INTERGRATED CASE STUDY

(ARS20203)
GROUP 5
CASE STUDY 4: SINDO
1. NOORUL AMEERA BT SAYED ALI (012019021143)
2. NOR SYAFIKA BT KHUSNI (012019021487)
3. NUR IRDINA AZLYN BT AHMAD DENI (012019021162)
4. FARAH QISTINA BT MOHD AZHAR (012019021144)
5. NUR ARSYAEFFA BT SABARI (012019021139)
6. MUHAMMAD ARIFF DANIEL BIN UDA (012019021163)
Summary of the case
• Sindo ferry, a merchant vessel that carries passenger and vehicles
between major ports known as ‘Muara port route’.
• Transferred from ‘South China sea route’ to the Muara port because
of the large size and profit per journey
• Sindo ferry belongs to Mutiara company, an international company
with 5 operating ship.
• The ferry capable of carrying up to 1500 passengers, 500 cars and
150 lorries per trip.
Cont.
• Vehicles drive in through rear doors in
Tanjung Port. When arriving in Muara
Port, vehicles could drive straight out
using forward doors.
• It is important for end, upper and lower
doors to be securely closed before sail.
• However, the front and rear doors can’t be
seen from the main control bridge.
10 December Disaster
• Sindo Ferry leaving from Tanjung Port to Muara Port which usually
takes 5 hours.
• However, there was a storm and the weather was bad and dark.
• The water entered the car decks through upper rear doors that was
left open.
• Once enough water had entered the car decks, the ferry began to
lean 30 degrees before complete falling over onto it side.
• It only takes two minutes for the ferry to sank which escaping with
lifeboats is impossible.
• Many lives were lost in the event.
 Cont.
• Encik Adam, the survivor of the Sindo ferry stated that with the new staff
reporting procedures cause the unseal doors because the people
responsible for the doors were changed.
• With the new system, 2 people was in-charge of the doors but each person
assumed the other person had checked the rear door.
• The reporting system where each department head report the ship is ready
for journey has been abandon because it was too inconvenience.
• The normal procedure followed is to depart if nothing contradiction is
heard before departure, because the captain and Encik Adam will assume
all is well and ready.
Cont.
• The ship also use ‘human teamwork’ rather than ‘paperwork system’
• Also, a mistake occurred during the day of disaster, where a vehicle
was loaded in the wrong deck.
• The mistake created a delay in the schedule and pressure the captain
to depart the port as soon as possible.
• The delay in the departing schedule and the confusion on who has to
check whether the rear door is sealed has contributed to the dead of
the captain.
Mutiara Company
• Mutiara Company is public listed companies and has been long
established.
• Best known for ferry operations and has diversified into other
business in recent years.
• Datuk Azman (CEO of Mutiara) believes the company employed ‘the
highest standards of corporate ethics’.
• Valued its reputation as a well-run company due to the ’outstanding
customer care’.
• The board also claimed Mutiara was a socially responsible company.
Cont.
• The company could expect to receive substantial claims from the
victims’ relatives.
• However, only a proportion of the liability would be covered by the
company’s insurance due to the oversight in the Mutiara’s legal
department.
• Punitive fines from the courts which depends on the sale of Mutiara’s
negligence.
• Encik Jalil (Finance director) believes if the liabilities to be paid in full,
it would severely threaten future cash flows.
• If large punitive fines were imposed, the company may not survive.
Cont.
• During investigation by government enquiry, it was found Sindo Ferry
has sail above the speed limit.
• The combination of storm and excess speed cause the water to
gradually entered the upper rear doors.
• Government’s chairman enquiry, Suhaila statement are contrary to
the board’s perception which are:
➢She has encountered a ’culture of carelessness’ at Mutiara.
➢Lack of internal control system for safely operating ships.
➢Unbalanced, lacked independent scrutiny and lacked representation
from technically qualified nautical officers in the board.
Cont.
• A documents of independent advice from external consultant related
to structural changes to the Sindo Ferry that would make it safer in
rougher seas (Muara Port) emerged back after it was lost.
• The document was received when the transfer from South China sea
route to Muara Port route.
• This is due to Muara Port has rougher area of seas.
• The advice is an additional doors inserted inside the car deck to act as
second internal bulkhead to prevent water flood the whole deck.
• If the advice were followed, it could prevent Sindo Ferry to sink.
• However, Mutiara did not followed the advice because it is expensive
 QUESTION 1

Critically assess the internal control deficiency of Mutiara

Company and Sindo Ferry
Mutiara Company
1. Oversight in the company’s legal department and only a proportion of liability
would be covered by the company’s insurance (Page 2, paragraph 8, line 4)

2. Unbalanced, lacked independent scrutiny none of the existing directors had

ever served on board a ship, lacked representation from technically qualified
nautical officers (Page 2, paragraph 10, line 11)

3. The company had received advice from external consultant but had not acted
upon it (Page 2, last paragraph)
Sindo Ferry
• Paperwork system to human teamwork - System where each head department signals if
the ship is ready for departure. (page 1, para 6, line 1)

• A mistake at the loading dock – mistake cause the time of departure to be delayed. (page
1, para 6, line 3)

• The responsibility to ensure that the rear door is locked – poor design in the internal
reporting system. (page 1, para 5, line 4)

• The ship exceeded the speed limit - the disregard of rules caused the sinking of ship.
(page 2, para 10, line 5)
 QUESTION 2

Identify and explain the business risk that could affect Mutiara
Company and Sindo Ferry
Business Risk
Business risk is the exposure a company or an organization has/ factor(s) that will
lower its profits or lead it to fail. Anything that threatens a company's ability to
achieve its financial goals is considered as a business risk. There a few types of
business risk which is:

Strategic Risk - arises when a business does not Compliance Risk - an abundance of laws and
operate according to its business model or regulations with which they need to comply.
plan.

