AAC 20203

INTEGRATED CASE STUDY

CASE STUDY GROUP 1: SINDO FERRY

LECTURER NAME: MS ROHAYU

STUDENT NAME ID NUMBER

TANALETCHUMI THIAGARAJAN 012016020109
THARENI MARUTHAPPAN 012016020590
AINUR FARHAH BINTI ABDULLAH 012016020934
IZZAH FAZIRA BINTI ZAIANUDDIN 012016020916
NUR AZDILA FASHA BINTI ABDUL RAHMAN 012016020722
CASE STUDY 1: SINDO FERRY AAC20203-ICS

Contents
QUESTION 1.................................................................................................................................. 3
Internal Control deficiency of Mutiara Company ....................................................................... 3
Internal Control deficiency of Sindo Ferry ................................................................................. 4
Question 2 ....................................................................................................................................... 5
The importance of qualitative characteristics in evaluating the internal controls ....................... 5
Recommendation ............................................................................................................................ 8

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CASE STUDY 1: SINDO FERRY AAC20203-ICS

QUESTION 1
Critically assess the internal control deficiency of Mutiara Company and on the Sindo Ferry

Internal Control deficiency of Mutiara Company:

Poor monitoring because Sindo Ferry had been travelling above the local shipping speed
limit out of Tanjung Port. The excess speed had caused increased in turbulence in the water and
this made much worse by the storm during that night.

Secondly, lack of Physical Control because Mutiara wasn’t considerate about the internal
control system as it was inadequate for safety operating a fleet of ships and there were no proper
standard and procedures given regarding about the safety policies in the ship.

The third internal control deficiency of Mutiara is poor organizational control because the
existing directors had never served on board ship which means the delegation of responsibilities
and authorities was not fulfilled as all the existing directors doesn’t have any experience on board.

In addition, the forth internal control deficiency of Mutiara is lack of personnel control
because lacked of presentation from technically qualified nautical officer this shows that those
officers were not competent.

The fifth internal control deficiency of Mutiara is there were no proper segregation of
duties because lack of independent scrutiny which proves that the employees didn’t examine the
ship before it moves.

Lastly, the internal control deficiency of Mutiara is they were not being responsible as they
didn’t follow the advice that concerned on the structural changes to the Sindo Ferry that could
make it safer in rougher seas because they need incur more cost.

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Internal Control deficiency of Sindo Ferry:

The internal control deficiency shown by Sindo ferry is firstly lack of supervision control.
They cannot see whether the front and rear door is close or not from the main control bridge.
Although they know that it was important to make sure all the four doors are closed before the
ferry depart.

Secondly, they didn’t follow the paperwork system accordingly. Instead they relied more
on human teamwork that can easily overlook. This has show that they have a lack of segregation
control. Besides that, based on the new system two people were responsible for safety on the car
deck but each assumed that the other had checked the upper rear door had been closed.

Thirdly, they show lack of personnel control as Encik Adam and the Captain will only assume
that all was throughout if they didn’t hear anything contrary by departure time from each of the
department head. Furthermore, the Captain had been travelling above their local shipping limit on
the night of the accident. This had increased turbulence in the water that caused the ship to lean
and then capsize.

They also show a poor monitoring on their Standard Operating Procedure when they abandon
the reporting system that require each of the head department to report the readiness for the sea
captain at the beginning of each journey. Lastly, if they have followed the SOP properly, they
should not make mistake in loading vehicles in the wrong deck. This had delayed their departure
time and increase pressure on the staff that lead to confusion on who should have check the rear
doors.

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Question 2
The importance of qualitative characteristics in evaluating the internal controls

In this case study of Sindo Ferry and Mutiara Company, we are using the qualitative
characteristics of accounting information. The characteristics consists of reliability, relevance,
comparability and understandability. It will be explained in both stakeholders of Sindo Ferry and
Mutiara Company.

The first qualitative characteristic is relevance. The relevance is defined as how essential
and useful the information in decision-making process. It also has to be timely available and any
irrelevant information should be avoided. Therefore, accounting information is relevant if it can
provide helpful information about past events and help in predicting future events or in taking
action to deal possible future events.

