Transactions, such as "advances" and "provision of doubtful debts", in financial statements of companies call for close scrutiny, particularly if the auditors qualify their reports. These are only two of many ways directors or substantial shareholders manipulate accounting entries to benefit themselves.

The next time you come across these entries, don't be too quick to accept them at face value.
Below is a fictitious story, but with aspects taken from actual and real life cases of abuse, which is meant to illustrate how "advances" and "provisions for doubtful debts" can be used to enrich individuals to the detriment of public-listed companies and its minority shareholders.

The story begins...
A few years ago, a director had provided a profit guarantee of RM10 million for PLC A in his capacity as director, and promoter, in conjunction with the company's listing exercise. Of course, the guarantee meant the director had to ensure that the company achieved that profit level.
But things did not work according to plan, and the company failed to meet the profit guarantee. It had also been tough going for the company and more specifically, the director. As a result, the company recorded the shortfall (in profit guarantee) as "amount due from Director Mr. A".

Overtaken by greed
The director was anxious to find a way out of having to fork out his own money to meet the guarantee. With the help of creative accounting, the director used advances and provisions for doubtful debts to steer away from the tight spot.

He concocted a scheme that worked only too well in his favour. Consequently, he managed to avoid paying the sum, as well as being answerable to the rest of the shareholders. Over and above that, his crafty scheme earned him a few million.