SC: Audit firms should strengthen quality controls

Securities Comission's executive chairman of audit oversight board, Datuk Gumuri Hussain.

 PETALING JAYA: The Securities Commission’s (SC) Audit Oversight Board (AOB) is urging audit firms to strengthen their quality controls, following work deficiencies that have become a growing concern.

The SC said in a statement that there had been increased deficiencies relating to revenue recognition, inventory, group audits and related-party transactions.

It added that the AOB would continue to engage with the audit firms to understand the root causes of such deficiencies and monitor the remediation efforts taken by the companies on a timely basis.

“The SC’s AOB in its 2016 annual report urged audit firms to strengthen their capacity building and improve their quality controls to demonstrate the importance of the value of audits and its relevance to ensuring good corporate governance of companies.

“SC highlighted that promoting reliability of audited financial statements, high quality audit practices and addressing inspection findings of audit firms in Malaysia remain a key focus for the regulator.”

In the statement, AOB executive chairman Datuk Gumuri Hussain said the AOB remained committed to its focus and positive momentum on key areas and game-changers such as the new and revised auditor reporting standards, as a means to drive greater transparency in auditors’ reports as well as financial reporting.

“The standards will require auditors to disclose key audit matters in their reports, leading to a more informative and tailored reporting specific to the clients’ circumstances instead of the present reporting approach consisting of standard templates or boilerplate reports.

“The AOB has organised engagements with the auditors and stakeholders prior to the adoption of these standards.”

These, the SC said, would include briefings by the UK Financial Reporting Council and International Auditing and Assurance Standards Board experts on insights and practical experience in implementation challenges in the adoption of these standards in Malaysia.

“The SC will closely monitor the auditors’ compliance in implementing the New and Revised Auditor Reporting Standards through AOB’s inspection programme to identify instances of non-compliance and trends.”

Since 2015, the AOB has been gathering data encompassing revenue mix, human resources, training, client portfolio allocation and internal monitoring activities from the top 10 audit firms to benchmark their performance.

“This annual data gathering exercise has enabled the AOB to gain significant insights into the current state of the larger firms. In 2017, the AOB will perform deeper analysis of the data gathered over the last few years to establish key trends for audit quality.

“This analysis aims to identify the areas of improvement and drive efforts for capacity building. This initiative is consistent with SC’s goal of achieving effective regulation through active monitoring and engagements with audit firms”

The SC said AOB’s enforcement efforts and audit processes have also been acknowledged globally by the Asian Corporate Governance Association and European Commission.

“Its solid inspection programme and comparable requirements in relation to documents of inspection and investigation have been cited as a key strength of AOB. This recognition further affirms AOB’s process as sound and equivalent to its global counterparts.”