Audit transcript :

Interviewer : Yew Xin Yi

Interviewee : Lee Soo Eng ( Audit Partner of Mazaars)

1. What are MIA By-Laws (Professional Conduct & Ethics) to your accountancy
profession?

By-Laws is actually a professional standard that govern, conduct of accountants in public

practice. Of course, the By-Law govern the accountants in more public practice, for example
will be in commercial. So, that’s why there are accountants working in commercial as well as
in public practice. Public service which means in professional service, auditor, tax agent and
so on. This is in general what we called public practice. So, that’s why this is a code of conduct
that govern all the accountants in both commercial as well in public practice. That’s why when
we talk about code of conduct or ethics, basically is govern what we can do. I mean in a
summary form, this By-Laws will tell you what you can do and what you not supposed to do.
So, that’s why it is code of conduct in relation to our ethics. Because, in short, ethics also tell
you, this is ethical, you can do, this is not ethical, you cannot do. So, that’s what By-Laws mean
to auditor or accountant in public practice.

2. To what extent do you think MIA By-Laws influence your ethical judgement and
behaviour when conducting your work?

As an accountant, the word accountant from MIA perspective or law perspective, in

Malaysia, legally you cannot call yourself accountant unless you are a qualified
individual registered with MIA. So, that’s why of course if you called yourself an
accountant, that means that you are registered member of MIA. When you registered
member of MIA, it means that you must comply with the rules and regulation of MIA.
Of course, one of the so called rules and regulation, standard of MIA will be MIA By-
Laws. So, that’s why you have no choice to do whatever you do or whatever you not
supposed to do will depends on what the By-Laws telling you, that’s why. Let say I am
an auditor, so you as an auditor have to make sure that’s no conflict of interest with your
client. Let’s say ABC Sdn Bhd. I am an auditor, then I cannot provide bookkeeping
service to ABC Sdn Bhd, bookkeeping means preparing ledger. So, if I prepared the
ledger and I act as an auditor, that means like I audit my own works. So, there’s a conflict
of interest. So, that’s why to an auditor, this By-Laws is very very important, they tell
you as what kind service you can provide, what kind of service you cannot provide, even
though the client want to pay you a lot of money to do audit and bookkeeping at the same
time but in order to comply with By-Laws, we have to say no. We can either do A or B
not A and B. This is just an example, because By-Laws have lots of other area telling
you what you should do, what you shouldn’t do. So, that’s why when you said how the
By-Laws affect the work of accountant or auditor is actually affect significantly.
3. Can you please share with me the ethical behaviours that are implemented in your
organization (please give some examples)?

So, when you say ethical behaviour, this is a very large topic also. So, for example the key
principal, so called ethical principal By-Laws, will be said confidentiality. Confidentiality means
that you need to keep the client’s information privately and confidentially when you provide
the service. Just for your understanding, for example, if I act as a tax agent, I provide tax
service to you. Let say you are a millionaire, you make a lot of money, you want to submit tax
return. You come to me and I say I help you to prepare tax computation, help you to submit
your annual tax return. So, definitely you don’t want me to tell your friends, tell the strangers
how much your income is a year. As a tax agent or as an accountant, one of the principles in
BY-Laws is, ethical principal in the By-Laws is the: I, as a tax agent, I cannot disclose my client
information to anybody. That’s one of the examples. There are many other ethical principles,
so one of the principles is confidential. There is other thing for example like due care,
competency and so on. So, are we saying that we just need to apply some of this? The answer
is you need to apply all.

4. Although accountancy profession owed with the professional code of conduct and ethics,
there are several cases that breach of By-Laws (eg. Enron, 1MBD). What is your opinion
about it?

To study a case whether they breached the By-Laws or not actually, you need to have more
information. Take your example, whether the accountant in 1MBD case breached the By-Laws
or not, may or may not. From my perspective, I don’t have enough information to judge
whether they breach or not because there are many laws and regulation in Malaysia whether
you breached the confidentiality, whether you breached the due care and competency. So,
it’s not something that straight forward. For example, from the law perspective, you robbed
the bank is definitely criminal. It is very clear cut, black and white. When you come to By-Laws,
there are many situations whether you breach the By-Laws or not is very judgemental. It is
not really 100% clear cut, not really black and white. Just give you an example, so let said I am
an auditor in a listed company. If you an auditor in the listed company, one of the
requirements of By-Laws said you cannot own the share. Let say ABC Berhad is the listed
company, so I cannot own the shares in ABC Berhad, I cannot buy, sell or trade the share in
ABC Berhad. Why? Very simple, conflict of interest. The next question is if the partner cannot
own share in the listed audit clients’ company. In the firm, you have many partners, if I am
the assigning partner of this ABC Berhad, can another partner in the firm, who never involved
of this audit buy shares? So, this is the question. Another example, there are so many auditors,
junior, senior and managers. So if a junior in this firm, let say who never involved in the audit
of ABC Berhad, can he buy share in ABC Berhad? Or can his father, sibling, or auntie uncle buy
shares in ABC Berhad? So there is so many scenario that you need to analysis individually
whether breach By-Laws or not. It is not very clear cut as when you read the By-Laws, it is a
principal based standard, tell you if you own any interest in your audit client, there will create
conflict of interest but you can create some so called try avoid to mitigate the problem. So,
that’s why another partner to buy shares in this company is not allowed. If for another junior
who did not work in this company, have very minimum shares, may be. Because junior is not
a decision maker, while partner is a decision maker. We have just one principal but this
principal when apply to different scenario, you may get slightly different conclusion. That’s
why overall, I want to tell you it is not black and white like you robbed the bank is definitely
wrong. When you apply the By-Laws you may not always get that kind of clear answer. You
probably fall between in the grey area, you need to apply judgement.

