KUALA LUMPUR: The Audit Oversight Board (AOB) urged audit firms to focus on the actual root causes of their audit deficiencies to improve audit quality.
The AOB oversees the auditors of public-interest entities, protect investors' interest and promote confidence in the quality and reliability of audited financial statements.
AOB said some of the root causes include lack of emphasis on audit quality by the leadership of audit firms, inadequate understanding of the business of audit client and its associated risk as well as lack of application of professional skepticism in evaluating audit evidence.
“As we entered the third year of operation, AOB observed an increasing trend in the demand for audit quality in the market. Hence, it is important for audit firms to continue to deploy remediation plans that are tied to the root causes of their audit deficiencies,” said chairman Nik Mohd Hasyudeen Yusoff.
“The AOB expects audit firms to perform a more honest and robust root cause analysis to develop and implement sustainable and measurable remedial actions to enhance audit quality.
Firms must also ensure their self-governance mechanisms to be forcefully applied to improve overall audit quality. At the same time, audit committees should engage more with their auditors to obtain comfort that material financial reporting issues are adequately addressed during the audit. Cooperation between audit committees and auditors is important for the audit to be effective,” he said.
Nik said AOB will intensify its oversight over audit firms' remediation efforts and will not hesitate to take appropriate enforcements if significant improvements are not observed, where it recently took enforcement actions against two auditors for their unsatisfactory performance.