Auditor penalised for failure to meet standards


PETALING JAYA: After operating for more than two years, the Audit Oversight Board (AOB) has finally wielded its powers of sanction. The senior partner of a mid-tier accounting firm is the first auditor to be penalised for breaching a condition imposed when he registered with the board.

Last Thursday, Alvin Tee Guan Pian of UHY Malaysia was reprimanded for “failure to comply with the relevant requirements of the recognised auditing standards in Malaysia i.e. the International Standards on Auditing”.

This information was posted on the Securities Commission (SC) website but no press release was issued to publicise this enforcement action.

According to the online update, Tee was the engagement partner in the audit of a public interest entity (PIE) for the financial year ended July 31, 2010.

The engagement partner is responsible for the performance of an audit and for the audit report issued after the work is done. The breach was in respect of this particular audit.

AOB executive chairman Nik Mohamed Hasyudeen Yusoff told StarBiz that this matter was picked up during the board's regular inspection process but he declined to provide more details of the contravention.

The board then conducted an inquiry and issued a show-cause letter.

Nik Hasyudeen said the decision to reprimand Tee took into account the inquiry findings and recommendation, Tee's response to the show-cause letter, and UHY's remedial measures.

However, Nik Hasyudeen pointed out the reprimand is not a reflection of the credibility of the accounts audited by UHY.

“This doesn't mean that the financial statements do not give a true and fair view (of the PIE's financial position and performance). The reprimand is because the auditor failed to do what was necessary in performing the audit,” he explained.

This is why the AOB has not named the PIE whose 2010 audit was at the heart of this case.

Following amendments to the SC Act 1993, the AOB began operations in April 2010 to oversee the auditors of PIEs and to promote confidence in the quality and reliability of the PIEs' audited financial statements.

PIEs include listed companies, banking and financial institutions (including Islamic banks and development financial institutions), insurance companies and takaful operators, and holders of Capital Market Services Licences (such as securities and futures trading firms, and fund management companies).

A major part of the board's work is the annual registration of audit firms and individual auditors, who are the firms' partners or sole properietors.

Including Tee, UHY has three individual auditors on the AOB's register, and the firm is the external auditor of almost 20 companies listed on Bursa Malaysia.

Previously, the AOB has relied on other enforcement measures in response to lapses by firms and auditors.

For example, when five firms accepted appointments in 2010 as auditors of PIEs without first registering with the board, they were given show-cause letters followed by warning letters.

Last year, when the AOB found shortcomings while reviewing some audit jobs, it shortened the tenure of registration for the three engagement partners from the usual one year to six months.

The SC Act provides for a range of “administrative-type” sanctions by the AOB such as the imposition of certain conditions, suspension, fines, reprimands, compulsory professional education, prohibition from accepting PIE clients or auditing PIEs' accounts, and deregistration.

While some may deem a reprimand a soft option among the sanctions, Nik Hasyudeen said: “We don't necessarily consider a reprimand a light form of enforcement action.

“Any action from our side is a serious thing.”

An AOB sanction is subject to an appeal to the SC within 30 days from the date of notification of the decision.

Tee has not responded to an e-mail from StarBiz asking for his comment on the reprimand.

According to a March 2012 press release, UHY in Malaysia is a partnership with four offices and more than 100 professionals.

It is part of the UHY international network of independent accounting and consulting firms.

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