AUDIT SOLE PRACTITIONERS STEPPING UP YOUR GAME · “Sound firm-wide quality controls ... An audit firm has committed an offence or a breach against the laws and regulations of the

BY THE ACCOUNTANTS TODAY EDITORIAL TEAM

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AUDIT SOLE PRACTITIONERS

STEPPING UP YOUR GAME

AS the primary providers of financial services to small and medium

enterprises (SMEs) that are the backbone of the Malaysian economy,

small and medium practitioners (SMPs) play an extremely important

role in the business ecosystem. They are also a critical part of

MIA’s membership body.

“Currently, there are over 1,400 audit firms in Malaysia.

Approximately 70 per cent of them are small practices i.e.

audit firms in sole proprietorship,” said MIA President

Salihin Abang at the inaugural MIA Forum with

Audit Sole Practitioners 2018.

IN ITS QUEST TO DEVELOP

THE PROFESSION, MIA

IS HELPING TO EQUIP

AND UPSKILL AUDIT

SOLE PRACTITIONERS TO

BECOME MORE RESILIENT

AND RELEVANT.

10 ACCOUNTANTS TODAY | MAY / JUNE 2018

AUDIT SOLE PRACTITIONERS: STEPPING UP YOUR GAME

Recognising their value in

business, MIA has devoted substantial

time and resources to implementing

targeted initiatives to support the

SMPs.

For instance, MIA recently

organised seven engagement

sessions with SMPs, with the theme

of Members’ Dialogue with MIA

President and Technical Updates.

To broaden outreach and help MIA

leadership put their finger on the

pulse of members’ concerns, MIA

held these sessions in Kuala Lumpur

as well as the key regional markets

of Penang, Sabah, Sarawak, Ipoh,

Melaka and Terengganu. These

sessions were very well received and

attended by 919 members, with over

40% of participants coming from Sabah

and Sarawak.

Together with MICPA, MIA

organised workshops on Practical

Auditing Methodology for SMPs. As

of end May 2018, 38 workshops have

been held - 21 in Kuala Lumpur and

17 in regional locations and these were

attended by close to 1,500 participants

(Please refer to the article on Enhancing

SMPs: Workshops on Audit Guide for

Practitioners (AGP) and Illustrative

Audit Working Papers (IAWP) on pages

22-24).

MIA is also looking into ways to

encourage the adoption of technology

among SMPs. SMPs are encouraged

to invest in suitable technologies to

enhance their effectiveness and

efficiency, such as audit software that can

automate routine processes, improve

accuracy and reduce workloads.

MIA hopes that these initiatives will

help to strengthen and upskill SMPs to

overcome their challenges and deliver

highly valued and relevant services to

their clients. Among the challenges

currently facing SMEs are “higher

audit concentration (meaning that their

practice is not sufficiently diversified),

staff retention, technology adoption,

limited access to funding and lack of

business opportunities overseas,”

enumerated Salihin, who is himself the

founder and partner of a SMP.

By developing and regulating audit

sole practitioners, MIA is optimistic

Follow up

review shall

be dropped

Type 3 firms to

submit Remedial

Action Plan (RAP)

No Practice

Review Fees will

be charged

Type 4 rating

shall be

introduced

Type 3 firms to

attend remedial

audit workshop

Tougher

Sanctions

MAIN

CHANGES

IN THE

ENHANCED PR

FRAMEWORK

SIX

Among the challenges currently facing

SMEs are “higher audit concentration

(meaning that their practice is not sufficiently

diversified), staff retention, technology

adoption, limited access to funding

and lack of business opportunities overseas.

Salihin Abang

MIA President

MAY / JUNE 2018 | ACCOUNTANTS TODAY 11

Audit Sole PrActitionerS: StePPing uP Your gAme

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By adopting ISQC 1, SMPs stand to gain tremendous benefits, especially from the implementation of robust quality controls that can reduce their risks. “Sound firm-wide quality controls reduce the risks of inappropriate engagement reports being issued and would therefore reduce the exposure to the risk of liability.

Dato’ Narendra Jasani, Vice - President and Chairman of the SMP Committee, MIA

that SMPs in the market will be able to enhance audit quality, improve regulatory compliance and good governance, and strengthen their infrastructure and resources to become more resilient and more relevant.

enhanCinG audit Quality throuGh isQC 1

Reliable structure is the key to quality audit.

“To consistently deliver high quality audits, it is of paramount importance for audit firms to have a proper structure and system in place,” said Dato’ Narendra Jasani, Vice-President and Chairman of the SMP Committee, MIA, speaking at the recent inaugural MIA Forum with Audit Sole Practitioners 2018.

Audit firms are required to comply with the International Auditing and Assurance Standards Board (IAASB)’s International Standard of Quality

Control (ISQC) 1, which provides firms with a structure to raise their quality and promotes a culture that places quality at the forefront of the firms. Systems of quality control in compliance with the ISQC are required to be established by 1 January 2010 for audit firms in Malaysia

Benefits of isQc 1By adopting ISQC 1, SMPs

stand to gain tremendous benefits, especially from the implementation

Review Reports

Firm complies with ISQC 1 – No breach of mandatory standards noted

Some weaknesses noted in compliance with ISQC 1 and mandatory auditing standards – not pervasive as weaknesses were noted in some files but not in others. Generally mild weaknesses requiring written broad assurance and commitment from firm that remedial action and improvement will be implemented immediately

(i) Severe weaknesses noted in non- compliance with ISQC 1 and mandatory auditing standards – requiring adequate action plan and evidence of compliance and assurance of implementation of action plan to be drawn up by the firms

(ii) Basis of audit opinion is not adequately supported.

In such of the following situation arising, where:(i) An audit firm has committed an offence or a

breach against the laws and regulations of the country and the Institute's regulation; or

(ii) The basis needed to form the opinion expressed on the engagements reviewed was not supported for reason, inter alia,- the member failed to produce audit working

files for his audit engagement ( firms engaging in essentially no audit at all);

- inadequate manpower to cater to the volume of audit services engaged or no evidence of involvement in the review performed by engagement partner;

- engaging non - member firms to perform the audit work who are not within the control and supervision of the audit firms.