Financial Risk - the possibility of losing money Operational Risk - loss resulting from
to the business ineffective or failed internal processes, people,
systems or external events that can disrupt the
flow of busines operations.
Business Risk on Mutiara Company
FINANCIAL RISK
1. Mutiara Company could expect to receive substantial claim from the victim’s relatives
since there are many lives were lost when the ferry sank (Page 2, paragraph 2, line 2)

2. Only a proportion of the liability would be cover by the insurance thus Mutiara Company
has to bear the remaining amount of liability (Page 2, paragraph 2, line 4)

3. Punitive fines from the courts that depends on the scale of Mutiara’s company negligence
in contributing to the disaster (Page 2, paragraph 2, line 6)

4. Structural changes to the Sindo Ferry to make it safer in rougher seas (Page 2, paragraph
5, line 6)
OPERATIONAL RISK
1. Oversight in company’s legal department which contribute to the liability being cover by
insurance only in proportion. (Page 2, paragraph 2, line 4)

2. Mutiara Company has the culture of carelessness (Page 2, paragraph 4, line 9) which
becomes the contributory factor to the disaster and misplaced of documents (Page 2,
paragraph 6, line 7)

3. Inadequate internal control system to operate the fleet of ships safely. (Page 2, paragraph
4, line 10)

4. Unbalanced, lacked of independent scrutiny and lacked representation from technically

qualified nautical officers in the board of Mutiara (Page 2, paragraph 4, line 11)
COMPLIANCE RISK
1. Independent advice by external consultant that was related to the structural
changes to the Sindo Ferry is set aside and avoided (Page 2, paragraph 5, line 3)
Business Risk on Sindo Ferry
OPERATIONAL RISK
1. From the main control bridge of the ship, it was not possible to see the front or rear
doors, which meant that it wasn’t possible to check from the main control bridge that
they were closed upon departure from a port (Page 1, paragraph 3, line 2)

2. There is a change in the staff reporting procedures which they were supposed to checked
the door if it was closed before sailing, but the checking responsibility has changed (Page
1, paragraph 5, line 1)

3. A mistake had occurred which delayed the ship’s departure but a pressure to leave as soon as
possible after all the vehicles were loaded without a proper checking (Page 1, paragraph 6,
line 3)
COMPLIANCE RISK
1. A reporting system in each department which is car deck, navigation
department on the ship had been separately reported readiness for the sea to
the captain, this system readiness had been abandoned because they thought
it was too inconvenient to operate. (Page 1, paragraph 5, line 5)

2. Sindo Ferry had been travelling above the local shipping speed limit out of
Tanjung port harbour. The excess speed had caused increased turbulence in the
water and this was made much worse by the storm on the night. (Page 2,
paragraph 10, line 4)
 QUESTION 3

Using the case, explain to the company of the importance to have

qualitative characteristic information in evaluating the internal
control and risk.
Qualitative characteristics of
accounting information.
QUALITATIVE
DEFINITION
CHARACTERISTICS
It is an essential characteristic for information to be useful for decision
RELIABILITY making which the information is unbiased, free from error, and faithful.

It implies that all information should be reported in a way that may aid the
RELEVANCE users in making decisions or predictions.

It enables users to identify and understand similarities in and differences

COMPARABILITY
among items and enables comparisons within the entity and across entities.
It refers to the quality of information that enables users to perceive its
UNDERSTANDABILITY
significance.
Timeliness means that information is available to decision-makers in time to
TIMELINESS
be capable of influencing their decisions.
RELIABILITY
• Mutiara Company has employed the highest standards of corporate ethics and
the outstanding reputation came from an “outstanding customer care” as per
investment analysts out there.

• After investigation on the company by the Senior Official, they found the causes
for the incident to happened was by “the culture of carelessness” in operating
the Sindo Ferry.

• This "culture of carelessness" can happen when there is a lack of awareness and
responsibility among the board of Mutiara leading the operation of your ferry
adopting the same culture.
RELIABILITY CONT.
• There was also another failure whereby only a proportion of substantial
claim liability can be covered by the company’s insurance.

• This situation threaten the future cash flows and they most probably will
have to sell the non-current assets to settle the claims completely.

• Mutiara company should take the "reliability of information" as the most

important feature in the upcoming financial report by conveying all the bad
news and the poor performance of the company raised after the sinking of
Sindo Ferry.
UNDERSTANDABILITY
• Sindo Ferry have implemented a new system whereby two person having the
responsibility for checking whether the doors were completely closed before
sailing on the sea.
• The information on each deck standard operating procedure (SOP) on reporting
the readiness to Captain Haris before the journey should be communicated and
conveyed well to all staff on board to make sure there is no room for mistake.
• They should follow the “paperwork system” instead of relying on “human
teamwork”.
RELEVANCE
• An external consultant have provided an advice regarding the transfer of route from South
China sea route to the Muara port route as the Muara port route is much rougher than the
South China sea route.
• According to the advice for the safety concern of the ferry, an additional door should be
inserted inside the car deck that will act as a second bulkhead to prevent water flooding
the whole deck.
• This advice is a relevant and useful information for Mutiara Company as the crucial
changes on the structure of the ferry would have prevent the whole situation of sinking
ship from happening and the
• Due to the ignorant of the people who receive the advice and thinking that by doing the
crucial improvement to the ferry will only incur a big additional cost to them, the relevant
advice was “lost” in the company and now the company is in a big problem.
Thank you.