Practitoner S Session 1 The Audit Oversight Board
Practitoner S Session 1 The Audit Oversight Board
Practitoner S Session 1 The Audit Oversight Board
The Securities Commission Malaysia has been given the power by Parliament to undertake these functions:
Promote and develop an effective and robust audit oversight framework in Malaysia: Promote confidence in the quality and reliability of audited financial statements in Malaysia: and Regulate auditors of Public Interest Entities (PIE) The AOB was established to assist SC in discharging the above functions
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Public Interest Entities (PIE) with the scope of the AOB consist of:
Public listed companies Licensed banking and financial institutions Licensed insurance companies Licensed Islamic banks Registered Takaful operators Development financial institutions Holders of Capital Market Services License carrying activities of dealing in securities, trading in futures contracts or fund management
AOB became operational on 1 April 2010 The Board consists of: An executive chairman 6 non-executive members To maintain independence of the AOB, not more than 2 non-executive members of Board are members of MIA AOB charges registration fees (RM 5,000 per auditor) but significant amount of funding is provided by the SC
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Nik Mohd Hasyudeen Yusoff, Executive Chairman Dato Gumuri Hussain, Chairman of SME Bank Datuk Nor Shamsiah Mohd Yunus, Deputy Governor of the Central Bank of Malaysia, Goh Ching Yin, Executive Director of the Securities Commission Malaysia En. Naim Daruwish, Chief Executive Officer of the Companies Commission Malaysia Cheong Kee Fong, Advocate and Solicitor of Cheong Kee Fong & Co Chok Kwee Bee, Managing Director of Teak Capital Sdn Bhd
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Companies Commission
Ministry of Finance
Financial statements
External auditors
Bursa Malaysia
Foste ring high qua lity independe nt auditing to promote c onfide nce in the quality and re lia bility of audited fina ncia l stateme nts of public interest e ntitie s in Malaysia Stra tegic The mes Support adoption a nd impleme nta tion of sta nda rds Ensure no significant gaps with international standards Promote substance over form implementation Monitor the effectiveness of the implementation of standards by audit firms Promote high quality a udit practice s Enforce registration policy that promotes quality and capacity Drive quality audit practices through inspection and remediation of audit firms Set tone for quality through enforcement actions
Outcomes
Se rvices Are as
Registration
Influence fina ncial reporting e cosystem Collaborate with stakeholders in financial reporting ecosystem Promote research and discourse on audit quality
Levera ge on stakeholders support Coordinate activities with other authorities in Malaysia and abroad Participate in international activities to gain knowledge and experience and promote confidence in Malaysian audit quality Obtain higher financial support from stakeholders
Enforcement of standards
Standard setting
Registration
Ensure auditing and ethical standards are in line with global best practices Support the implementation of standards
Ensure audit firms and auditors auditing public interest entities are fit and proper Registration policy encourages capacity building of audit firms As at 31 December 2011, 75 audit firms individual and 298 auditors are registered with the AOB
Assess the level of compliance of audit firms and auditors with auditing and ethical standards Issue inspection reports to audit firms and auditors Monitor how remediation plans of audit firms are implemented
Conduct inquiry when there is reason to believe that provisions of the Act, written notice or guidelines are breached, including noncompliance with auditing and ethical standards Impose sanctions proportionate to failures or breaches
Cooperate with authorities in Malaysia and internationally in enhancing audit quality Collaborate with other stakeholders in enhancing quality of financial reporting in Malaysia
Standard setting
Compliance with auditing (including ISQC1) and ethical standards is an integral aspect in maintaining audit quality As Malaysian Institute of Accountants (MIA) is responsible to set or adopt standards applicable to auditors in Malaysia AOB has the power to direct MIA to establish, amend, modify or alter its prescribed standards, if needed
Currently auditing and ethical standards in Malaysia are on par with standards issued by IAASB and IESBA
Registration
Executed Through Auditor Registration Application System ARAS
Form 1 (Individual auditor) and Form 2 (Audit Firm) Registration Fees (RM5000 per individual auditor)
Vetting Process SC adverse record system MIA adverse record Police check MACC check
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Registration
Fit and proper criteria per s.31P SCA Licensed auditor under s.8 CA 1965 Not convicted of any offence involving fraud or dishonesty Engaged in any practices which reflect discredit on ability to meet professional auditing standards Undischarged bankrupt Subject to sanction under s.31Z
Securities Commission, Malaysia
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Registration
As at 31 December 2011
75 audit firms and 298 individual auditors are registered with AOB
Profile / Partnership Structure Sole Proprietors 2 4 partners 5 10 partners > 10 partners TOTAL No of Audit Firms No of Individual Auditors
13 48 8 6 75
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AOBs progress
Milestones
Established 1 April 2010 Registered Firms and Auditors as at 30 September 2011 * 76 audit firms and 305 individual auditors Standard setting and implementation of standards Comments on Exposure Drafts Observer in MIA Auditing and Assurance Standards Board AASB Working Groups Inspection activities 23 regular inspections and one special inspection to-date Monitoring of the firms remediation plans
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AOBs progress
Milestones (cont.)
