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AUD 610

TOPIC 1
Statutory and Professional
Responsibilities
and MIA By-Law (on Professional
Conduct and Ethics)

PART 2
MIA By-Law
(Professional
Conduct and
Ethics)

PART 1
Companies Act
1965
- Sec. 8, 9, 172 and
174

TOPICS
TO
DISCUSS
:

PART 1
Statutory and Professional
Responsibilities
Sec. 172
Appointme
nt, Removal
and
Resignation
Sec. 8 and
9
Qualificatio
n

Sec. 174
Duties and
Responsibil
ities

Compani
es Act
1965

Sec. 172
(16)
Remunerati
on

Companies Act 1965


Sec. 8 - Qualification

Sec. 8
- Requires a company to appoint an approved company
auditor
Definitio
n
Qualified person approved by the
MOF to act as auditor, is of good
character and competent to
perform the duties of an auditor
under the Companies Act
- Must have a professional accountancy qualification with
adequate practical training before be recognised as MIA
member (CA)
- A partnership firm may be appointed as approved
company auditor in the firms name. The firm must register
with CCM before being appointed as auditor of a company
- An audit firms are generally in the forms of sole-prop or
partnership

(b) He is indebted
to company, its
holding or
subsidiaries
company in an
(c) If he is:
SEC. 9 (QUALIFICATION)
amount exceeding
- an officer of
the9(1) A person shall
Sec.
not
RM2,500
(a) He is not an
approved company
auditor

company
be appointed as auditor of
if :or
- a partner, employercompany
employee of an officer of
the company
- a partner or employee
of an employee of an
officer of the company
- a shareholder or his
spouse is a shareholder
of a corporation whose
employee is an officer
company

(d) He is responsible for


or if he is the partner,
employer or employee of
a person responsible for
the keeping of the
register of members or
the register of holders of
debentures of the
company (company
secretary)

SEC. 9 (QUALIFICATION)(CONT)
Sec. 9(2)

If an officer has resigned from a


company, he can only be the auditor
of the company after 12 months of
his resignation. If less than 12
months, he is not eligible to be
appointed as an auditor of the
company.

Sec. 172 Appointment


(1) Power of directors to appoint auditor
before 1st general meeting, if not,
members are entitled to do it in general
meeting.
(2) Company shall appoint auditor at each
AGM. Term of office starts from appointment
and present AGM till, conclusion of next AGM.
Company must at every AGM appoint and
reappoint auditor.
(3) Power to directors to appoint to fill casual
vacancy (termination of auditor practice,
auditor cease operation) exception to
resignation or removal of auditor
(10) If a company does not appoint an
auditor, CCM on the application in writing of
any member of the company
will make the appointment

Sec. 172 Removal


(4) Removal is to be done at general meeting of
which, special notice of ordinary resolution to
remove auditor has been issued
(5) On receipt of special notice by company:
- They must send a copy of special notice to
present auditor and CCM
-Auditor may within 7 days of receiving special
notice make representation in writing to company,
request representation be sent by company to all
members entitle to receive notice of general
meeting
(6) The auditor may request that the
representation be read out at the general meeting

Sec. 172 Removal (cont)


(7) - Special resolution is needed to appoint new
auditor, replace the remove at the same AGM
- If to appoint at the adjourned meeting, we
can do so but through ordinary resolution and
adjourned AGM need to be done not earlier than
20 days and, not later than 30 days from AGM
date of removal auditor
(8) Company shall inform in writing regarding
removal of auditor to the CCM. If the company did
not appoint the auditor, CCM shall do so.

Sec.
Resignation

172

(14) Auditor may resign:


- If he is not the sole
auditor of company
- At general meeting of
company
(15) If an auditor desires to
resign, he shall give notice
of resignation to directors of
the company. The directors,
shall call for EGM for the
purpose of appointing new
auditor and the resignation
will only be effective on the
appointment of new auditor

Duties : Sec. 174 (1-3)


(1) To report to the members of the company
(the
accounting
and
other
records
on
consolidation basis, if applicable) in the
general meeting
(2) To express opinion in his report, whether:
The accounts are properly drawn up so as to
give a true and fair view of the matters
required by Sec. 169
In accordance to the provision of the act so as
to give a true and fair view of the companys
affairs (BS, P&L and CF)
In accordance with the applicable accounting
standards

Duties : Sec. 174 (1-3) (cont)


(3) Also an auditor need to form an opinion
on the followings:
Whether he has obtained all the information
required
Whether proper accounting and other
records include registers have been properly
kept
Whether the procedures and methods used
by a holding company or subsidiary in
consolidation amount were appropriate

Power or Rights of Auditors : Sec. 174 (49)