Type 1 (satisfactory)Type 2 (Assurance of compliance required)

Type 3 (Remedial Action Plan Required)

Type 4

TYPES OF REVIEW REPORT

12 accountants today | may / june 2018

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Approval of final report by PRC

Remedial Action Plan (RAP) is required

Type of Ratings

Outcome

Consequences

Type 3

Fail

Agreed Remedial Action Plan

Fulfil Fail

Ends Refer to Registrar

for purpose of

investigation

Hearing by DC

and sanctions, if

appropriate

Inadequate Remedial Action Plan (submitted within stipulated timeline)

Resubmission of Agreed Remedial Action Plan with two weeks

extension of time given

Fulfil Fail

Ends Refer to Registrar

for purpose of

investigation

Hearing by DC

and sanctions, if

appropriate

Remedial Action Plan not drawn up

Refer to Registrar

for purpose of

investigation

Hearing by DC

and sanctions, if

appropriate

ENHANCED PRACTICE

REVIEW FRAMEWORK

Within one

month after

being notified

on the rating

Monitoring

visit shall be at

least three

months

after the

implementation

of the remedial

action plan

of robust quality controls that can

reduce their risks. “Sound firm-wide

quality controls reduce the risks of

inappropriate engagement reports

being issued and would therefore

reduce the exposure to the risk of

liability,” advised Dato’ Narendra.

At the operational level, quality

control policies and procedures can

help firms to retain talent. People

are the lever to implementing

ISQC 1 successfully, he stressed.

Therefore, firms considering ISQC

1 are encouraged to send their staff

for the relevant training. “This would

contribute to higher staff morale and

motivation, and indirectly lead to

improved staff retention rates.”

Implementing an effective control

regime need not be sophisticated

or scary. “Quality controls should

be tailored to fit the operating

characteristics, size and nature of the

firms.”

While ISQC 1 adoption might

require some investments in terms

of time and costs, in the long run, the

benefits of implementing ISQC 1 will

far outweigh the costs. “The ISQC 1

is an effective and workable solution

to improve audit quality,” said Dato’

Narendra.

Based on the results of MIA

Practice Review, many practitioners

believe that ISQC1 is too complicated

for their small practices. Dato’

Narendra urged them to change this



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AN ENHANCED REGIME FOR AUDIT PRACTITIONERS

Practice Review

MIA has finetuned its Practice Review

regime to improve the effectiveness of

the PR process. “The Practice Review

process is very important. If there are

no consequences to failing Practice

Review, nobody will take it seriously

and the bad hats will affect the entire

profession. Practice Review is not a

pleasant job, but someone must do it for

the good of the profession,” said Huang

Shze Jiun, Chairman of the Practice

Review Committee at the recent Forum

with Audit Sole Practitioners, the first

of an inaugural series of engagements

with this important segment of the

profession.

To reassure participants about the

forthcoming changes, he stressed that

the enhanced Practice Review is meant

to be “corrective and not punitive. We

are not out to punish but to regulate

in order to bring up audit quality. MIA

aims to make Practice Review a premier

driver of audit quality for the profession

in Malaysia.” Other objectives of Practice

Review are to work with audit firms

to enhance their compliance with

professional standards and legal and

regulatory requirements. Crucially, the

enhanced regime aims to reduce the

Practice Review failure rate (Type 3 firms)

to 30% over a three-year period ending

FY2019/2020 and subsequently to 10%

thereafter.

Citing findings from previous Practice

Review cycles, Huang pointed out some

shortcomings impacting audit quality.

These include the non-performance of

stocktake, and the non-reconciliation

of bank statements and trade debtors,

much less sampling. Importantly, audit

practitioners should assess and evaluate

the tone at the top. They should address

the relationship between firm culture

and tone at the top for an effective

quality control system, as internal culture

shaped by strong tone at the top that

focuses on audit quality is crucial. There

is a tendency for partners and owners to

pin blame for audit deficiencies on staff,

but while practitioners “can delegate

the work, they cannot delegate the

responsibility,” he said.

Under the enhanced regime, firms

will no longer be sampled at random for

Practice Review. Firms at high risk will

mindset because they risk “producing

low-quality work that does not comply

with professional standards. In the

long run, this may jeopardise their

livelihood as their professional work

has to be monitored closely and

their licences might be suspended

or withdrawn by the Ministry of

Finance,” he warned.

COLLABORATING FOR ISQC 1

SUCCESS

While there are challenges to

ISQC 1 implementation, MIA stands

committed to supporting audit

sole practitioners on their ISQC 1

journey. MIA especially recommends

that firms collaborate strategically

with one another to ease ISQC 1

implementation. Firms can form

industry alliances with similar firms,

establish reciprocal arrangements

with another firm, or even do a merger

and acquisition (M&A).

By collaborating with other

firms, small practitioners can beef up

Type of Ratings

Outcome

Consequences

Type 4

Fail

Hearing by DC and

sanctions,if appropriate

- Refer to Registrar for

purpose

- Referral to other

Regulators

ENHANCED PRACTICE

REVIEW FRAMEWORK


be prioritised for review first than those

at lower risk. Eventually all firms will be

reviewed.

The changes to the Practice

Review framework were designed to

demonstrate MIA’s willingness and ability

to regulate its member firms effectively

and stay relevant, said Huang. There are

six main changes to the framework:

Review i.e. no charge

Action Plan

audit workshop

With the revisions, firms will fall

into one of the four categories: Type

1 – pass, Type 2 – marginal pass, with

assurance to be provided by AF, Type

3 – unsatisfactory with required follow-

up, and Type 4 – failure – referred for

disciplinary action.

Type 3 firms are required to submit a

Remedial Action Plan because MIA wants

to institute a paradigm change in audit

quality and culture. “We don’t want firms

acceptable Remedial Action Plan or risk

being referred to MIA’s Investigation and

Disciplinary Committees. “We want to

see firms taking the right steps so that

they don’t bring down the profession.”

