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Unformatted text preview: Accounting and Auditing of Financial Derivatives: The Case of Maridive & Oil Services (MOS ( Dr Mohamed Hegazy & Karim Hegazy Executive Summary This case studies accounting and auditing implications resulting from the dispute among auditors and the management of Maridive Oil Services Company (MOS) in the preparation of the company’s financial statements at December 31, 2008. The dispute occurred between the company’s management and the auditors for the accounting treatment of losses of $ 18 million dollars expected to be realized on the Swap agreement made between MOS and a number of International Banks during the period 2009-2018. MOS is a publicly traded company at both Cairo and Alexandria Stock exchanges with total assets of more than $390 million dollars. The company entered into Swap Agreement with two International Banks to minimize the risk associated with credit facilities received by the company to expand its marine services through the construction of a number of marine vessels. The dispute among the three International audit firms resulted in the issuance of two different sets of audit reports . The Egyptian Capital Market Authority (CMA) examined the company’s financial statements for the year ended December 31, 2008 and the auditors’ reports and forced the company’s management, despite the objection of two of the company’s auditors, to restate its financial statements at December 31, 2008 and modify its profit appropriation statement after their publication to shareholders and the public. The present research analyses the problems associated with the application of the International Financial Reporting Standards no 32 and 38 “Financial assets and Derivatives” and their Egyptian equivalents and the Egyptian Standards on Auditing no 700 and 702. Further, the research identifies differences associated with auditors issuing contradictory audit reports for a company’s single set of financial statements. Finally, the research highlights the nature of errors of judgments embedded in the audit function and corporate management responsibility to mitigate the risk of expected future losses resulting from the interest rate swap agreements “derivatives .” Keywords: auditing standards, accounting standards, swap agreement, Maridive Oil Services (MOS), corporate financial reporting, Companies Act, re-statement of financial statements, financial derivatives . 1 Introduction In general, this case is composed of three main sections. The first section provides a detailed background about Maridive & Oil Services Company showing the development of the company from a medium size marine services company into an international company providing a variety of marine and oil support activities including maintenance, installations, rescue aid, erections, towage whether above, outside, and/ or under water as well as land establishments. This section also highlights the management structure and competitive strengths used to achieve the growth seen by MOS since 1978 and the company's future strategy required to...
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This note was uploaded on 03/30/2012 for the course ACCT 305 taught by Professor Hegazy during the Spring '10 term at American University in Cairo.
- Spring '10