To access at all times books and records
Right to information and explanation as
he considers necessary in performing his
duties
To attend general meeting, to receive all
notices relating to general meeting which
concern the auditor
Right to make written representation
when company dismiss him as auditor
To attach auditors report to annual
report, to be read in general meeting

Sec. 172 (16) Remuneration


The fees and expenses of an auditor
of a company:
If auditor is appointed at general
meeting the fees shall be fixed by
the company at general meeting
If auditor is appointed by directors
or
by
CCM

the
auditors
remuneration then, shall be fixed by
the directors or CCM respectively

PART 2
MIA By-Law
(on Professional Conduct and
Ethics)

MIA By-Law
(on Professional Conduct and Ethics)

All professional bodies


impose a code of conduct
on their members

ETHICS set of moral


principles, values or
acceptable behaviour

This code of ethics


provides a set of
principles and rules that
offer guidance to
members
In Malaysia, for
accountants, MIA issued
the MIA By-Law (on
professional conduct and
ethics)
- Provide standard of
conduct in daily
professional life
- Important for gaining
public confidence in

MIA By-Law
(on Professional Conduct and Ethics) (cont)

These By-Laws are made


by the Council of MIA on
29/12/2001 and came into
operation on 15/1/2002

From time to time, it is


being replaced with new
by law and/or the Council
has inserted a new one
Example:
- By-Law A-4 (Continuing
Professional Education)
was replaced with a new
one on 1/1/2005
- By-Law A-10 (Induction
Course) was the new ByLaw inserted on
16/1/2004

PART A
Applicable
to all
members

PART B
Applicable to
all members
in Public
Practice (NF
AND AF)

MIA
ByLaws

PART C
Applicable
to members
in specific
types of
Public
Practice

PART A
Applica
ble to
all
membe
rs

A-1
Fundame
ntal
Principles
A-2
Integrity
&
Objectivi
ty

A-5
Confidentia
lity
A-4
Continuin
g
Professio
nal
Educatio
n
A-3
Professio
nal
Compete
nce &
Due Care

A-6
Descripti
on &
Designat
ory
Letters
A-7
Attention to
Correspond
ence &
Enquiries
A-8
Act
Discreditabl
e to the
Profession

A-10
Induction
Course
(Compulsor
y to a new
member)
A-9
Advertisin
g,
Publicity
&
Solicitatio
n (By-Law
B-3)

all times perform his work


professionally.

PART A
Applica
ble to
all
membe
rs

A-1
Fundame
ntal
Principles

In accepting job, a member shall always


act integrity, objectivity, impartially and
free from any influence which might cause
conflict with the requirement
(Independence)
Should carry out his work properly,
competence and in accordance with
professional standards expected on him
(Due Care & Competent)
Should not undertake the work that he is
not competent to perform
Should conduct with courtesy and
responsible towards person who engages
him and also to the public
Should also perform the job to maintain
good name of Institute (MIA) as well as

PART A
Applica
ble to
all
membe
rs

A-2
Integrity
&
Objectivi
ty

Straightforward, honest, sincere, fair


dealing and truthfulness by all
members

Principle of objectivity: fair, honest


and free from conflict of interest
A member shall be and appear to be
free of any interest which cause
problem to his objectivity
Regardless of service and capacity,
all members shall protect the integrity
and maintain objectivity in their
judgement (For example: pressure,
other services to be engaged, etc)
No member shall make false and
misleading report

PART A
Applica
ble to
all
membe
rs

A-3
Professio
nal
Compete
nce &
Due Care

o Strive continually to improve his


professional services, keep his
technical knowledge up to date,
enhance professional competence
o Member shall not undertake
professional work which he is not
competent to perform unless the
member obtain such advice and
assistant as will enable him to carry
out the work completely
o Comply with Continuing
Professional Education (CPE)
requirement, standards and
guidelines issued by MIA council
o Due care includes consideration of
completeness of working paper,
sufficiency of audit evidence,

PART A
Applica
ble to
all
membe
rs

A-5
Confidentia
lity

appear to use that information


for his personal advantage or
third
party
advantage.
Example: Members dealing in
the shares of the company
using
information
obtained
during his engagement
Confidential information of
the
client
shall
not
be
disclosed except: Consent to do so obtained
from client
There is legal right or duty to
disclose
Provisions of written law
(non-compliance, criminal act)
(However,
please
read
explanatory notes carefully)
Important here: Because
member might have conflict of
interest between his loyalty to
his employer, client, profession

PART A
Applica
ble to
all
membe
rs

A-8
Act
Discreditabl
e to the
Profession

Unprofessional conduct include gross


carelessness, negligence, incapacity in
performing his duties and conduct of an
accountant, include:

Retention of client records after demand


is made
Make false and misleading entries in the
financial statements
Assisting his client to evade tax
Commit fraud and negligence
Acting that can threaten his integrity,
objectivity and independence
Being declared bankrupt, etc