Type 4 firms are beyond help. These

include cases of firms charging audit

fees but not doing the work. “These

are immediately deemed as failure

cases which will be directly referred to

the Investigation Committee and the

Disciplinary Committee.”

To make sanctions more punitive

for recalcitrant firms, MIA has proposed

tougher sanctions and fees, but these are

dependent on legislative amendments

to the Accountants Act 1967. Tougher

sanctions will add bite to Practice Review

and make it more effective. “If firms feel

that there are no consequences for bad

behaviour, they will take it lightly,” said

Huang. In the meantime, he warned that

MIA will no longer support the renewal

of licences for failed Type 3 and Type 4

firms and these offenders face possible

suspension of membership.

resources and construct an effective

monitoring programme for their

quality control systems. If a firm

belongs to a network of firms, it could

also engage practitioners from its

peers within the network to inspect

and review its engagements.

Another option is to enrol in the

MIA-MICPA Quality Assessment

Programme (QAP) to support the

monitoring process. The QAP could

serve as one of the monitoring controls

of a firm by identifying deficiencies

in the quality of audit procedures

performed, documentation and the

overall quality control procedures

of the firm. Subsequently, the QAP

can recommend action plans to

improve the quality of the firm and

its engagements. (Read more about

the QAP and one firm’s experience on

pages 26-27).

MIA strongly encourages the use

of technology to help firms improve

monitoring and quality. “Consider

implementing a practice management


system or using audit software for

efficient performance of engagements.

Currently there is an array of practice

management software and audit

software in the market to choose

from,” advised Dato’ Narendra. He

added that MIA is looking at ways to

help smaller firms manage the costs of

technology adoption, perhaps through

bulk purchases of audit software or

other form of collaboration.

to just look at their symptoms. A lot of

failures are tied back to key deficiencies.

The root cause analysis shows that

what causes all these symptoms is a

lack of tone from the top. If the culture

of audit quality is in place, these

symptoms will not arise.” Key areas for

improvement, said Huang, are improving

documentation and quality of staff, and

being more selective in choosing quality

clients. “If it is not documented, it is not

done!” he emphasised.

Type 3 firms are advised to comply

to Type 1 and Type 2 levels. “Go back to

but to address fundamental issues,” said

Huang. Firms are expected to draft an


BY JENNY CHUA YU CHIN

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SIXINGREDIENTS

FOR ACCOUNTANCY

M&AsCould an M&A be right for your firm?

MIA Member Firms Merger & Affiliation Listing

In 2010, MIA developed a portal on Member Firms Merger &

Affiliation Listing with the objective of providing a platform

for member firms seeking local mergers or affiliations to

publicise their intention on a complimentary basis. To view

the portal, please log on to http://www.mia.org.my/e-merger/


MERGERS and acquisitions (M&As) have emerged as a popular business

tactic for growing the bottom line, for enlarging markets, and for branding

purposes.

Within the profession, it’s a popular growth strategy for accounting

firms looking to build their practice and clientele. In addition, M&As

among small and medium-sized accounting practices (SMPs) have become

a viable succession planning strategy for practitioners looking towards

retirement.

SIX INGREDIENTS FOR SUCCESS

Six ingredients have been identified as essential in formulating an M&A

proposal in the business world: the timing for a compelling business case,

the strategic fit, the financial fit, the leadership fit, the cultural fit and the

people fit. These six ingredients are useful as well for accounting firms in

considering a potential M&A.

SIX INGREDIENTS FOR ACCOUNTANCY M&As

THE TIMING FIT

For M&As among

accounting firms, the

right timing will depend

on the drivers for

M&A. There are many

drivers for M&A among accounting

firms, such as geographical expansion,

talent acquisition, succession planning,

achieving a niche specialty, etc. If the

market is rewarding growth through

M&As and owners of accounting firms

see opportunities in the market to

gain this reward, this will drive them to

pursue M&As. A firm that is doing well

in terms of growth, profitability, talent

management, technology adoption, etc.

is going to catch the eye of a potential

acquirer when the time is right.

THE STRATEGIC

FIT

According to

an article published

in the McKinsey

website by Goedhart

et al. in March 2017, every deal has

its own strategic logic. Based on their

experience, most successful deals have

specific, well-articulated value creation

ideas compared to less successful deals

where the strategic rationales — such

as pursuing international scale, filling

portfolio gaps, or building a third leg of

the portfolio — tend to be vague.

Diversification also seems to be a key

driver for accountancy M&As. A recent

February 2018 interview by Accounting

Today entitled “The Shape of M&A in

2018” with M&A advisors who work with

accounting firms to find appropriate

merger partners, revealed that the

biggest landscape change to M&A this

year versus last year is the continual

movement of larger CPA firms acquiring

non-CPA firms. Larger firms seem to be

trending away from general compliance

practices, to acquiring consulting,

advisory and outsourced-type practices,

whether it be wealth management,

cybersecurity, outsourced accounting, or

a niche practice.

Other drivers include the ability to

recruit talent, to service growing clients,

and to invest in technology as emerging

technologies such as blockchain, artificial

intelligence and robotics are expected

to dramatically change the profession in

the coming years.

THE FINANCIAL

FIT

The purchase

price package is a

critical ingredient

when formulating

an M&A proposal. Every party in

negotiation wants to walk away with

the best bargain given their financial

objectives and relative strength of

negotiation. The seller wants the highest

price and as much cash as possible, with

the least tax obligation. The buyer wants

the best price with maximum discount,

favourable purchase terms and for the

seller to have a vested interest in the

future, normally in the form of deferred

or contingent considerations.

The purchase price package is

important and it does contribute to

the systematic pursuit of successful

deals. However, the right price may be

arbitrary, depending on strategic intent

and other external market factors.

THE LEADERSHIP

FIT

Strong leadership

and management

buy-ins are perhaps

the most important

success factors driving M&As.

