Auditing Profession –

Development and Key Issues

Nik Mohd Hasyudeen Yusoff
President
Malaysian Institute of Accountants
Agenda
• The auditing profession in Malaysia
• Global development
• Audit quality review
• Moving forward issues
The auditing profession in Malaysia
• As at 30 June 2008:
▫ 2,436 accountants holding public practice certificate
▫ 1,348 firms are registered as audit firms
▫ 650 firms provide other accountancy services
• License to audit companies incorporated under the
Companies Act, 1965, is issued by the Ministry of
Finance to:
▫ Members of MIA holding public practice certificate
▫ Have no less than 3 years working experience in auditing
▫ Demonstrate capabilities during an interview process
The auditing profession in Malaysia
• Important elements in determining the performance
and quality of audit services include:
▫ The auditors
▫ The firms
▫ The legislative framework
▫ Standards relating to auditing
▫ The oversight of the quality of audit
The auditing profession in Malaysia
• The auditors should:
▫ Uphold professional values and standards
 Integrity, Objectivity, Due Care, Independent
▫ Possess updated knowledge regarding auditing
 Auditing standards
 Accounting standards
 Industry knowledge and experience
 Legislative framework
▫ Have the necessary skills which need to be applied in
performing the audit
 Global business environment
 Web based business environment
 Skills to apply principle-based standards
The auditing profession in Malaysia
• The firms should:
▫ Put in place framework, processes and procedures to
comply with auditing and quality control standards as
well as the applicable legislative framework
▫ Uphold professional values and standards
▫ Have the capacity to accept audit engagements before
doing so
The auditing profession in Malaysia
• The legislative framework in Malaysia includes,
among others, the followings:
▫ Financial Reporting Standards
▫ Companies Act
▫ Conditions on the Audit License
▫ Accountants Act
▫ Capital Market and Services Act
▫ Bursa Malaysia Listing Requirements
▫ Banking and Financial Institution Act
The auditing profession in Malaysia
• The standards relating to auditing are:
▫ MIA By-Laws, particularly on auditors independence
▫ International Standards on Auditing adopted in
Malaysia
▫ International Standards on Quality Control
▫ Practice guides issued by MIA
Global development
• Issues regarding audit quality has been the focus for
a long time
• International Auditing and Assurance Standards
Board (IAASB) is the body that sets auditing
standards for global adoption (www.ifac.org/iaasb)
• Oversee by the Public Interest Oversight Board
(POIB)
• Convergence of auditing standards is part of the IFAC
agenda
Global development
• IFAC is in support of a single auditing standard globally
and a separate standard for SME is not foreseeable
• Guidance on how ISAs to be applied in the context of
SME was recently issued
• The focus of IAASB 2009-2011 strategy would be:
▫ Development of standards
▫ Monitoring and facilitating adoption of the standards
▫ Responding to concerns about the implementation of the
standards
• The planned activities of IAASB would be directed
towards the effective operation of the world capital
markets and the needs of SMEs and SMPs
Global development
• Proposed revision of standards on Review
Engagements to provide alternative in jurisdiction
where audit for small companies are not mandatory
• A response towards the call for a separate auditing
standards for SMEs by SMPs
• IAASB recently issued an Audit Practice Alert
regarding the audit of fair value accounting
estimates under the current situation in the market
where the level of uncertainty is very high
Global development
• International Forum of Independent Audit Regulators
(IFIAR – www.ifiar.org) serves the protection of public
interest through enhancement of audit quality
• Share knowledge of audit market environment and
practical experience of independent audit regulatory
activity
• Provide the contact point for other international bodies
which have interest on audit quality
• It is now a global expectation that auditors of public
interest entities are regulated by a body which is
independent from the accounting profession
Audit quality review
• Practice review in Malaysia is conducted by MIA through its
Practice Review Department
• The reviewers are the staff of MIA, not a peer review
approach
• It is part of MIA’s commitment towards the protection of
public interest through the assurance of audit quality
• MIA Practice Review Committee’s Term of Reference:
▫ To oversee the implementation of the Practice Review
Programme.
▫ To consider and approve the review reports as presented by the
management centre (Practice Review Department).
▫ To provide guidance to the management centre and address any
concern which may arise in relation to the implementation of the
Practice Review Programme
Audit quality review
• The practice review process includes:
▫ Firms would be randomly for practice review
▫ The selected firms to perform a self-assessment on their
compliance with the relevant standards and legislative
framework
▫ The MIA practice review team would review the quality control
and internal control practices as well implementation of audit
standards by each partners within the firm
▫ The findings of the practice review would be agreed upon
between the practice review team and the partners of the firm
▫ A report would be table at the Practice Review Committee for
decision and action
▫ Opportunity would normally be given for firms to improve their
audit quality before disciplinary actions are taken
Audit quality review
• Among the recent development in Malaysia with respect
to review of audit quality are:
▫ The government had announced the setting up of the Audit
Oversight Board to oversee audit quality of auditors
auditing public listed companies and other public interest
entities
▫ The focus of AOB would be to review audit work,
investigate specific audit failures and conduct enforcement
actions against auditors who fail to comply with the
standards
▫ The MIA would continue to set and adopt auditing and
ethics standards, but the AOB would have the residual
power to adopt if MIA fails to do so
Moving forward issues
• The expectation on the quality of audit would remain
high in view of the interest of the investors on the
audited financial statement
• Audit quality goes beyond the competency of individual
auditor but depends on the capacity and professional
values adopted by the auditing firms
• As the business environment gets more globalised and
complex, auditing would be more challenging and the
quality of the people involved in audit would be very
important to maintain audit quality
• External agencies outside the accounting profession
would be more involved in the audit quality issues