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-7
Referrals

B-8
Changes in
Professional
Appointments

B-1
Professional
Independence

B-6
Fees and
Commission

B-9
Incapacity or
Death of a Sole
Practitioner

B-2
Method of
Practice

B-5
Loan To and
From Clients

B-10
Professional
Indemnity
Insurance

B-3
Advertising,
Publicity and
Solicitation
(APS)

B-4
Clients
Monies
(Maintain
separately
office account
and client

B-11
Quality
Assurance and
Practice
Review

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-1
Professional
Independence

PROFESSIONAL INDEPENDENCE Definition: Attitude of


mind characterized by integrity and objective approach
to professional work. Auditor should be and be seen to
be free from any conflict of interest
INDEPENDENCE IN AUDIT Definition: Taking unbiased
viewpoint in audit report, audit tests and evaluation of
results
Two criteria to be independence:
Independence in fact able to maintain unbiased
attitude throughout audit
Independence in appearance interpretation of users
of financial statement of the auditors independence

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-1
Professional
Independence

(CONT)
Under this By-Law, the council of MIA has laid down
again the qualification as auditor of the company in
addition to the other legal provisions. A person cannot
become an auditor of the company (among other are):o If he is not an approved company auditor
o If he is indebted to the client for more than RM 2,500
o Etc, as discussed above
A member cannot accept appointment as auditors if he
is also being appointed for providing NON-AUDIT services
or vice-versa, if the appointment can impair his
independence

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-1
Professional
(CONT) Independence

Threat to independence
Self interest threat
Undue dependence on total fees, financial interest,
concern about losing client
Loan or guarantees Give or guaranteeing loan to client
or accepting or indebted to client
Provision of other services tax, accounting services,
secretarial services, etc
Was within preceding period of 12 months being an officer
or employee of company or a partner, employer, employee of
an officer of the company
Blood relationship with client
Receipt of hospitality: Gifts, favor or hospitality that go
beyond normal courtesy should not be given or received as
it may influence actions or decisions

PART B
B-1
Applicable to
all members in
Professional
Public Practice (CONT) Independence
(NF AND AF)
LITIGATION (Definition) Court action taken due to inexistence
of confidence between auditor and client and so, it is better for
auditor to resign
Measures to take to improve independence (among others): Audit Committee : Companies listed on Bursa Malaysia are
required to form audit committee so that audit will remain
independence because the selection and scope of auditors
work will be determined by audit committee
Peer reviews : Or auditing the auditors. Just recently carried
out by MIA where another auditor would review the working
papers and also produces of the firm with a view to improve the
quality of work
Rotation of the appointment of auditor : Once an audit firm
audit the client for so long, familiarity with client staff would
exists and therefore lack of independence. It has been
suggested that a rotation of auditors would overcome the

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-2
Method of
Practice

oThis By-Law prohibits a member from


using a trade name or a fictitious name to
practice
o Member shall practice as a chartered
accountant or licensed accountant: In his own name
In his partners name
In the name of existing firm
o Any branch of the firm should be under
the management and control of a
member of the Institute
o Member can only report on the financial
statement which examined by his staff or
a member in public practice
o And many more (refer to By-Law)

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-3
Advertising,
Publicity and
Solicitation
(APS)

Advertising (Definition) The communication to the


public of facts about a professional account with a
view of procuring professional business
Publicity (Definition) Communication to the public
of facts about a professional accountant
Advertising and publicity use of various media such
as magazines and radio to communicate favourable
information about the goods and services of the firm

B-3
PART B
Advertising,
Applicable to
Publicity and
all members in
Public Practice (CONT) Solicitation
APS in general
not permitted (APS)
under MIA By-Law,
(NF AND is
AF)

however, this does not include the followings:-

Member can issue circulars to person whom he


has already been established a professional
connection
Member is allowed to publish the firm name and
address for purposes such as advertisement for
job vacancies or to announce change of address
Advertise for seminars or conferences for the
publics. Publication of audit report, announce
admission or retirement from practice of a partner
and may send greeting cards confined with the
message of his greeting, his name and address of
the firms
Member can print their business card but ensure
that the business card or firm stationery or name
plate foes not include a claim that he is
a

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-5
Loan To and
From Clients

No member in the public practice nor his


firm shall make a loan to a client, or
guarantee a clients borrowing or accept a
loan from a client or have borrowings
guaranteed by a client or be indebted to a
clients at any time in a sum exceeding RM
2,500

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-6
Fees and
Commission

Fees should be fair reflection on


value of work performed for client
considering :
Skill and knowledge required
Level of training and experience of
persons involved
Time spent
Degree of responsibility, urgency
of the work
No member shall mislead his client
by charging unrealistically low fee
resulting compromised (jeopardize)
professional
standards/
quality
(lower than RM 500 is considered
unrealistically low)