According to J. Keith Dunbar writing

in the September 2014 Harvard Business

Review article “The Leaders Who Make

M&A Work”, senior leadership capabilities

in acquiring companies and middle

management leadership in targeted

companies are equally important in

predicting the success of an M&A. Senior

leadership capabilities in acquiring


THE PEOPLE

FIT

The role of HR is

critical in engaging

people during M&A, in aligning the

structure of the merging firms, in

addressing HR issues arising out of M&A,

and in handling the merger syndrome,

such as incompatible cultures, loss of key

talent and clash of management styles.

In all organisations, one of the

most valuable resources would be

human talent. Developing good talent

is hard and it takes years; harder still

companies include thought leadership,

results leadership and people leadership,

he added.

The right leadership is important

in an M&A as it can influence the

strategic intent of M&A, purchase price

of the target, corporate culture and will

eventually affect the effectiveness of

HR strategies and integration plan post-

M&A.

THE CULTURE FIT

Every business has

a culture. Bain & Co

cites culture clash as the

single biggest reason for

failed mergers when two autonomous

corporate cultures meet in an M&A.

Cultural clash is inevitable when

integrating two different entities into

a new and reconstituted entity. As the

owner, it is important that you clearly

articulate your vision, niche and focus

for your clients, employees, teammates,

referral sources, and partners.

Cultural incompatibility will

ultimately affect the M&A performance.

Hence, ignoring a potential clash of

cultures can lead to M&A failure. Cultural

due diligence is as important as financial

and legal due diligence in the M&A

process.

is to substitute such talents as the

replacement may have the technical

expertise sought but not organisational

or cultural fit. Losing good talent is akin

to a lost opportunity.

Many research studies have shown

that a good HR strategy to tackle these

human capital challenges that arise

from M&As, using the right change

management tools, and effective

communications to support employees

in the entire integration process are key

when formulating an M&A proposal.

ENSURING GOOD FIT FOR YOUR FIRM

By finding a firm that’s a good fit, you’ll guarantee continuity for your

clients, a good working place for your staff, and the peace of mind for your

retirement.

Nevertheless, there is no standard formula for a successful M&A.

The unpredictable behaviour of M&A remains a mystery due to the

interconnectedness and complex relationships among ingredients, and the

difficulties in determining the right mixture of ingredients needed in each

deal. There is no one size fits all formula and the absence of one ingredient

might lead to the failure of an M&A deal.

NOW, IT’S YOUR TURN

Has your firm grown via M&A or did you use M&A as an exit strategy?

If so, let us know your story by contacting MIA at [email protected].

SIX INGREDIENTS FOR ACCOUNTANCY M&As

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How Future-Proof is Your Job? Throughout history technology has transformed work. Innovations brought on

revolutions similar to the digital revolution we see today.

The Internet is considered innovative

65% of children born today will be working in roles that currently

do not exist.2

Managing and developing people (9% automation potential)5

Decision-making, planning, or creative work (18% automation potential)5

IN THE EYES OF THE CFOs:7

ATTITUDES ABOUT AUTOMATION:6

60 Paya Lebar Road, #06-19 Paya Lebar Square, Singapore 409051

Office: +65 64933113 | +65 6909 5647 [email protected]

10 Paragon Drive, Suite 1, Montvale, NJ, U.S.A, 07645

(800) 638-4427 or +1 (201) 573-9000 [email protected]

imanet.org

THE HARDEST ACTIVITIES TO AUTOMATE:

These jobs require the human skills of caring, connecting, and coaching.3 Financial managers and directors are among finance functional roles with the lowest (40.33%) probability of automation versus financial administrators and financial and accounting technicians who have the

(56.08%) probability of automation.4

68%

of accountantssee their

role changing in some form through

automation

53%

see their roles becoming

more strategic with the use of

automation

96%

of survey respondents are optimistic about what lies ahead

10 YEARS AGO PRESENT DAY

The Social networking revolution begins.1

25 YEARS AGO

85%

plan to invest in process automation

94%

believe that being an influencer is an important

skill to initiate change

83%

will be investing in development and training

77%

will focus on leadership capabilities in their

teams

1.“Robotic Process Automation in the Finance function of the future,” Ernst & Young, 2016; 2.“The Future of Jobs,” World Economic Forum, January 2016; 3.“What Jobs Will Emerge In the Future Of Work?” Forbes, December 5, 2017; 4.“Future Smart: Why Robotics Changes Everything,” Deloitte CFO Insights, July 2017; 5.“Where machines could replace humans-and where they can’t (yet)”, McKinsey & Company, July 2016; 6.“The Practice of Now,” Sage Limited, 2017; 7.“The Path to the Transformational CFO,” Armanino White Paper/CFO Survey Report, 2017

Pursuing a CMA is one way to future-proof your career. Learn how to do it.

REPORTING BY THE MIA SMP DEPARTMENT

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To strengthen SMP competitiveness and

enhance audit quality and compliance, MIA

and MICPA have been conducting a series of

joint workshops on the Audit Guide for

Practitioners (AGP) and illustrative

Audit Working Papers (IAWP).

While the workshops are geared to

auditors at all levels, SMPs would

benefit more if partners attend and

demonstrate tone from the top and

support of audit quality.

Enhancing SMPsWorkshops on Audit Guide for Practitioners (AGP) and Illustrative Audit Working Papers (IAWP)

THE audit profession continues to

evolve to meet the emerging needs

of stakeholders, requirements of

regulatory bodies, advancements in

technology, and business innovations,

amongst others. As such, it is important

that the small and medium practices

(SMPs) practitioners keep abreast and

comply with these regulatory changes

by attending seminars and workshops.

In spite of the changing landscape,

one thing that will always remain

constant for an auditor is his ultimate

role in expressing an opinion on

whether the financial statements show

a “true and fair view” in all material

aspects.

Auditing (ISAs). The IAWP provides

samples and work programmes for

SMPs to adopt to comply with the audit

documentation requirements of the

ISAs.

This two-day workshop on AGP

and IAWP served as an important and

effective avenue for SMPs to gain a

better understanding on the practical

aspects of auditing Small and Medium

Enterprises (SMEs), which meets

the requirements of the Clarified

International Standards of Auditing.

