ACT 4601

INTEGRATED CASE STUDY

REPORT 3: CORPORATE GOVERNANCE & AUDIT

K1

GROUP 6: ORNAPAPER BERHAD

PREPARED BY:
NO NAME MATRICS
NUMBER

1 HARITH AKMAL BIN MOHAMMAD AZZUDDIN S60171

2 NOR SYAHILLA NATASHA BINTI MOHAMAD ROSDI S60220

3 NUR ATHIRAH NABILAH BINTI AHMAD S60282

4 KEERTHANA A/P SEGARAN S60488

5 MUHAMMAD FARIS BIN RAZALI S60687

6 NURUL SYAFFILAH BINTI ZAINI S60163

LECTURER:
DR FARIZAH SULONG
1.0 ORGANISATION’S BOARD COMPOSITION AND BOARD COMMITTEE
EFFECTIVENESS

Ornapaper Berhad takes pride in having a board that mainly follows the
guidelines provided in the Malaysia Code on Corporate Governance (MCCG) 2021. The
board is within the required size range with six directors. Moreover, it has a two-thirds
majority of independent non-executive directors, which is more than the MCCG
recommends and encourages greater neutrality and openness. The board also exhibits
a remarkable range of backgrounds in engineering, marketing, legal, accounting,
finance and other fields, which is in line with the MCCG’s emphasis on having a broad
range of competencies. But, the board would gain more diversity by adding
professionals with knowledge of fields like technology and sustainability, which are
becoming more and more important in today’s corporate environment.

Regarding board committee efficacy, Ornapaper Berhad forms the Audit

Nomination, and Remuneration committees, which are the three key committees that
the MCCG recommends. Every committee follows the suggested membership, with a
preponderance of independent non-executive directors to provide increased autonomy
and supervision. In order to promote transparency and outline the tasks of each
committee, the corporation also gives each one explicit terms of reference. To further
show its dedication to ongoing development, Ornapaper also does yearly performance
reviews for the board, board committees, and individual directors.

Despite these advantages, Ornapaper still has to work on strengthening its

transparency and enforcing more stringent time commitment policies. Although the
corporation carries out performance reviews, the information is kept secret from the
general public, which hinders accountability and might hinder efficient oversight.
Moreover, even while it is policy for directors to inform the chairman of any external
appointments, it would be advantageous to have a more transparent structure in place
to oversee and guarantee the directors’ time commitment to Ornapaper.
 Ornapaper Berhad may bolster its board composition and board committee
efficacy by tackling these areas of weakness, reinforcing its standing as a business that
complies with industry best practices for corporate governance.

As a summary, The MCCG criteria are mostly followed by Ornapaper Berhad’s

board, which has a good size, a majority of independent directors, and a varied range of
skills. It might, however, profit from adding knowledge about sustainability and
technology. The organisation also creates the three crucial board committees, providing
them with explicit mandates and suggested memberships. It conducts annual
performance reviews, but making them public would increase transparency.
Furthermore, a more transparent approach for tracking directors’ time commitment is
required. By addressing these areas, Ornapaper can further strengthen its governance.
2.0 BUSINESS CONDUCT AND CORPORATE CULTURE

Ornapaper Berhad has demonstrated its commitment to promoting good

business practices through various initiatives. In its 2022 annual report, the company
outlines its commitment to maintaining ethical practices and compliance with all relevant
laws and regulations. Additionally, Ornapaper has established a comprehensive code of
conduct that outlines the ethical behaviour expected of its employees, emphasising a
strong foundation for ethical business practices. Furthermore, the implementation of a
whistle-blowing system underscores the company's proactive approach to encouraging
employees to report any unethical or illegal conduct, fostering an environment of
accountability and transparency.

The company's focus on maintaining a healthy corporate culture is evident

through regular employee surveys that measure satisfaction and engagement. Investing
in employee training and development programs further reflects Ornapaper's
commitment to promoting a culture of learning and continuous improvement.
Additionally, encouraging open communication and employee feedback highlights the
company's commitment to fostering a positive and collaborative work environment.

