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Audit Quality


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Audit Quality Framework in Malaysia

Published in: Business, Economy & Finance
  • Thank you, it is probably the first slide (as at 16/05/2008) that has mentioned IPSAS - International Public Sector Accounting Standards for financial reporting by public sectors. Would like to see more on this topic, as it relates to adoption by various sectors, not only to Audit.
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Audit Quality

  1. 1. Audit Quality Framework in Malaysia Nik Mohd Hasyudeen Yusoff President Malaysian Institute of Accountants
  2. 2. The Financial Reporting Chain Board of Directors Audit Committee Management Internal Auditors External Auditors Regulators Shareholders Other users
  3. 3. Roles of the Players The Players in the reporting chain General Role Board of Directors Set the tone for corporate governance Audit Committee (All independent) Oversee the implementation of internal control and financial reporting matters Management Implements good internal control and effective financial reporting Internal Auditors Provide reasonable assurance on internal control and risk management External Auditors Provide reasonable assurance on the financial statements Regulators Enforce the laws MIA and professional bodies Educate, set standards and enforce standards
  4. 4. Regulatory Requirements <ul><li>Financial Reporting Standards </li></ul><ul><li>Companies Act </li></ul><ul><li>Conditions on the Audit License </li></ul><ul><li>Capital Market and Services Act </li></ul><ul><li>Bursa Malaysia Listing Requirements </li></ul><ul><li>Banking and Financial Institution Act </li></ul>
  5. 5. Applicable Standards by MIA <ul><li>International Standards on Auditing </li></ul><ul><li>International Standards on Quality Control </li></ul><ul><li>International Education Standards 8 (Competency Requirements for Audit Professionals) </li></ul><ul><li>MIA By-Laws (On Professional Conduct and Ethics) </li></ul><ul><li>Financial Reporting Standards Implementation Committee (FRISIC) </li></ul><ul><li>Recommended Practice Guides </li></ul>
  6. 6. International Standards of Quality Control <ul><li>ISQC1 is the standard specific on Quality Control of audit of historical financial information </li></ul><ul><li>It establishes the basic principles and essential procedures and to provide guidance regarding a firm’s responsibilities for its system of quality control for audits and reviews of historical financial information, and for other assurance and related services engagements </li></ul>
  7. 7. Objectives of the System of Quality Control <ul><li>A firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued by the firm or engagement partners are appropriate in the circumstances </li></ul><ul><li>A system of quality control consists of policies designed to achieve the above objectives and the procedures necessary to implement and monitor compliance with those policies. </li></ul>
  8. 8. Elements of System of Quality Control <ul><ul><li>Leadership Responsibilities for Quality within the Firm </li></ul></ul><ul><ul><li>Ethical requirements </li></ul></ul><ul><ul><li>Acceptance of Continuance of Clients Relationships and Specific Engagement </li></ul></ul><ul><ul><li>Human Resources </li></ul></ul><ul><ul><li>Engagement Performance </li></ul></ul><ul><ul><li>Monitoring </li></ul></ul><ul><ul><li>Documentation </li></ul></ul>
  9. 9. Key Players in Quality Control in a Firm <ul><li>Engagement partner </li></ul><ul><li>Engagement Quality Control Reviewer </li></ul><ul><li>Quality Control partner </li></ul><ul><li>Engagement partner and Engagement Quality Control Reviewer are rotated out after 5 years for public interest entities engagement and have to sit out for 2 years </li></ul><ul><li>For public interest entities audits, a firm must have a minimum of 5 partners </li></ul>
  10. 10. Competency Requirements for Audit Professionals <ul><li>Auditing is a structured process that: </li></ul><ul><ul><li>involves the application of analytical skills, professional judgment and professional skepticism; </li></ul></ul><ul><ul><li>is usually performed by a team of professionals, directed with managerial skills; </li></ul></ul><ul><ul><li>uses appropriate forms of technology and adheres to a methodology; </li></ul></ul><ul><ul><li>complies with all relevant technical standards, such as International Standards on Auditing (ISAs), International Standards on Quality Control (ISQCs), International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS), and any applicable international, national or local equivalents; and </li></ul></ul><ul><ul><li>complies with required standards of professional ethics. </li></ul></ul>
  11. 11. Competency Requirements for Audit Professionals <ul><li>Knowledge content </li></ul><ul><li>Professional skills </li></ul><ul><li>Professional Values, Ethics and Attitude </li></ul><ul><li>Practical experience </li></ul><ul><li>Continuing Professional Education </li></ul><ul><li>Its about DEMONSTRATING ALL of the ABOVE </li></ul>
  13. 13. Auditors’ Independence rules Framework of Principles: Identify Threats Evaluate Threats Apply Safeguards Decide on Engagements Self-Review Self-Interest Advocacy Familiarity Intimidation Significant? Assurance team, firm, network firm? Profession or legislation Assurance client Firm’s Internal procedures Eliminate the threats or withdraw from engagement
  14. 14. Auditors’ Independence rules Audit Client Client Non-audit Assurance client Type of Assurance Engagement Assurance team, firm and network firm Non-audit, not restricted use Assurance team and firm Non-audit, restricted use Assurance team and firm has no material financial interest Independence requirement:
  15. 15. Issues <ul><li>Can Audit Quality maintained for audit of all companies? Audit threshold in certain countries </li></ul><ul><li>What is the minimum size of an audit firm that would be able to generate required quality? </li></ul><ul><li>Audit Oversight Board for public interest entities audit </li></ul><ul><li>Is Audit still RELEVENT in the way it is done? </li></ul>
  16. 16. Q&A and Thank You