The workshop was facilitated by subject

matter experts who combined technical

expertise with a pragmatic and hands-

on approach and covered the following

STRENGTHENING SMPs THROUGH AGP AND IAWP WORKSHOPS

To enhance SMP competitiveness,

MIA working jointly with MICPA

through our SMP department is always

striving to improve audit quality. One

highly effective initiative was to conduct

joint workshops on the Audit Guide

for Practitioners (AGP) and illustrative

Audit Working Papers (IAWP).

The AGP is a revised edition of an

earlier version published by MICPA,

revised to meet the requirements of

the Clarified International Standards on


ENHANCING SMPs: WORKSHOPS ON AUDIT GUIDE FOR PRACTITIONERS (AGP) AND ILLUSTRATIVE AUDIT WORKING PAPERS (IAWP)

areas (see Chart 1).

For the past ten (10) months, beginning in

August 2017 up to end May 2018, MIA has run

21 workshops in Kuala Lumpur and 17 in the

Regional offices and smaller towns, including

Tawau, Kota Bahru and Ipoh. In total almost

1,500 auditors attended the workshop.

MORE WORKSHOPS IN FUTURE

Going forward, MIA together with

MICPA will continue to conduct future

editions of this workshop to reach out to

more SMPs and help them to enhance their

Audit Quality. The Institute hopes that all

SMPs will benefit from this workshop and

ultimately, improve the rating of the MIA

Practice Review Programme. By improving

ratings, we bolster assurance and public trust,

and this contributes to the global positive

perception of our Malaysian profession and

the country as a whole.

Going forward, MIA together with MICPA will continue to conduct future editions of this workshop to reach out to more SMPs and help them to enhance their Audit Quality.

FOUNDER AND PARTNER OF SMP,

KUALA LUMPUR

“The workshop is definitely a

comprehensive refresher for partners in

SMPs like me. The AGP and IAWP are two

good guides and references for us in our

future audit in meeting the requirements

of Clarified ISAs. We will then be more

confident in facing the MIA Practice

Review too.

Partners and experienced auditors

should attend this workshop to enhance

SMP AUDIT PARTNERSBENEFITING FROM THE AGP AND IAWP WORKSHOPSA total of 502 Audit Partners from SMPs have attended and benefitted from the AGP

and IAWP workshops so far. The following are testimonials from participants of the

workshops, all but one of whom are audit partners who rated the workshops as being

highly relevant and useful, especially in setting the tone from the top. MIA would like to

thank them for their participation and feedback.

Chart 1

+ Overall Objectives of the Independent Auditor and Conduct of an Audit

+ Agreeing to the Terms of Audit Engagements

+ Quality Control for an Audit of Financial Statements

+ Planning an Audit of Financial Statements

+ Risk Assessment Procedures

+ Conducting an Audit

+ Completing the Audit

+ Communication with Those Charged with Governance


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ENHANCING SMPs: WORKSHOPS ON AUDIT GUIDE FOR PRACTITIONERS (AGP) AND ILLUSTRATIVE AUDIT WORKING PAPERS (IAWP)

the audit quality of the firm, as the key

to an efficient audit is to have the correct

“Tone at the Top”.

PETER LIM, FOUNDER AND PARTNER OF TK

LIM & CO, KUALA LUMPUR

“The workshop on the AGP and

IAWP is highly recommended for

audit assurance partners of Small and

Medium Practices (SMPs) to enhance

the competency and quality on the

performance of audit work.

As a partner, I must say that much

can be learnt from the workshop

and I wanted to ensure that my staff

will also learn from me to increase

their competency level and be able

to discharge their duties to the firm’s

expectations.

The tone from the top is definitely

an important factor contributing to

audit quality. In this regard, I strongly

encourage audit assurance partners of

SMPs to attend together with their audit

staff.”

BILLY KANG, PARTNER OF BILLY KANG &

CO., KOTA BAHRU

”It is commendable that MIA came

up with this training. Together with

my key audit staff, we attended this

training. My staff found it insightful and

(it provided) practicable suggestions

for our SME environment. Personally, I

found it refreshing to walk through the

basics of auditing and incorporate new

approaches to auditing.

The audit manual provided as the

training material certainly eases the

’pain’ of having to re-design the new

approaches to the audit procedures.

Moving forward, I would encourage all

SMPs to participate in this programme to

enhance our quality.”

NURNAJAHA RAIS, MANAGER OF SANIZA &

ASSOCIATE, PENANG

“The course was comprehensive

and the speaker explained (the material)

step by step. It was easy to understand,

providing hands-on application of the

working papers in an audit.”

PARTNER OF A TWOPARTNER SMP,

KUCHING

“We are glad that MIA has taken the

initiative to assist SMPs in upgrading the

standard and quality of AWP. Overall, the

workshop was good and refreshing.

The cost of training is very

reasonable, making it affordable for all

our partners and most of our staff to

attend. The two manuals, though not

complete, are good for future reference.

We are adopting some of the specimen

audit letters with modifications and we

hope more specimens can be included

in the future manual.”

DATUK LAI VAI MING LAI KHENG MING,

PARTNER OF V.M LAI & CO., SANDAKAN

”This workshop has been helpful

in our constant changes and updating

of audit documentation and should be

conducted on an annual basis to widen

our knowledge.”

RIZDUAN JOHARI, PARTNER FROM

RIZDUAN JOHARI & CO, JOHOR BAHRU

“The whole content of the course

and materials provided to us were

very good and very comprehensive. I

salute the presenter who has shared

his knowledge on the Audit Guide

for Practitioners and Illustrative Audit

Working Paper. However, based on

my observation, the presenter mostly

gave examples that emphasised public-

listed companies which apply mainly to

medium-sized practitioners under the

AOB or the Big Four and these may not

be relevant for small practitioners like

me.”