Ornapaper's commitment to integrity, transparency, and fairness is well-

demonstrated through its publication of annual reports, sustainability reports, and
corporate governance reports. These documents provide stakeholders with transparent
and comprehensive information about the company's performance and governance
practices, showcasing a commitment to open communication. The company further
ensures financial accountability through regular audits of internal controls and financial
statements, contributing to a culture of transparency. The diverse skills and experiences
of Ornapaper's Board of Directors, coupled with adherence to the principles of good
corporate governance, contribute to the overall integrity of the company's leadership.

Ornapaper has established a strong ethical foundation through a Code of

Conduct, training programs, and communication channels. However, there is room for
improvement and Ornapaper can improve by promoting transparency and
understanding of ethical principles through additional measures, ensuring employees
and stakeholders are clear on acceptable behaviour and practice. The proposed
strategy involves publishing employee surveys on their understanding of the Code of
Conduct and ethical behaviour, which would provide valuable feedback on the
effectiveness of current communication methods and identify areas for clarification or
support. The results could be used to tailor training programs and communication
strategies.

Ornapaper should regularly update employees on investigations into ethical

violations, demonstrating its commitment to accountability and transparency. This can
be achieved through internal communications channels like company newsletters or
town hall meetings, ensuring they are informed about the outcome of investigations and
the consequences of unethical behaviour. Developing case studies and examples to
illustrate expected behaviour in various scenarios can promote ethical understanding.
These examples provide practical guidance on applying ethical principles in real-world
situations, especially beneficial for new employees or those facing ambiguity in complex
situations.

By implementing these measures, Ornapaper can create a more transparent and

ethical working environment where employees feel empowered to make the right
choices and contribute to the company's success in a sustainable and responsible
manner. This culture of open communication, accountability, and continuous learning
will solidify Ornapaper's reputation as a company that values ethical behaviour and
prioritises the well-being of its employees, stakeholders, and communities.
3.1 TYPE OF AUDIT REPORT ISSUED TO THE CASE ORGANISATION FOR
2020, 2021 AND 2022

Ornapaper Berhad's shares are traded on the stock exchange by the general public.
Crowe Malaysia PLT was contracted by Ornapaper Berhad to audit the company's
previous fiscal year for financial statements as well as the various controls and
processes in place. Crowe Malaysia PLT auditors audited the firm for the preceding
fiscal years. The audit concluded that there were no substantial misstatements or errors
in the financial statements or the operations of Ornapaper Berhad.

In 2020, 2021, and 2022, the case organisation continuously earned unqualified audit
opinions for its annual reports. According to the auditors, the company's financial
statements offer a truthful and fair picture of Ornapaper Berhad's financial status.

The corporation implements several controls and methods during a three-year period in
2020, 2021, and 2022. The positive trend, however, continued until 2022, when the
auditors obtained reasonable assurance that Ornapaper Berhad's annual report was
free of material misstatement, whether due to fraud or error, and whether the evidence
obtained was sufficient and appropriate to provide a basis for opinion in the audit report.
3.2 KEY AUDIT MATTERS (KAM) THAT OCCUR IN THESE THREE YEARS

2020:

Key audit matters: Consolidated revenue recorded by the Group during the year
amounted to approximately RM313 million. We consider revenue recognition for sale of
goods to be a potential cause for higher risk of material misstatement from the
perspective of timing of recognition and the amount of revenue recognised. Accordingly,
we regard revenue recognition to be a key audit matter.

2021:

Key audit matters: Consolidated revenue recorded by the Group during the year
amounted to approximately RM316 million. We consider revenue recognition for sale of
goods to be a potential cause for higher risk of material misstatement from the
perspective of timing of recognition and the amount of revenue recognised. Accordingly,
we regard revenue recognition to be a key audit matter.

2022:

Key audit matters: Consolidated revenue recorded by the Group during the year
amounted to approximately RM329 million. We consider revenue recognition for sale of
goods to be a potential cause for higher risk of material misstatement from the
perspective of timing of recognition and the amount of revenue recognised. Accordingly,
we regard revenue recognition to be a key audit matter.

In order to obtain sufficient evidence regarding the completeness, accuracy, and

timing of revenue recognized in the financial statements, the following audit procedures
were performed. Firstly, the effectiveness of internal controls over sales transactions
was tested, focusing on areas such as contract review and approval, segregation of
duties, and revenue cutoff. This provided assurance that controls were in place to
prevent and detect errors or fraud. Secondly, material sales contracts and purchase
orders were reviewed on a sample basis to determine the point of control transfer to the
customer. This ensured that revenue was recognized in the appropriate period and in
accordance with applicable accounting standards. Thirdly, testing the recording of sales
transactions,revenue cut-off and review of credit notes after year end and lastly,
obtaining confirmations from trade receivables as at the financial year end on sampling
basis and reviewing collections relating to material trade receivables during and after
the financial year end.

