THE Malaysian Institute of Accountants fully supports the recent action taken by the Audit Oversight Board (AOB) to reprimand certain auditors for failing to meet the standards set out in the International Auditing Standards (ISAs) and International Standards on Quality Control (ISQC 1) and breaching the by-laws of the MIA which relate to auditors’ independence.
While the AOB’s public reprimand is meant to enhance confidence in the audited financial statements of Public Interest Entities (PIEs) and is in the best interests of the public and the profession, it has also raised concerns about the standards of quality and compliance among auditors in this country.
These concerns were also aired by Errol Oh in his column on Saturday, Aug 31 2013 in The Star.
With regards to the reprimand, MIA will hold a separate discussion with the AOB to determine MIA’s next course of action.
While the media attention and public reprimands may be perceived as negative, MIA actually welcomes the ensuing debate on audit integrity and reliability which will create awareness of audit quality issues. Improving audit quality is an important agenda at MIA. This ensures confidence of effective and efficient capital markets.
While there are many factors affecting audit quality, among the major keys to success are increasing and managing the financial and human capital resources available to audit practitioners; growing and upskilling the current limited talent pool; and ensuring that all stakeholders responsible for audit quality pull their weight together.
For many Malaysian audit firms, their mindset is that audit is a volume game. They take on more jobs than they can handle in order to meet their revenue targets and charge low fees which in turn result in low margins.
Firms cannot bite off more than they can chew, otherwise they will choke. MIA advocates charging higher audit fees to achieve better audit quality. Without this the accountancy profession would have a tough time in attracting & retaining talent.
Investing in talent
Charging higher fees is also critical because to carry out quality audits, audit firms not only need to invest in sufficient headcount, but must ensure their people have the required competencies to execute the audit in compliance with all regulations and standards.
To achieve this, firms need to invest in quality training and better retention policies.
While MIA organises and subsidises training to assist member firms in upskilling their talent pool, firms must be willing to invest as well. MIA also advocates greater consolidation – such as through mergers and acquisitions of small and medium size practitioners (SMPs) – between firms to scale up resources and thus improve audit quality.
If firms are not willing to change their mindsets regarding fees and volume as well as reluctant to consolidate their audit practice and invest in competent talent, audit quality could be out of their reach.
While auditing standards provide a strong foundation for high quality audits, audit/auditors are only one of the key components influencing overall audit quality. Other significant components of the financial reporting supply chain such as corporate management, directors and regulators play an equally important role in influencing audit quality.
Thus, it is critical to create awareness and buy-in among stakeholders on the importance of enhancing audit quality; MIA is driving this through its ongoing campaign on communicating the ‘value of quality audit’.
In July 2013, MIA organised a joint forum with ACCA Malaysia on ‘The Value of Quality Audit’ to create awareness among these very stakeholders about the elements and importance of quality audit.
Again, MIA cannot stress enough that the integrity of financial statements and the efficacy of financial reporting are dependent on an effectively managed board of directors, senior management and auditors who are fully cognisant of their respective roles and responsibilities within Malaysia’s legislative and corporate governance framework. Dysfunction by any of these parties will diminish audit quality, and thus confidence.
Going forward, MIA will continue to perform its role as a regulator to ensure that audit quality and the integrity of the financial system is not compromised.
Nonetheless, MIA urges other parties of the financial reporting ecosystem to analyse and discharge their roles optimally and to play their part in contributing to audit quality improvement. Do not pin the responsibility for audit quality solely on the auditors.
President, Malaysian Institute of Accountants
& Partner KPMG