5. What do you think the impact of breaching MIA By-Laws by the accountancy
profession?

You can look at the impact from a few perspectives, the impact to the individual who
breahed, of course is direct. Let say you are a MIA member, you breached the By-Laws,
MIA said, you are not ethical accountant, I will deregistered you, you will no longer a
MIA member. Then, when you look at a larger perspective, look at the profession, if
there is many accountants and auditors who breached the By-Laws then the outcome will
be the public will lost confidence with the accounting or audit profession. All the auditor
and accountant are not ethical so whatever report issued by accountant become not
reliable, will cause problem to the profession. When people no longer trust the profession
or professional of auditor, then what happen to the market? When you look at the third
perspective, the larger perspective, you look at the country, the capital. The investors in
the capital market rely on the audited financial statement to make investment decision.
So if the audit report issued by auditor is no longer reliable or cannot be trust, or perceived
that no longer can be trusted, then end up with not sufficient reliable information to
analysis the performance of the company, it will create problem to the capital market. If
you go one step further, go to country perspective, global perspective, if the capital
market in Malaysia is not looking well, is not healthy, for example put a lot of fake
figures, then it will affect the country’s economic as the capital market of Malaysia is not
working properly, we will lose all the investment. That’s why step by step from the
individual to the country, every single stage will have very severe impact. This is the
foundation for the economic system and whole profession to work healthy. If you go
back to the history, you will noticed that a lot of accounting scandal, all these scandal
will cause lost of confidence in the audit profession, then it will cause problem to the
economic system.

How can these things be eliminated?

At the end of the day, when you look at the outsider perspective, basically you are saying
that you have a set of law, then these law try to govern a group of people, so how effective
the law able to govern the people, everybody, every country have their own law, but why
in certain country there are so many criminal cases, why we have larger and larger prison
in certain country because the law not able to perform effectively. That is exactly same
when come to the profession. We have the standard so is the standard good enough? Do
you have sufficient enforcement? You said we have very tight enforcement? But still a
lot of cases happened. So it actually go back to individual also. If you look at the theory,
theoretical perspective, you said we should educate the auditor so that they will become
ethical, but that’s many other factors affect the individual to become ethic or not. To me,
in order to ensure high level of compliance, you can minimise it but I don’t believe you
can eliminate it. Make sure your By-Laws is always up to date, make sure there’s a
regulator body who enforce it. All these three angle come together, it might minimise the
 level of non-compliance but if you study the triangle of fraud, you will notice that one of
the reason that cause fraud is actually incentive. If there are lots of especially monetary
incentive to the auditor or accountant, no matter how good the system is, they will still
try to breach it because of the economic condition.

6. Any advice for accountancy students about professional conduct and ethics that you want
me to learn/know?

To learn? The problem is that if I ask you have you read the By-Laws, you probably tell me yes.
Do you know what is the core ethical principal, probably you will say yes also, but the problem
is the application will be very tough. That’s why you need to understand but not to memorise
this one can do, this one cannot do, this is not a rules tell you you can or you cannot. By-Laws
actually is a principal base, they are not able to cover everything under the sun, so the
important things are when you learn it, you need to know the principal behind it. If I tell you
just now why I cannot hold shares in the company that I audit, you need to know the principal,
if you know the principal, you no need to memorise the wording. What you need to
understand is the principal. The example I talk to you just one sentence one principal but you
need to apply to so many vary situation. Is a matter of whether you are able to apply to
different situation correctly or not. Again, I think don’t think I should not use the word correct,
cause there’s no right or wrong here also. It’s a matter of judgement. The understanding of
the principal will be very important. Of course, in the college or university environment, it will
be very difficult. The more case study that you able to read, it will help you to understand
how to apply for it.