In conclusion, over the past three years, Ornapaper Berhad has consistently
identified revenue recognition as a key audit matter (KAM). They consider revenue
recognition for sale of goods to be a potential cause for higher risk of material
misstatement from the perspective of timing of recognition and the amount of revenue
recognised. There are few reasons they consider revenue recognition as key audit
matter. Firstly, the complexity of Ornapaper's business model significantly contributes to
the elevated risk of material misstatement in revenue recognition. In a market where
competition is fierce, Ornapaper provides a broad range of goods, from conventional
paper goods to cutting-edge packaging options. Because of this variability, different
products require distinct accounting treatments based on their characteristics and
contractual obligations. It might be difficult to pinpoint the exact point of sale and choose
the best revenue recognition strategy for every product, especially when working with
bespoke or packaged goods. Furthermore, the paper and packaging sector is defined
by both changing consumer tastes and quick technological improvements. Because of
this changing environment, Ornapaper must constantly modify its offerings and
marketing approaches, which may include adjustments to how it recognises revenue.
Keeping up with these modifications and making sure that accounting standards are
applied consistently across various product lines and contractual agreements adds yet
another layer of complexity to the process.

Secondly, revenue is a crucial component of Ornapaper's financial performance.

The profitability, earnings per share, and overall financial situation of the organisation
could all be significantly impacted by any misstatements in revenue recognition. An
inaccurate assessment of Ornapaper's operational effectiveness and financial stability
can result from over- or understatement of earnings due to inaccurate revenue
recognition. This could have negative effects on bank loan approvals, investor
decisions, and eventually the company's capacity to raise money and fund expansion.
Revenue also has a direct impact on the company's cash flow and overall financial
health. In order for creditors and investors to evaluate Ornapaper's solvency and
financial stability, correct revenue recognition guarantees that assets and liabilities are
appropriately reflected on the balance sheet. This evaluation may be distorted by
incorrect revenue recognition, which could result in erroneous credit ratings and have
an effect on the company's capacity to borrow money.

Thirdly, given the significant impact of revenue on financial performance, there

could be pressure on management to manipulate or prematurely recognize revenue to
meet expectations. There is a chance of significant misrepresentation as a result. The
varied business strategy and contractual structures of Ornapaper make it difficult to
precisely define and report revenue. Because of this complication, management has
more opportunity to take advantage of gaps in the law or misconstrue accounting
principles in order to manipulate revenue figures to their benefit.

The revenue that stated in the company annual report for year 2020 to 2022
keep increasing but for the year 2020, Ornapaper’s revenue is the lowest because of
the global economy faced a significant slowdown due to the COVID-19 pandemic which
led to a decrease in demand for industrial and consumer goods, impacting Ornapaper's
customer base. The pandemic also caused disruptions in global supply chains, leading
to shortages of raw materials and increased costs for Ornapaper. These factors could
have constrained production and impacted sales. Meanwhile, revenue for year 2021
increased from year 2020 because the global economy began to recover from the
COVID-19 pandemic in 2021, leading to increased business activity and demand for
Ornapaper's products.
4.0 Evaluate whether your analysis in Question 3 is consistent with the
financial issues and strategies discussed in GA#2.

Aspect Question 3 - Type of GA#2 Financial Analysis

Audit Report and Key
Audit Matters

Similarities

Identified as a key audit The need for appropriate

Revenue Recognition matter due to misstatement revenue recognition is
risks. emphasised..

Analysis of Operational Details audit procedures Alignment explains

Segments related to consolidated patterns in profitability and
revenue. net sales.

Profitability Issues Indirectly highlights Expresses concern about

importance through key declining profit margins.
audit matters.

Differences

Depth of Profitability Focuses on audit Provides a thorough

Analysis procedures and financial examination of diminishing
statement accuracy. profit margins.

Concerns about liquidity, Does not specifically

Liquidity and Cash Flow cash equivalents, and address specific liquidity or
ratios are addressed. cash flow challenges.