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-6
Fees and
Commission

A member may charge charitable


(CONT)
bodies, non-profit
organisation low
fees or provide free service provided
such service not being used as
inducement to secure professional
appointments or engagement for other
corporations
In determining fees, members must
also take into consideration schedule
provided by MIA
A member shall not pay commission
to obtain a client nor shall he accept
commission for referral to a client
where such payment would impair the
objectivity, integrity or independence

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-7
Referrals

The service of an auditor with special skill may be hired


by a client based on the recommendation or referral of
the auditor currently providing service to the client
If the member receives an assignment through referral
from another member, the member should not undertake
any other professional services for the same client
without informing the referring member. He should not
do anything to impair the position of the referring
members in continuing to provide his service to client in
order to retain cordial relationship among the
professional members (Jangan rampas client)

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-8
Changes in
Professional
Appointments

oProposed auditor DO
A member who is asked to accept nomination as
auditor is required to communicate with the
existing auditor (with the permission from the
prospective client), for the purposes:
To obtain information about client
To know the professional reasons for such
changes before proposed auditor accept the
appointment
If the client does not granted the permission, the
proposed auditor shall decline the appointment
o Existing auditor DO

The
existing
auditor,
on
receipt
of
a
communication, to reply that the existing auditor
should get permission from the client

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-8
Changes in
Professional
Appointments

(CONT)
oExisting auditor DO
If permission granted: Existing auditor should
reply in writing whether there is any reason why
the new auditor should not accept appointment
If permission not granted: Existing auditor should
report the fact to the proposed auditor
o Proposed auditor DO
If the proposed auditor unable to obtain
satisfactory reply from existing auditor within
reasonable time, he should follow up by A.R
Register
And if still no reply after a few attempt, further
letter need to be send to existing auditor stating
he assume that there is no professional reasons
why he should not accept appointment

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-8
Changes in
Professional
Appointments

(CONT)
oExisting auditor DO
The existing auditor may decline reappointment
and cease to provide audit service to client if that
particular client has not paid the audit fees for two
consecutive years by notify the client and MIA
No other member (new auditor) can accept the
appointment unless the outstanding fees being
paid to previous auditor

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-9
Incapacity or
Death of a Sole
Practitioner

A member is a sole practitioner and shall


enter into an arrangement with another
member to enable his practice to continue
with minimum disruption in the event of
death or incapacity, in either of the following
ways: By entering into an agreement with
another member
By satisfying the Council that other
adequate provision has been made

PART B
Applicable to
all members in
Public Practice
(NF AND AF)

B-10
Professional
Indemnity
Insurance

Every member in public


practice shall ensure that his
firm carries and maintains a
policy of professional
indemnity insurance
Minimum coverage RM
100,000

PART B
B-11
Applicable to
Quality
all members in
Assurance and
Public Practice
Practice
(NF AND AF)
Review
Every member in public practice shall: Ensure that his firm complies with all relevant
professional standards for the purposes of assurance as
to the quality of the public practice services provided
Subject to the Institutes Practice Review Programme
as established by the Council with the objectives to
ensure that all members maintain, observe and apply
all relevant professional standards so as to ensure
everyone in practice are competent, ethical and
exercise due professional care in their work
The Practice Review Programme be conducted over a
cycle of not more than five (5) years in respect of
member firms which are selected at random
PESANAN PENAJA: YOUR PROBLEM TO ANSWER

AREAS OF CONTROVERSY
(THE PRINCIPAL COMPLAINTS)
The provision of multiple services may

Multi
ple
Servic
es

affect independence, especially small


audit firm. For the clients, they are
comfort to deal with only one person in
charge and considered audit firm as
one stop center for them

For small firm, the same staff will do


the audit and accounting, therefore it
may affect independence. Working
paper should be well documented and
should be reviewed by engagement
partner
For big firm may not have this problem
as they would have different
department for accounting and

AREAS OF CONTROVERSY
(THE PRINCIPAL COMPLAINTS)
(CONT)

Low
Balli
ng

The practice of charging special rate


for auditing job and then obtain
other services known as low balling.
This situation quite common and the
independence here is questionable.
Eg: Competition among public
accounting firms for audit clients
may lead to discounted audit fees
Low balling involve intentionally
underbidding

AREAS OF CONTROVERSY
(THE PRINCIPAL COMPLAINTS)
(CONT)

Opinio
n
Shoppi
ng

Client get second opinion


from the other auditors and
sometimes put pressure on
current auditors. To solve,
may
be
through
communication between the
two auditors

C
O
N
C
L
U
S
I
O
N

This topic
emphasizes the
Independence is
importance of
the
ethical behaviour
cornerstone/hall
and
mark of the
independence on
accounting
the part of
profession
auditors
Without
independence,
audit services
will lose its
value

THE END