REPORTING BY THE MIA SMP DEPARTMENT

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TONY NG: FIRST-HAND QUALITY ASSESSMENT PROGRAMME (QAP) REVIEW

EIGHTEEN months after MIA and

MICPA introduced the QAP, MIA caught

up with Tony Ng of sole proprietorship

YF Ng to get a practitioner’s perspective

on QAP. Tony commenced the QAP

from June 2017 and received his final

report in November 2017.

YF Ng has been around since 2000.

The firm mainly services audit and has

more than 1,000 clients. Tony himself

has 18 years’ experience in public

practice and specialises in auditing.

Below, Tony tells us about his

experience:

How did you know about the QAP

Programme?

I received an email blast from

MIA and thought that this would be

good for the firm because we are

committed to improving audit quality

to serve our clients better. Hence, I

forwarded the email to my team for

further consideration and action. Since

I am a sole practitioner, we do not

have a second partner to look at the

firm’s Quality Controls. I also wanted an

independent review of my firm’s policies

and procedures.

Describe the QAP Process briefly.

the Practice Profile Information

Questionnaire, which can be

downloaded from the SMP

website.

reviewers sent a questionnaire

with a list of documents required

for QAP.

the questionnaire and prepare the

documents for the QAP.

WHAT IS IT LIKE TO PARTICIPATE IN THE MIA-MICPA QUALITY ASSESSMENT

PROGRAMME (QAP)? TONY NG, ONE OF THE EARLIEST QAP PARTICIPANTS,

SHARES HIS INSIGHTS.


TONY NG: FIRST-HAND QUALITY ASSESSMENT PROGRAMME (QAP) REVIEW

quality among SMPs. A joint collaboration

between MIA and MICPA since the

MICPA’s commitment towards continuous

improvement in the audit quality of SMPs in

Malaysia.

HOW THE QAP WORKS

Member firm by reviewer(s) appointed by

MICPA. The review of the whole firm will

comprise two parts:

1. A review of the firm’s compliance

with the International Standard of

2. A review of the documentation

of at least one completed audit

engagement.

on a voluntary basis and designed to be

educational in nature. The review will be

conducted at the firms’ premises. At the end

will provide a report on the findings and

the reviewed firm will provide the proposed

remedial action plans for implementation.

OBJECTIVES OF THE QAP

1. Promote continuous improvement in

audit quality in Malaysia.

2. Assist audit firms in assessing

compliance with the applicable auditing

standards and MIA By-Laws in relation

to audit engagements on financial

statements prepared in accordance with

the applicable approved accounting

standards and the Companies Act 1965

or the Companies Act 2016, as the case

may be.

to obtain a better understanding

of the firm’s policies and

procedures and was attended by

both partner and senior staff.

the review for three days

followed by an exit meeting to

discuss on the findings

remediation plan with the

assistance of the reviewers.

highlighting the findings of the

reviewers and the remediation

plans to be undertaken by the

firm. We were also advised that

we may enrol for a follow-up

review in the future.

What was your main take-away

from the programme?

the importance of audit

documentation in an audit

engagement.

with the requirements of the six

elements of ISQC 1.

In what way do you think the QAP

will help you in your future audit?

Previously, the audit was

more focused on substantive audit

procedures. We may over audit and

under audit in certain areas, with

no assessment of the audit risk.

Hence, in future, we will place more

emphasis on audit planning and risk

assessment and link risk assessment

to audit procedures performed. We

will also look into testing of controls

where applicable.

In your opinion, is there any area

where you think the QAP could be

further improved?

In my opinion, rather than

just reviewing one selected client,

the reviewer should review more

files in various industries within

the stipulated budget. This will be

more beneficial for the firm under

assessment.

In your experience, do you consider

the programme value for money?

Yes, it was value for money. The

reviewers were all from practice and

they were superb. They could relate

to the practical problems faced by

a SMP.

Would you recommend that other

SMPs participate in the QAP

programme?

Definitely, if they are serious

about audit quality and have no

independent partner to do a review

of their policies and procedures.

Do you expect to enrol in the follow-

up review in the near future?

Yes, after applying what we have

learnt in the next audit, we will enrol

in the follow-up review to gauge its

effectiveness.

ABOUT THE QAP


BY MAJELLA GOMES

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Board Audit Committees

Dealing with Data Disruption

WE live in an age of disruption, where

business models are increasingly

reliant on data and large volumes of

data are available to anyone who can

harvest it, supported by innovation and

technologies. Consider this: today’s

smartphone has the same computing

power equivalent to that of the whole US

government in 1983. When companies

apply advanced analytics techniques to

harvest and interpret data, they can

hone and develop a game-changing

competitive edge.

Speaking to Board Audit Committees

on how to manage disruption and data

at MIA’s recent annual Audit Committee

Conference 2018 in conjunction with the

Institute of Internal Auditors Malaysia

(IIAM), Dr. Farouk Abdullah, Chief

Data Scientist, Azendian Solutions said

that the first principle is “to recognise

the indicators of disruption and identify

the impact of such disruption on your

organisation.” As an example, self-

driving cars are now licensed in six

US states and they have been found to

be relatively more accident-free than

human-driven vehicles. This could

mean that in the future, driving licences

may no longer be necessary, and there

will be fewer deaths on the road. This

disruption in turn will impact on the

automotive and insurance industries.

Understanding the causes and effects

of such disruption will help auto and

insurance businesses plan for the future

and strategise how to manage the

effects of disruption.

Dr. Farouk also said that disruption

does not have to be a big bang event.

“There is no major disruption. Rather,

it is a set of small events that build up

to a major disruption.” By noting minor

trends which coalesce into larger seismic

movements and having a finger on the

pulse of the environment, businesses

can move from being reactionary

to taking prepared, proactive and

preventive measures that will enhance

their sustainability and longevity.

DATA IS KING

Key to identifying and managing

disruption is data. Data-driven

businesses are business that remain

competitive by leveraging data and

analytics. Citing Airbnb, Alipay, Google,

Grab and Waze as some examples of

organisations that focus on data and

analytics, he said that these were de facto

data companies whose services were

secondary. Their main aim was to collect

data and apply it towards generating

insights that drive business growth.

