AUDITING AND ASSURANCE SERVICES IN MALAYSIA

TOPIC 1: INTRODUCTION

References: Chapter 1 & 2 AUD390 2014AUDITING AND ASSURANCE SERVICES IN MALAYSIA

LEARNING OUTCOMESAUD390 2014DEFINITION OF AUDITINGDISTINCTION BETWEEN AUDITING & ACCOUNTINGDEMAND FOR AUDITINGTYPES OF AUDITS & AUDITORSPROFILE OF THE AUDITING PROFESSIONSTEWARDSHIP, ACCOUNTABILITY AND AGENCYMALAYSIAN APPROVED STANDARDS ON AUDITING

DEFINITION OF AUDITING

AUD390 2014Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. (Arens, 2014)

Information and established criteriaAccumulation and evaluating evidenceCompetent, independent person (Auditor)Reporting (Audit Report)

DEFINITION OF AUDITING (Financial Statement Audit)AUD390 2014To obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework;

(Gay & Simnett, 2012)

DEVELOPMENT OF AUDITING Assurance & Nonassurance ServicesAUD390 2014

AuditsReviewsInternal Controls over Financial ReportingOther Attestation ServicesOther Assurance ServicesNONASSURANCE SERVICESASSURANCE SERVICESOther Management ConsultingAccounting & BookkeepingTax ServicesCertain Management ConsultingATTESTATION SERVICES

DEVELOPMENT OF AUDITING Definition : ASSURANCE SERVICESAUD390 2014 An independent professional service that improves the quality of information for decision-makersCan be performed by auditors or a variety of other professionalsE.g. the Consumers Association of Penang (CAP) provides the information to help consumers make intelligent decisions about the product they buy

DEVELOPMENT OF AUDITING Definition : ASSURANCE SERVICESAUD390 2014 Category of assurance services provided by CA firms:-Attestation servicesAssurance services on Information TechnologyAssurance services on:Controls over and risk related to investments, including policies and related to derivativesMysery shoppingAssess risks of accumulation, distribution and storage of digital informationFraud and illegal acts risk assessmentISO 9000 certifications, etc.

DEVELOPMENT OF AUDITINGDefinition : NONASSURANCE SERVICESAUD390 2014 Other services provided by CA firms that fall outside the scope of assurance services. E.g.Accounting and bookkeeping servicesTax servicesManagement consulting services

DISTINCTION BETWEEN Auditing & AccountingAUD390 2014ACCOUNTING is the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making. Person in-change known as ACCOUNTANT

The difference AUDITOR focus on determining whether recoded information properly reflects the economic events that occurred during the accounting period

TYPES OF AUDITS

AUD390 2014Compliance AuditPerformance AuditFinancial Statements AuditFraud Audit

TYPES OF AUDITCompliance AuditAUD390 2014Is conducted to determine whether the auditee is following specific procedures, rules or regulations set by higher authorityE.g. Determining whether accounting personnel are following the procedures prescribed by company controllerResults of the audit Findings are reported to higher management of the unit being audited for necessary improvementsPerformed by the internal auditor, external auditor & government auditor

TYPES OF AUDITPerformance AuditAUD390 2014Also known as Value For Money Auditing, Operational Auditing, Efficiency Auditing or Program Results AuditingEvaluate the efficiency & effectiveness of any part of an organization's operating procedures & methodsE.g. evaluate the efficiency & accuracy of processing payroll transactions in a newly installed computer systemResults of the audit - recommendation for improving the operations are propose to the managementPerformed by the internal auditor of a company or management consultancy works by external auditor

TYPES OF AUDITFinancial Statement AuditAUD390 2014Is conducted to determine whether the overall FS (the information being verified) are stated in accordance with specific criteria i.e. an approved accounting standardsResults of the audit draw conclusions on the FS that can be relied upon by different group of users for the different purposesPerformed by the external auditor on the frequent interval e.g. quarterly, half yearly or yearly basis

TYPES OF AUDITFraud AuditAUD390 2014Is conducted to investigate anomalies and gather evidence of fraud that may lead to criminal conviction. Fraud could either due to theft of assets or misappropriation of accounting data by companys employees.Results of the audit fraudsters subjected to criminal conviction by the CourtPerformed by the fraud auditor who have earned the Certified Fraud Examiner certification, upon suspected case

TYPES OF AUDITORS

AUD390 2014External AuditorInternal AuditorsGovernment AuditorsInland Revenue Assessment Officers

TYPES OF AUDITORSExternal AuditorAUD390 2014S8 of the Company Act (CA) 1965 requires a company to appoint an Approved Company Auditor to audit every company incorporated under the ActExternal auditor work in the CPA firm i.e. public accounting firm ranges from sole proprietorship to partnership providing services such as attestation services, accounting or tax services and management advisory services

TYPES OF AUDITORSInternal AuditorAUD390 2014Employed by individual companies to audit for managementInvolved in operational auditing or have expertise in evaluating computer systems

TYPES OF AUDITORSGovernment AuditorAUD390 2014Working for the Auditor General Department, headed by the Auditor General and reports to & is responsible solely to Yang Dipertuan AgongResponsible to evaluate the operational efficiency & effectiveness for all federal & states as well as statutory bodies & public authorities

TYPES OF AUDITORSInland Revenue Assessment AuditorAUD390 2014Staff of Inland Revenue Board (IRB), which responsible for enforcing the Income Tax Act as being defined by Parliament and interpreted by CourtsResponsible to audit the taxpayers returns to determine whether they have complied with the tax laws

PRINCIPLES OF STEWARDSHIP, ACCOUNTABILITY & AGENCY AUD390 2014PRINCIPAL(Absentee Owner)AUDITORAGENT(Manager)Information assymmetry & conflicts of interest lead to information risk for the principalPrincipal provides capital & hires agent to manage itAgent is accountable to principal; provides financial reportsAuditor gathers evidence to evaluate fairness of agents financial report. Auditor issues audit opinion to accompany agents financial reports. Adding credibility to the reports and reduce principals information riskAgent hires auditor to report on the fairness of agents financial reports. Agent pays auditor to reduce principals information risk

MALAYSIAN APPROVED STANDARDS AUDITING AUD390 2014A general guidelines to aid auditors in fulfilling their professional responsibilities in the audit of historical financial statements

Tutorial QuestionsAUD390 2014Development of Auditing. Distinction between Auditing & Accounting. Types of Audits and Auditors. Difference between External Auditor & Internal Auditor on appointment, responsibility, scope of works and objective. Common objectives to both External and Internal AuditorsTo be able to use work undertaken by internal audit, external auditor must be satisfied as the standard and reliability of the information. Explain the criteria that the external auditor should consider in deciding the use of internals auditor work.