Recommendations for Ensures compliance Provides cost-cutting,

Improvement without making explicit strategic initiative, and
strategy recommendations. operational efficiency
ideas..
The analysis of Ornapaper Berhad's financial situation in Question 3, which primarily
focuses on the audit report, is consistent with the financial issues and strategies
discussed in GA#2, although some differences exist. The critical significance of correct
revenue recognition is emphasised by both sources. Due to possible misstatement
risks, the audit report identifies revenue recognition as an important audit item. This
classification is in compliance with GA#2, which indirectly emphasises the importance of
accurate revenue recognition in presenting a reliable and accurate financial picture. This
common awareness emphasises the importance of revenue accuracy in sound financial
analysis and decision-making.

Furthermore, both sources are focused on operating parts. The audit report covers
particular audit processes connected to consolidated revenue, while GA#2 looks into
the trends of net sales and profitability. This mutual focus on operating segments
emphasises their critical importance in fully comprehending Ornapaper Berhad's
financial performance. The acknowledgement of the importance of segment-level
analysis runs across both sources.

However, differences arise in the level of profitability analysis. GA#2 goes above and
above by giving a thorough analysis of falling net, operating, and gross profit margins.
This level of detail provides complex insights into issues related to cost containment and
operational efficiency. The audit report, on the other hand, focuses on audit methods,
ensuring financial statement correctness without delving into specific profitability criteria.
This distinction highlights the two sources' different goals, one of which is accuracy and
the other of which is a thorough financial analysis.

Additionally, the manner that liquidity and cash flow are discussed differs significantly as
well. Concerns with reducing the amount of cash and its equivalents, net cash outflow,
and cash ratio are specifically brought up in Question 3's financial analysis, indicating
possible challenges in fulfilling immediate financial obligations. On the other hand,
GA#2 does not specifically address any liquidity concerns or go into detail about the
effectiveness of cash flow, even while it talks about financial stability and gains in
liquidity. The difference underscores the broader assurance focus of GA#2 compared to
the targeted liquidity analysis in the audit report.

Furthermore, in order to increase total profitability, GA#2 advocates an emphasis on

cost reduction, strategic initiatives, and operational efficiency. The audit report, on the
other hand, mostly presents findings without making any clear strategic
recommendations. This distinction demonstrates the different goals of the sources,
since GA#2 provides strategic insights for improving the organisation while the audit
report assures compliance and truthfulness.

In summary, Question 3's analysis is consistent with the financial issues and strategies
covered in GA#2, and both sources provide insightful viewpoints. Financial reporting
accuracy is guaranteed by the audit report, but a more comprehensive financial analysis
and strategic recommendations are supplied by GA#2. When combined, these
resources offer a thorough grasp of Ornapaper Berhad's financial circumstances.

5.0 REFERENCES
Corporate Governance - REGULATION. (2017). Retrieved December 10, 2023, from
https://www.sc.com.my/regulation/corporate-governance

Harith A. et al. (2023). ICS GA#2 (ORNAPAPER BERHAD). Retrieved December 7,

2023, from
https://docs.google.com/document/d/1wCs9N8fD2GHeU3QbxiI7aRunFvpgOxYIS
BWSFlXdrLE/edit?usp=sharing
Ornapaper Berhad. (2023). Code of Conducts – Ornapaper. Retrieved December

12, 2023, from https://ornapaper.com/code-of-conducts/

Ornapaper Berhad. (2023). Ornapaper Berhad Annual Report 2022. Retrieved

December 7, 2023, from
https://ornapaper.com/wp-content/uploads/2023/04/Anual-Report-Year-2022.pdf
Ornapaper Berhad. (2022). Ornapaper Berhad Annual Report 2021. Retrieved
December 7, 2023, from https://ornapaper.com/wp-content/uploads/2022/05/20th-
AGM-Anual-Report_PART-1-and-PART-2.pdf
Ornapaper Berhad. (2021). Ornapaper Berhad Annual Report 2020. Retrieved
December 7, 2023, from
https://ornapaper.com/wp-content/uploads/2021/07/ORNA-AnnualReport2020.pdf
Ornapaper Berhad. (2023). Ornapaper CG Report FYE 2022. Retrieved

December 9, 2023, from

https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?

id=224835&name=EA_DS_ATTACHMENTS