Auditing Profession – Development and Key IssuesNik Mohd Hasyudeen YusoffPresidentMalaysian 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