StarBiz interviews the executive chairman of PwC Datuk Johan Raslan on changes in audit practices and how it's effects on businesses
StarBiz: How will the Government's amendments to the Code of Corporate Governance in the recent Budget affect Malaysian companies, accountants and auditors?
Datuk Johan Raslan: The Government's move to promote corporate governance (CG) best practices by putting in place the criteria on the qualifications of directors, strengthening audit committees (ACs) and internal audit function of public listed companies will boost investor confidence in the market, and help shift local companies to be in line with global best practices in CG.
StarBiz: How will it make audit committees and the auditing function more effective? How will this affect the independence of the audit committee?
Johan: The proposal that ACs should now comprise entirely non-executive directors was overall well received. Today, most jurisdictions recognise that a fully non-executive AC and a defined internal audit role is more effective for checks and balances.
In theory, this would mean ACs would be more independent. However, as always, it will boil down to the integrity and quality of the directors. We must recognise that this new proposal is a step in the right direction.
StarBiz: What should the Securities Commission include in the internal audit guidelines?
Johan: There are many things. Guidelines are available from the Institute of Internal Auditors. The key points to make a difference would be:
·Full scope – all material auditable areas should be audited within a defined period (one, three or five years).
· Internal audit must be adequately resourced, in terms of headcount and skills.
·Reporting directly to the AC chairman.
StarBiz: How will the Public Companies Accounting Oversight Board (PCAOB) help strengthen a company's corporate governance and affect accounting firms? Who should it comprise and why and what should its duties be?
Johan: PricewaterhouseCoopers is supportive of this initiative. It pushes audit firms, including my own, to enhance the quality of work. This is crucial in today’s complex environment. Auditors must be equipped with the right skills and be up to speed with the regulatory and corporate reporting changes. They must understand the industry they audit. The days of accounting as purely a self-regulated profession are over.
I envisage an environment of “co-regulation” – a mixture of independent regulation by PCAOB, complemented by professional bodies.
The PCAOB's role would provide an independent oversight of the auditing and accounting of public-listed companies (PLCs). It would need a diversity of skills and experience, ideally including regulators, experts in corporate governance and accountants.
Duties should include:
·Establishing standards on auditing and assurance,
·Investigation of suspected irregularities concerning auditors of PLCs,
·Registration and supervision of auditors and firms conducting auditing and assurance services for PLCs,
·Enquiry into suspected non-compliance of financial reports of PLCs with statutory requirements and approved accounting standards
I would strongly suggest that the stock market would gain from PCAOB being tasked with taking action on those preparing financial statements, including auditors, perhaps in collaboration with the Securities Commission.
StarBiz: How can the Government help strengthen corporate governance among companies?
Johan: Recent events indicate that there’s a case for other improvements such as the reintroduction of the mandatory accreditation programme training for directors, especially for independent directors, and Bursa doing spot checks on companies.
Right now, if you pick up 10 smaller companies’ corporate governance statements or director’s statements on internal controls, they all look almost identical. Spot checks will ensure that governance and internal control frameworks meet the requirement of the Code of Corporate Governance and are backed by facts. Why not post the results on Bursa’s website?
StarBiz: What benefits could be offered to ensure companies have good CG (besides the green lane visa which enables foreigners quick entry for work)?
Johan: The green lane incentive is a proactive effort by the Government towards encouraging good CG. However, incentives should not be the driving factor. People want to know if companies they invest in are well managed or not. Increasingly, companies with good CG are likely to be rewarded by the market.
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