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© Securities Commission, Malaysia 1 What the Audit Oversight Board will do ICAA-MICPA Audit Forum 3 August 2010
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© Securities Commission, Malaysia Financial Reporting Ecosystem Domestic Commercial transactions / results Directors and management Financial reporting function Internal audit function External auditors Financial statements Audit Oversight Board Malaysian Institute of Accountants Companies Commission Securities Commission Bank Negara Malaysia Ministry of Finance Other experts: Valuers, Actuarists, Lawyers Foreign Commercial transactions / results Malaysian Accounting Standards Board Bursa Malaysia
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© Securities Commission, Malaysia Drivers of financial statement quality Financial Statements Reporting entities Corporate governance practices Reporting function competency Financial reporting infrastructure Reporting regulation and standards Appropriateness, clarity and simplicity Availability of guidance when necessary Auditors Firm level quality control & risk management Application of standards in engagements Users Knowledgeable Context of usage Professionalism and business principles
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© Securities Commission, Malaysia 4 About the Audit Oversight Board The Securities Commission has the function to (S31B): Promote and develop an effective and robust audit oversight framework in Malaysia: Promote confidence in the quality and reliability of audited financial statements in Malaysia: and Regulate auditors of Public Interest Entities (PIE)
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© Securities Commission, Malaysia 5 About the Audit Oversight Board Among the responsibilities of the AOB are: Implement policies and programmes in ensuring an effective audit oversight system Register auditors of PIE Conduct inspections and monitoring programmes Conduct inquiries and impose appropriate sanctions Cooperate and liaise with relevant authorities and relevant oversight bodies in Malaysia and internationally
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© Securities Commission, Malaysia “Promoting confidence in the quality and reliability of audited financial statements of public interest entities in Malaysia through having effective and robust regulation and audit oversight” Outcomes Strategic Themes Services Areas Confidence in audited financial statements High quality and reliable audited financial statements High quality financial reporting practices Standards setting and guidance Registration Inspection and Inquiry Collaboration and cooperation Promotion of quality practices Support adoption and implementation of standards Promote high quality audit practices Influence financial reporting ecosystem Leverage on stakeholders support Diagram 1 Resourceful and high quality audit practices Independent and high quality audit
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© Securities Commission, Malaysia 7 About the Audit Oversight Board The Audit Oversight Board (AOB) became operational from 1 April 2010 The AOB consists of: An executive chairman 6 non-executive members Not more than 2 non-executive members of the AOB shall be members of the Malaysian Institute of Accountants
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© Securities Commission, Malaysia 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 Standard setting
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© Securities Commission, Malaysia 9 Registration process AOB seeks to register audit firms and individual auditors of public interest entities (PIEs) who are fit and proper which includes (S31P): Auditor approved under S8 of the CA Not convicted of an offence involving fraud and dishonesty Not a bankrupt Not engaged in practices with reflect discredit in meeting professional standards
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© Securities Commission, Malaysia 10 Inspection process The AOB will conduct annual inspection of audit firms The audited financial statements will be monitored and when necessary, auditors and their audit work will be inspected Firms and engagements will be inspected based on a risk-based approach Audit firms auditing high number of PIEs, for example, will be inspected annually while the rest will be inspected within 3 years
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© Securities Commission, Malaysia 11 Inspection process Audit inspections would be conducted at the firm level and the engagement level At the firm level, compliance with ISQC1 will be reviewed: Leadership and responsibilities within firm Ethical requirements Acceptance and continuance of audit clients Human resources Engagement performance Monitoring
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© Securities Commission, Malaysia 12 Inspection process At the engagement level, inspection is targeted at compliance with International Standards on Auditing and relevant regulation and laws The performance of the Engagement Partner and the Quality Control Reviewer will be assessed This includes: Audit planning Risk assessment and risk response Sufficiency and appropriateness of audit evidence Documentation Compliance with regulation
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© Securities Commission, Malaysia To enable effective and proportionate sanctions to be taken… Requiring additional professional education Requiring errant auditor to comply with the Act Censure Monetary fines Cancelling or suspension of registration Inquiry and Sanctions Inquiry conducted when there is reason to believe that provisions of the Act, written notice or guidelines are breached AOB officers will be conducting inquiries Inquiry officers will be appointed and will have necessary powers to conduct their duties
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