparked concern regarding auditors' duties and obligations. Accounting irregularities and fraud were discovered in the company. The company overstated its accounts to show it made profits of RM75 million and RM158 million for two consecutive years of 2005 and 2006 respectively. In actual fact, the company was at a net loss of RM370 million and RM126 million respectively. The stock dropped to RM9.55, which is the lowest in two years. However, the loss was not detected by Deloitte & Touche who were the auditors of the company, but it was detected through a special audit by Moores Rowland as appointed by the company.

However, Deloitte & Touche dismissed the claim that they failed to detect the accounting irregularities. Furthermore, they claimed that it is not practicable to expect an audit to represent a 100 percent check of a company's financial well-being. Transmile Group was not convinced by such an answer and thus, it replaced Deloitte & Touche with Klynveld Peat Marwick Goerdeler (KPMG) which is another auditing firm. It should be noted that KPMG as an auditor for some of the companies owned by Robert Kuok. KPMG offers due diligence and corporate tax advisory services to Perlis Plantation Bhd which is a company owned by Robert Kuok. Such services fall within the purview of non-audit services. Thus, the issue is whether there is a conflict of interests and whether the independence of auditors is at stake.

1. Discuss whether the newly appointed auditors are able to act as effective watchdogs for Transmile Group Bhd. Provide ONE (1) legal case to support your answer

2. Based on the above, explain how can the audit committee’s competencies be developed to ensure that the independence of the audit committee is both real and perceived?