Audit firms are urged to strengthen their capacity building and improve their quality controls to demonstrate the importance of value of audits and its relevance to ensuring good governance of companies, says Securities Commission Malaysia (SC).
SC’s audit oversight board (AOB) in its 2016 annual report highlighted that promoting reliability of audited financial statements, high quality audit practices and addressing inspection findings of audit firms in Malaysia remain a key focus for the regulator.
AOB executive chairman Gumuri Hussain said the AOB is committed to maintaining its focus and positive momentum on key areas and game-changers such as the new and revised auditor standards (standards) as a means to drive greater transparency in auditors’ reports as well as financial reporting.
He said the standards will require auditors to disclose key audit matters in their reports, leading to a more informative and tailored reporting specific to the clients’ circumstances instead of the present reporting approach consisting of standard templates or boilerplate reports.
Gumuri said the AOB has organised engagements with the auditors and stakeholders prior to the adoption of these standards.
He said these include briefings by the UK Financial Reporting Council and International Auditing and Assurance Standards Board experts on insights and practical experience in implementation challenges in the adoption of these standards in Malaysia.
SC will closely monitor the auditors’ compliance in implementing the new and revised auditor reporting standards through AOB’s inspection programme to identify instances of non-compliance and trends.
Since 2015, the AOB has been gathering data encompassing revenue mix, human resources, training, client portfolio allocation and internal monitoring activities from the top 10 audit firms to benchmark their performance.
In 2017, the AOB will perform deeper analysis of the data gathered over the last few years to establish key trends for audit quality.
Gumuri said this analysis aims to identify the areas of improvement and drive efforts for capacity building and this initiative is consistent with SC’s goal of achieving effective regulation through active monitoring and engagements with audit firms.
The SC said that inspection and enforcement will continue to remain AOB’s core function and this is of utmost priority in order to protect investors and other stakeholders and to set the tone for high quality audits.
In 2016, the AOB inspected five major audit firms and seven other audit firms which collectively audited public-listed companies making up 96% of the market capitalisation of Bursa.
SC noted incremental improvements with the number of recurring findings reduced from previous inspection.
Out of nine firms re-inspected in 2016, two firms recorded no recurring findings while improvements were noted for the other six firms.
However, certain deficiencies in the work of auditors in relation to revenue recognition, inventory, group audits and related-party transactions, remained a concern and AOB will continue to engage with the audit firms to understand the root causes of such deficiencies and monitor the remediation efforts taken by the firms on a timely basis.