Professional Documents
Culture Documents
STUDENT ID : 2013479474
GROUP
: AC220 8A9
INTRODUCTION
establishes High Level Task Force that met 6 times to deliberate on appropriate
audit oversight framework for Malaysia and on December 2009 Securities
Commission (Amendment) Bill 2009 which contains the establishment and functions
of the AOB passed in both Houses of Parliament. Finally on 1 April 2010 the Part IIIA
Securities Commission (Amendment) Act 2010 came into force.
Among others the Functions of the Securities Commissions relating to audit
oversight under Section 31B SCA is:
To promote and develop and effective and robust audit oversight framework
in Malaysia
To promote confidence in the quality and reliability of audited financial
statements in Malaysia
To regulate auditors of public interest entities
In the era of post-Enron, the auditing profession has been closely monitored
by the regulators as part of the external mechanisms of corporate governance of
the firms. All over the world, auditors are bounded with the movement from the
International Federation of Accountants (IFAC) to improve the quality of audit
services provided to the clients. The assessment on audit quality has been extended
to cover both the audit firm level and audit engagement level. The International
Standards on Quality Control 1 (ISQC 1) deals with the firm wide quality control. It
contains requirements in line with the professional standards and regulatory and
legal requirements that must be complied with by audit firms and its personnel in
order to provide a reasonable assurance that audit services performed by the firm
or engagement partners and the reports issued are appropriate in the
circumstances. On the other hand, International Standards on Quality Control for
Audits of Historical Financial Information (ISA 220) sets out the quality control
standards that are applicable to the individual audit engagement level. Figure 1
summarizes the elements for both the ISQC 1 and ISA 220.
Despite having these standards in place, audit firms sometime failed to see
the association between the audit quality and the benefits to be derived from the
application of the standards which may come in the form of improved reputation
and market share and reduction in audit liability. A study by Esch, Negash, Firer,
Oosthuizen, Abdool-Samad, Padia, Patron & Sanders (2005) in South Africa show
some concerns in the implementation of the standards. Some of the issues
identified in the study include the increase in compliance costs, lack of guidance,
attitude of audit partners, evaluation of quality control reviews, consultation and
documentation, scope of the standards and diversity and structure of audit market
(Esch 2005). Similarly, in Malaysia, evidence showed that the implementation of
ISQC 1 among the small and medium audit firms is v very limited (Omar & Johari
2007). Small and medium audit firms tend to operate based on non-standard
operating procedures, which essentially do not reflect the total compliance with
ISQC 1.
Previous studies support the notion that the existence of standards (i.e., ISQC
1 and ISA 220) alone are not sufficient to maintain and improve audit quality (Esch
et al. 2005; Omar & Johari 2007). The various accounting scandals that dragged
auditors into the picture have given a signal on the need for another mechanism
that can provide the enforcement of the standards. Oversights by the external and
independent party in the structure shall be able to provide a more stringent
enforcement that is being perceived as more fair and justified.
The establishment of AOB marked a very important milestone in the
development of audit oversight framework in this country. AOB is expected to regain
the public confidence on the auditors work in providing opinion on a true and fair
view of financial reporting as well as to monitor the auditors work and their ethical
behavior (Yin 2010). AOB is led by a powerful team comprising of one executive
chairman and six non-executive members representing a mix of different sectors
including regulators, accounting profession, legal fraternities and investment
communities. Three main objectives of AOB are promoting and developing effective
and robust audit oversight framework, strengthening the investors confidence on
the reliability and quality of audited financial statements, and providing regulation
of work to the Public Interest Entities (PIE) auditors.
AOB has adopted a strategic framework which links the service areas and
activities of AOB to the desired outcome which manifest the attainment of its
mission. As shown in Figure 3, the strategic framework has four strategic themes
that connect the outcomes and the service areas. The four strategic themes are
support adoption and implementation of standards, promotion of high quality audit
practices, influences on the financial reporting ecosystem and leverage on
stakeholders support. These strategic themes correlate with the main thrust of
enhancing quality of the audited financial statements.
Section 31E (1)(d) of the Securities Commission Act, 1993 (SCA) provides
that one of the key responsibilities of the AOB is to conduct inspections and
monitoring programs on auditors to assess the degree of compliance with auditing
and ethical standards. In discharging the above responsibilities, the AOB may
inspect an audit firm of PIEs under a regular inspection program or a special
inspection program. Under either program, an AOB inspection may be carried out at
the firm level or engagement level or both. A firm review focuses on the review of
an audit firms quality control systems and practices and the degree of compliance
with the requirements of the International Standards of Quality Control 1 (ISQC 1).
An engagement review aims to assess the degree of compliance with auditing and
ethical standards of an audit engagement conducted by an auditor. The AOB adopts
a risk based approach and conducts regular inspections annually on audit firms
which have more than 10 partners and audit more than 40 PIEs (collectively referred
to as the Major Audit Firms). On the other hand, regular inspections on mid-tier
audit firms and sole proprietors (the Other Audit Firms) are completed within a predetermined inspection cycle.
The principle of proportionality, efficiency and achieving the desired outcome
continue to be essential to the strategic enforcement approach adopted by AOB. In
determining the type of sanction that is imposed on any contravention or breach,
AOB takes into account the nature and seriousness of the offences, previous
regulatory record and other aggravating and mitigating factors. Among the matters
considered by AOB is the impact of the contravention on the integrity of the
profession, the capital market as a whole and the impact of the breach on the
confidence and reliability of audited financial statements of the PIE in question. The
focus of AOB enforcement is whether the auditors comply with the recognized
auditing and ethical standards. Such action from the AOB may not necessary imply
the audited financial statement does not give a true and fair view.
The other functions of AOB is Inquiry. Audit inspections would be conducted
at the firm level and the engagement level. At the firm level, compliance with ISQC1
will be reviewed such as leadership and responsibilities within firm, ethical
requirements, acceptance and continuance of audit clients, human resources and
engagement performance monitoring. The inquiry conducted when there is reason
to believe that the provisions of the Act, written notice or guidelines are breached
AOB inquiry officers will be conducting AOB inquiries. Inquiry officers will be
appointed and will have necessary powers to conduct their duties.
In standard setting, the main objectives is to ensure that auditors comply
with established auditing standards in their statutory audits is a critical aspect in
maintaining reliability of the companys audited financial statement. Compliance
with established auditing and ethical standards benchmark against international
best practices is an integral aspect in ensuring audit quality. The AOB expects the
accountancy profession to adopt all IFAC standards. The power to direct MIA to
establish, amend, modify or alter its prescribed standards will only be exercised if
there is a gap in the scope and timing of the adoption
CONCLUSIONS
REFERENCES
http://www.sc.com.my/general_section/audit-oversight-board/
https://en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board
http://pcaobus.org/Pages/default.aspx
http://www.mia.org.my/new/downloads/professional/audit/knowledge/2010/04/08/Pr
esentation_slides_by_the_AOB_Executive_Chairman.pdf
http://www.irssh.com/yahoo_site_admin/assets/docs/14_IRSSH-656V6N1.329192438.pdf