Accounting and Auditing of Derivatives : The Case of Maridive Oil Services

This case study discusses 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 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 on December 31, 2008, while the auditors' reports 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 research presents the problems related to the application of the International Accounting Standards no 32 and 38 “Financial assets and Derivatives,” their Egyptian equivalents, and the Egyptian Standards on auditing no 700 and 702. Further, the research identifies the differences associated with auditors issuing contradictory audit reports for a company's single set of financial statements