Auditing Profession – Global Development And Key Issues

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A snapshot of development in auditing in Malaysia and globally

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Auditing Profession – Global Development And Key Issues

  1. 1. Auditing Profession – Development and Key Issues Nik Mohd Hasyudeen Yusoff President Malaysian Institute of Accountants
  2. 2. Agenda <ul><li>The auditing profession in Malaysia </li></ul><ul><li>Global development </li></ul><ul><li>Audit quality review </li></ul><ul><li>Moving forward issues </li></ul>
  3. 3. The auditing profession in Malaysia <ul><li>As at 30 June 2008: </li></ul><ul><ul><li>2,436 accountants holding public practice certificate </li></ul></ul><ul><ul><li>1,348 firms are registered as audit firms </li></ul></ul><ul><ul><li>650 firms provide other accountancy services </li></ul></ul><ul><li>License to audit companies incorporated under the Companies Act, 1965, is issued by the Ministry of Finance to: </li></ul><ul><ul><li>Members of MIA holding public practice certificate </li></ul></ul><ul><ul><li>Have no less than 3 years working experience in auditing </li></ul></ul><ul><ul><li>Demonstrate capabilities during an interview process </li></ul></ul>
  4. 4. The auditing profession in Malaysia <ul><li>Important elements in determining the performance and quality of audit services include: </li></ul><ul><ul><li>The auditors </li></ul></ul><ul><ul><li>The firms </li></ul></ul><ul><ul><li>The legislative framework </li></ul></ul><ul><ul><li>Standards relating to auditing </li></ul></ul><ul><ul><li>The oversight of the quality of audit </li></ul></ul>
  5. 5. The auditing profession in Malaysia <ul><li>The auditors should: </li></ul><ul><ul><li>Uphold professional values and standards </li></ul></ul><ul><ul><ul><li>Integrity, Objectivity, Due Care, Independent </li></ul></ul></ul><ul><ul><li>Possess updated knowledge regarding auditing </li></ul></ul><ul><ul><ul><li>Auditing standards </li></ul></ul></ul><ul><ul><ul><li>Accounting standards </li></ul></ul></ul><ul><ul><ul><li>Industry knowledge and experience </li></ul></ul></ul><ul><ul><ul><li>Legislative framework </li></ul></ul></ul><ul><ul><li>Have the necessary skills which need to be applied in performing the audit </li></ul></ul><ul><ul><ul><li>Global business environment </li></ul></ul></ul><ul><ul><ul><li>Web based business environment </li></ul></ul></ul><ul><ul><ul><li>Skills to apply principle-based standards </li></ul></ul></ul>
  6. 6. The auditing profession in Malaysia <ul><li>The firms should: </li></ul><ul><ul><li>Put in place framework, processes and procedures to comply with auditing and quality control standards as well as the applicable legislative framework </li></ul></ul><ul><ul><li>Uphold professional values and standards </li></ul></ul><ul><ul><li>Have the capacity to accept audit engagements before doing so </li></ul></ul>
  7. 7. The auditing profession in Malaysia <ul><li>The legislative framework in Malaysia includes, among others, the followings: </li></ul><ul><ul><li>Financial Reporting Standards </li></ul></ul><ul><ul><li>Companies Act </li></ul></ul><ul><ul><li>Conditions on the Audit License </li></ul></ul><ul><ul><li>Accountants Act </li></ul></ul><ul><ul><li>Capital Market and Services Act </li></ul></ul><ul><ul><li>Bursa Malaysia Listing Requirements </li></ul></ul><ul><ul><li>Banking and Financial Institution Act </li></ul></ul>
  8. 8. The auditing profession in Malaysia <ul><li>The standards relating to auditing are: </li></ul><ul><ul><li>MIA By-Laws, particularly on auditors independence </li></ul></ul><ul><ul><li>International Standards on Auditing adopted in Malaysia </li></ul></ul><ul><ul><li>International Standards on Quality Control </li></ul></ul><ul><ul><li>Practice guides issued by MIA </li></ul></ul>
  9. 9. Global development <ul><li>Issues regarding audit quality has been the focus for a long time </li></ul><ul><li>International Auditing and Assurance Standards Board (IAASB) is the body that sets auditing standards for global adoption ( www.ifac.org/iaasb ) </li></ul><ul><li>Oversee by the Public Interest Oversight Board (POIB) </li></ul><ul><li>Convergence of auditing standards is part of the IFAC agenda </li></ul>
  10. 10. Global development <ul><li>IFAC is in support of a single auditing standard globally and a separate standard for SME is not foreseeable </li></ul><ul><li>Guidance on how ISAs to be applied in the context of SME was recently issued </li></ul><ul><li>The focus of IAASB 2009-2011 strategy would be: </li></ul><ul><ul><li>Development of standards </li></ul></ul><ul><ul><li>Monitoring and facilitating adoption of the standards </li></ul></ul><ul><ul><li>Responding to concerns about the implementation of the standards </li></ul></ul><ul><li>The planned activities of IAASB would be directed towards the effective operation of the world capital markets and the needs of SMEs and SMPs </li></ul>
  11. 11. Global development <ul><li>Proposed revision of standards on Review Engagements to provide alternative in jurisdiction where audit for small companies are not mandatory </li></ul><ul><li>A response towards the call for a separate auditing standards for SMEs by SMPs </li></ul><ul><li>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 </li></ul>
  12. 12. Global development <ul><li>International Forum of Independent Audit Regulators (IFIAR – www.ifiar.org ) serves the protection of public interest through enhancement of audit quality </li></ul><ul><li>Share knowledge of audit market environment and practical experience of independent audit regulatory activity </li></ul><ul><li>Provide the contact point for other international bodies which have interest on audit quality </li></ul><ul><li>It is now a global expectation that auditors of public interest entities are regulated by a body which is independent from the accounting profession </li></ul>
  13. 13. Audit quality review <ul><li>Practice review in Malaysia is conducted by MIA through its Practice Review Department </li></ul><ul><li>The reviewers are the staff of MIA, not a peer review approach </li></ul><ul><li>It is part of MIA’s commitment towards the protection of public interest through the assurance of audit quality </li></ul><ul><li>MIA Practice Review Committee’s Term of Reference: </li></ul><ul><ul><li>To oversee the implementation of the Practice Review Programme. </li></ul></ul><ul><ul><li>To consider and approve the review reports as presented by the management centre (Practice Review Department). </li></ul></ul><ul><ul><li>To provide guidance to the management centre and address any concern which may arise in relation to the implementation of the Practice Review Programme </li></ul></ul>
  14. 14. Audit quality review <ul><li>The practice review process includes: </li></ul><ul><ul><li>Firms would be randomly for practice review </li></ul></ul><ul><ul><li>The selected firms to perform a self-assessment on their compliance with the relevant standards and legislative framework </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>The findings of the practice review would be agreed upon between the practice review team and the partners of the firm </li></ul></ul><ul><ul><li>A report would be table at the Practice Review Committee for decision and action </li></ul></ul><ul><ul><li>Opportunity would normally be given for firms to improve their audit quality before disciplinary actions are taken </li></ul></ul>
  15. 15. Audit quality review <ul><li>Among the recent development in Malaysia with respect to review of audit quality are: </li></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  16. 16. Moving forward issues <ul><li>The expectation on the quality of audit would remain high in view of the interest of the investors on the audited financial statement </li></ul><ul><li>Audit quality goes beyond the competency of individual auditor but depends on the capacity and professional values adopted by the auditing firms </li></ul><ul><li>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 </li></ul><ul><li>External agencies outside the accounting profession would be more involved in the audit quality issues </li></ul>

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