Every time a user logs in or switches an

app on, data is being recorded, stored

and analysed to develop functionalities

to generate revenue. It’s quick, cheap

and barely noticeable. Ride-hailing apps,

for instance, are an accurate record of

where the user is, and where he/she is

going to. This sort of data can be very

valuable for marketing to specific users

Data Scientist Dr. Farouk Abdullah thinks Board Audit Committees must focus on data for better organisational sustainability and competency.

Dr. Farouk Abdullah, Chief Data

Scientist, Azendian Solutions


BOARD AUDIT COMMITTEES: DEALING WITH DATA DISRUPTION

through understanding their profiles and

characteristics.

If organisations are now more reliant

on data, Boards and Audit Committees too

must change to reflect this new paradigm.

Traditionally, the Audit Committee

oversees the financial reporting and

disclosure process, monitors accounting

policies and principles, oversees the

hiring, performance and independence of

external auditors, regulatory compliance,

ethics and whistleblower hotlines, and

monitors internal control processes,

analyses risk management policies and

practices with management. But they no

longer have the luxury of focusing so

diligently on compliance and forensics,

and should instead switch to the preventive

and proactive to cope with disruption and

enhance governance. “Businesses should

move from just identifying issues after

a disruptive event, to diagnosing how

it (and subsequent events) should be

managed, to predicting future possible

occurrences and preventing these from

happening. Speed and time are of the

essence when dealing with disruption,”

stressed Dr. Farouk.

TIPS FOR MANAGING DATA

Since data is now the lifeblood of

companies, how can Boards and specifically

Board Audit Committees help their

organisations? Dr. Farouk recommends

that organisations and Boards should:

strategy

and how they are being used

transform their respective organisations

to focus on data to drive the business.

Keyto identifying and

managing disruption is data. Data-driven

businesses are business that remain competitive

by leveraging data and analytics.


BY MAJELLA GOMES

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COMBATING CYBER RISKS WHAT THE AUDIT COMMITTEE

NEEDS TO KNOW

WHY does cybersecurity matter?

Because it can cost your business

more than financial losses. Loss of

reputation can be just as damaging

as investor confidence wanes and

shareholders rethink their stakes

in your business, warned Sanjay

Sidhu, Governor, IIA Malaysia,

kicking off his presentation on

Combating Cyber Risks: What the

Audit Committee needs to know,

at the recent Audit Committee

Conference 2018.

Take social networking giant

Facebook, whose involvement in

the Cambridge Analytica scandal

caused it to lose billions in value

practically overnight. That’s

only one high-profile case. Sidhu

estimated that cybersecurity attacks

have wiped out at least USD52.4

billion in share values in recent

years, and global ransomware

damage may have crossed the

USD5 billion mark in 2017, up from

just USD325 million in 2015. As

many as 97 out of 100 e-mails are

actually phishing attempts which

try to get confidential information which

can be exploited. Low levels of awareness

of those who are already affected, or who

are at risk of being phishing targets, further

compound the problem. They may not even

be aware that they can make reports of

these attacks despite the incidents being

very minor ones.

EVERY DEVICE IS RISKY

“The threat landscape is huge,” Sidhu

said. “Every device (pc, laptop, mobile

phone, tablet) represents a threat.

You could be hacked by a disgruntled

employee. Some people do it for fun.

Organised crime conducts attacks to steal

data.” Ransomware can even take data

hostage, in some cases – and paying a

ransom doesn’t always guarantee that the

cyber terrorist will allow you to access your

data again; both data and ransom payment

can be lost.

He cautioned that security needs to

be applied equally to the real and virtual

worlds. It is as easy for an employee, for

instance, to e-mail information out to a

third party, as it is for the information to

be printed out in hard copy and carried

out of the office. Credentials can be seen,

and identities stolen; business reputations

can be lost when there is a breach, with

far-reaching consequences. Breaches will

affect networks and systems and stop users

from accessing information. Because of all

these alarming possibilities, regulations are

already in the pipeline that will hopefully

mitigate the negative consequences of such

events.

REGULATORS TO THE RESCUE

In Malaysia, the Securities Commission

is a frontline combatant in cybersecurity

warfare and related regulatory compliance.

Australia, China and Singapore are also

SANJAY SIDHU, GOVERNOR, IIA MALAYSIA, BRIEFS THE BOARD AUDIT

COMMITTEE ON THE CHECKLIST OF KEY STEPS TO TAKE TO BEEF UP

CYBER DEFENCES.

The threat landscape is huge. Every device (pc, laptop, mobile phone, tablet) represents a threat. You could be

hacked by a disgruntled employee. Some people do it for fun. Organised

crime conducts attacks to steal data.

Sanjay Sidhu

Governor, IIA Malaysia


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tightening their relevant laws, and the

punitive measures of some of these

are causing companies to scramble to

put systems in place before the laws

take effect. One general characteristic

of all impending regulations, Sidhu

said, was that companies which have

had breaches will be fined because

such incidents affect public welfare.

While this may not seem fair – since

the company stands to lose more than

just its data when there is a breach,

and be fined on top of that – it does

put the responsibility for securing data

squarely on companies’ doorsteps.

As those responsible for oversight

and good governance, Boards and

management have to be constantly

aware of how data is being handled

because cyber risk is now an enterprise-

level risk. “Those responsible

for enterprise can no longer plead

ignorance,” warned Sidhu. Data is a

company asset and therefore under

the firm’s control. It is the duty of

companies to ensure its integrity. This

includes knowing what resides where,

who has access to it and how it is

secured. To enable this, training is

imperative; staff needs to be trained

to recognise phishing incidents and

act accordingly. Awareness at every

level cannot be overemphasised; from

the Board to the janitor, everyone

should be vigilant because “there is no

remedy for cyber threat.”

Since cybersecurity wars are

relentless and all-encompassing,

what do companies need to know?