According to Mutiara Company, they had received an independent advice from an external
consultant when they changed the route from South China Sea to Muara port route. They have
been informed that the Muara port route is a rougher area of sea and the structural design of Sindo
Ferry should be change for safety purpose. An additional door should be inserted inside the car
deck to act as second internal bulkhead to prevent water flooding the whole deck. However, the
action has not been taken as Mutiara Company does not want to incur any additional cost in
upgrading the ferry and eventually the information slowly disappeared until the incident happened.
The information is relevant in avoiding the incident from happen but because of lack of awareness
from the company, they have to bear the consequences.

While for Sindo Ferry, they also subjected to lack of safety procedure. It has been informed
that the front or rear doors cannot be seen from the control bridge of the ship which meant that
they cannot confirmed whether the door has been closed or not. Hence, the disaster happened when
water entered the car deck through the open upper rear doors and make the Sindo Ferry sank. It
was important that all four doors were securely closed before setting out the sea. The information

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provided is relevant and helpful toward decision-making process to deal with future events and
should be follow to avoid unnecessary problem.

The second qualitative characteristic is understandability. The information provided should

be understandable especially to the average user of financial statements is highly desirable. It is
common for poorly performing companies to use a lot of jargon and difficult phrasing in its annual
report in an attempt to disguise the underperformance. However, the information conveyed must
be able to distinguish between good and bad, so that every user can understand it properly and the
message sent is successfully communicated.

According to Sindo Ferry, they has implemented a new system which they hired two people
that were responsible for safety on the car deck. Thus, the two person was assumed that the other
had checked the upper rear doors had been closed. Although, the reporting system in each
department head on the ship separately reported readiness to Captain Haris, but they said it
inconvenient to do, so the captain assumed that if they didn’t hear anything to the contrary by the
departure time, they could put the ship to sea just like a normal procedure before. Therefore, the
issue is the Sindo Ferry should implement understandability first as an important of qualitative
characteristics information in evaluating the internal control as the Sindo Ferry should be more
aware on how to organize the organization between the staff and the upper level. They should
followed the paperwork system rather than relied on human teamwork.

The third qualitative characteristic is reliability. The reliability is often depend upon the
information provided by accounting. If the accounting information is free from any undue error
and bias, it is said to be reliable information. Evaluating on how reliable the information is very
subjective and it is a matter of perception. Thus, it can be determined by the degree of faithful
representation between facts and what the information is meant to be.

According to Mutiara Company, they was an established company listed on the stock
exchange and have a good reputation for their outstanding customer share. Based on the past
financial report performance, all the information is seen to be reliable to the user. When the
incident happened, the government has ordered an enquiry and senior official to investigate the
incident. However, after thoroughly investigate, there are many issues arose regarding the incident
cause by the human error in operating the Sindo Ferry, travelling above the local shipping speed
limit and had ‘culture of carelessness’ at Mutiara. The culture of carelessness happened due to lack

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of responsibility and awareness of board of Mutiara in management. Besides, their legal

department also does not managed properly as they can covered only a proportion of the liability
for claiming the insurance. This could severely threatened future cash flows as it would most likely
to sell non-current assets to settle the claims. The company may not survive if the large punitive
fined were imposed after the legal process. Therefore, the past financial information is considered
not reliable anymore after the above issue had been discover by the government. Mutiara should
understand the importance of having a reliable information and, accurately reflects the company’s
resources and position.

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Recommendation
Sindo Ferry

Based on the internal control as above the first recommendation for Sindo Ferry is fix
CCTV at the doors so that they can see from the main control bridge to make sure that the doors
are closed before journey start. Appoint more employees that responsible for safety and schedule
their duties since the two people assumed that the other had checked the doors had been closed.
This will help to reduce confusion who should do the work and can identify those not doing their
work properly. Mutiara Company should track the shipping speed limit so that they know the speed
of the ship and execute rules for the captains who excess the speed limit. Hence, the captain will
follow the rules and can reduce future disaster

Mutiara Company

Based on the internal control as above the first recommendation for Mutiara Company is
they should implement the external consultant advice which add more doors. This will help
passages to exit the Ferry during disaster. If Mutiara Company continually not follow the internal
control, they might face threaten in their future cash flow.