Communication and collaborations Member of International Forum of Independent Audit Regulators IFIAR Observer in Standards Coordination Working Group for IFIAR Project manager for World Bank Accounting and Auditing Reports on the Observance of Standards and Codes (ROSC) Joint AOB-MIA forums PCAOB Conference in Washington DC, US IFIAR Inspection Workshop in Washington DC, US ASEAN regulators meeting, common training and cooperation
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AOBs progress
Milestones (cont.)
Engaging the stakeholders - AOB Executive Chairman Participation in various local events relating to financial reporting and audit quality Panelist on the role of audit and trends in auditing at Hong Kong ICPA Singapore 2011 Public Accountants Conference on Malaysias Experience in Setting up and Independent Oversight Function ASEAN Regulators Meeting Bangkok, Thailand
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Inspection process
Ethical requirements Client acceptance and continuance Human resource Engagement performance Monitoring
Risk assessment and response Audit evidence Documentation Compliance with regulation Communication
Inspection process
Selection of Firm
Firm level
Firms response
Selection of engagements
Engagement level *
Validation of Matters Arising
Notification of inspection
Securities Commission, Malaysia
Remediation plan
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Inspection process
Significant Deficiencies
M ay impact the basis of audit opinion e.g. sufficiency and appropriateness of evidence or the appropriateness of judgment areas Pervasive issue where the impact cannot be easily quantified
Deficiencies
Other than significant deficiencies, if viewed collectively may impact the basis of audit opinion
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Inspection process
Compliance in substance
Engagement files and relevant documents Interview key engagement team members
Documentati on
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Inspection Report
Inquiry
Right to be heard & Appeal to SC
Proportionate Sanction *
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Remediation framework
Firm Structure, Policy and Procedures Audit Methodology* Training* Human Resources Effectiveness of EQCR role Communication Monitoring Quality* Engagement Review Deficiencies # Performance Measures for Remediation (focus on outcome)
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Inspection observation
Inspection Scope
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32 48
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Inspection observation
In sp e c t i o n A c t i vi t i e s b y S e c t o r
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Final Inspection Report Contravention of any provisions of Part IIIA of the SCA or breached or failed to comply with any condition of registration or any written notice/guidelines issued by the SC.
Notification of Inquiry
Show cause letter Where basis for action is established, an opportunity to be heard would be given to the firm or auditor in concern to respond and justify why action should not be taken on the firm or the auditor
Proportionate Sanctions List of sanctions provided under S31Z Meted out based on severity of the deficiencies Requires AOB Boards approval Right to appeal to SC within 30 days
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Direct the person to comply with conditions imposed Reprimand Require the person to take steps to remedy the breach Require the person to undertake relevant CPE Assign a reviewer to oversee audit undertaken Prohibition from accepting the audit of PIE for a period not exceeding 12 months Prohibition from auditing PIE for a period not exceeding 12 months or permanently Penalty not exceeding RM 500,000
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Audit Quality
Audit Evidence
General Factors Audit Opinion Based on Sufficient Human Specific Factors Resource and Appropriate Audit Evidence Engagement Partners
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