When managing cyber risk, Sidhu

recommended:

it should be managed; it needs

to be seen as one of the items

on the Board agenda, and not

relegated and delegated as “an IT

issue.” “Cyber risk is an enterprise-

level risk,” he emphasised.

comes under; setting parameters,

access and controls.

the right level of investments in

systems and corrective measures.

systems of your peers.

and establishing an entire chain

of protection.

contractors.

He concluded that Audit

Committee members do not need to

be technical experts but they do need

to be prepared. He urged them to

“ask the right questions,” to learn and

relearn in order to be well equipped

for enforcing cybersecurity, and to

have the right beliefs and positive

mindsets that they can do this.

COMBATING CYBER RISKS: WHAT THE AUDIT COMMITTEE NEEDS TO KNOW

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Experienced leader and

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BY MAJELLA GOMES

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WHAT do Sherron Watkins, Jeffrey Wigand

and Michael Woodford have in common?

They put themselves on the corporate map

by blowing the whistle on their respective

companies. Watkins, an accountant and VP

of Corporate Development, helped expose

the Enron fraud. Wigand, VP of R&D at

Brown & Williamson, a company that was

manufacturing reduced-harm cigarettes,

claimed that it had intentionally manipulated

its tobacco blend with chemicals. Woodford,

CEO of Olympus, exposed how the optical

equipment manufacturer was hiding its

losses. While they became the poster

children of whistleblowing, held up as

icons of integrity, their actions practically

ended their corporate careers and made

their lives very difficult indeed.

HOW IT WORKS

Whistleblowing brings bad practices to

light, said Dr. Mark Lovatt, CEO, Trident

Integrity Solutions at his presentation,

“Whistleblowing – How Best to do it?” at

the Trust & Integrity Conference 2018.

Dr. Lovatt said that if companies

depended exclusively on their accounts

to tell them that something was not

right, only a small portion of wrongdoing

would be obvious. “You won’t know

everything that is going on,” he said.

“Whistleblowing works by getting

people who have integrity to help you

expose wrongdoing.”

Besides fraud, other malpractices

that can be uncovered or reported

by whistleblowing include theft,

discrimination, harassment, damage to

property, negligence, breaches in data,

health or safety rules, insubordination,

alcohol or substance abuse, misconduct,

bringing the organisation into serious

disrepute and bullying. All this is

undesirable behaviour that needs to be

nipped in the bud or else the firm runs

the risk of it becoming accepted practice

– with even worse repercussions.

Whistleblowing is primarily an internal

DR. MARK LOVATTBLOWING THE WHISTLE

TRIDENT INTEGRITY SOLUTIONS CEO DR. MARK LOVATT TALKS ABOUT

SOME BEST PRACTICES FOR IMPLEMENTING WHISTLEBLOWING, AS WELL

AS THE EXPECTED CHALLENGES AND REPERCUSSIONS.

Whistleblowing works by getting people who have

integrity to help you expose wrongdoing.

Dr. Mark Lovatt

CEO, Trident Integrity

Solutions


DR. MARK LOVATT: BLOWING THE WHISTLE

practice so the company has a chance

to resolve the issue before the matter

goes public, which could cause

considerable damage.

THE COSTS OF NOT IMPLEMENTING WHISTLEBLOWING

Companies that don’t have a

whistleblowing protocol in place could

pay a heavy price. Dr. Lovatt illustrated

this with a case study on the Volkswagen

“Dieselgate” scandal, which came to

light in September 2015. VW was found

to have intentionally programmed its

diesel engines to activate emissions

controls during laboratory testing,

thereby manipulating the results of

regulatory testing. This made it seem

that its vehicles were meeting emissions

standards but this was not true; 11.5

million cars were affected, globally.

When the scandal broke, VW

became the target of regulatory

investigations in multiple countries. Its

stock price took a beating; many of

its senior management resigned, was

suspended or arrested; and VW had to

spend billions of Euros on rectifying

the issues, with The Wall Street Journal

reporting that the company had taken

a USD18.28 billion hit because of the

emissions scandal. The VW Group

had included iconic marques like

Lamborghini, Audi, Bentley, Porsche,

Bugatti and Ducati; the VW name

was now mud. But all this could have

been avoided if VW had encouraged

whistleblowing. Investigations revealed

that the manipulated emissions results

had been common knowledge. VW is

not the exception; even Rolls-Royce has

experienced financial scandal – a £671m

fine arising from their practice of using

bribes to win business across the world.

Dr. Lovatt also noted that

whistleblowing could be an avenue

to combat corruption. Globally, IMF

statistics estimate that the cost of

corruption in its many forms totals about

USD2 trillion annually. In Malaysia, 30%

of companies experienced bribery and

corruption, in 2015. Having the right

systems in place with protection for

people of integrity who blow the whistle

could be a means to plugging these

leakages.

CHALLENGES AND CONSEQUENCES

If whistleblowing systems are to

work, they should be secure, Dr. Lovatt

said, with well-defined, accessible

channels and processes that allow

anonymous reporting and protection

of whistleblowers. Staff who deal

with these matters require training

too. The system should create trust

in all who use it. Dr. Lovatt cited the

efforts of multinationals Shell, Petronas

and Coca-Cola as some examples of

whistleblowing systems that tick all

the boxes. “Hotlines are an asset to a

company,” he said.

Whistleblowers, unfortunately, do

not always do well after the deed is

done, despite having great integrity

and really caring about the company

they work for. There is always fear of

retaliation, uncertainty and scepticism

that action will be taken. In Jeffrey

Wigand’s case, he claimed to have even

received death threats. Harassment,

loss of seniority or job responsibilities

and maybe even backlash from your

own colleagues are all stark possibilities.

But these hazards have not deterred

whistleblowers from heeding their

conscience and doing the right thing.

In a 1987 survey of whistleblowers,

only 20% felt their actions had affected

workplace change – but even with those

odds, more than 50% of them said they

would do it again!


Documents

AUDIT SOLE PRACTITIONERS STEPPING UP YOUR GAME · “Sound firm-wide quality controls ... An audit firm has committed an offence or a breach against the laws and regulations of the