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4. Ethical issues and recommendations

4.1 Accounting for the S$58 billion Nakolia fine
There appears to have been an under provision of the fine in an apparent biased interpretation

of IAS37. MCOM appears to have been guided by a desire to present its 2015 results rather
favorably by under providing for the fine resent (earnings management) in what one may
consider a bid to declare some profits and dividends to appease shareholders. The advice to

under provide, whilst sound from a legal strategy view point appears to be in conflict with IAS
37. The results were published in February 2016 and until then, MCOM, at least by the

Executive Directors statement, knew that the fine could not be reduced any further as a 25%
reduction had already been achieved which was considered too lenient by the government of
Nakolia. To fail then to fully apply IAS37 appeared to violate MCOMs ethical duty to ensure full

disclosure and transparency.

RECOMMENDATION
Conduct a full investigation and table findings to the audit committee for notification only as this
has subsequently been overtaken by events that provide a better basis for the provision. The

investigation should focus on the appropriateness of the legal advice that providing for the full
sum could be used as evidence in court. Financial reporting rules frequently require provisions
to be made including contingent liabilities. If this legal advice is correct, we must investigate the

legal plausibility of how other companies which have made similar provisions in the past did so
without running the risk of that being used as admission of liability in a court of law.

4.2 Group Legal and Negotiation Strategy for Nakolia

We recognise it makes business sense to appoint someone of the stature of Ernest Holkan,
former US Attorney General to lead the legal and negotiation strategy for us in Nakolia. It would

appear the legal aspects will relate to a good mastery of Nakolian law rather than US or
international law as it seems to us the fine was imposed in terms of local law. It may well be that
such a law conflicts with international law in which case it may be sensible to employ the

services of someone with such a stature. We do not understand why a reputable law firm
practicing in Nakolia was not appointed if this matter was purely a matter of Nakolian law. It
seems to support the narrative that the negotiation expertise and access of Ernest Holkan to the

US Administration was the principal consideration. Even that may not in and of itself be
unethical. Assuming the Executive Directors statement is correct that a higher than normal fee
was paid for the services, only then will we consider it within the realm of bribery and corruption

Developed by The CharterQuest Institute for 'The CFO Case Study Competition 2016'
www.charterquest.co.za | Email: thecfo@charterquest.co.za