In a statement, IIAM said 54% of the PLCs on the Main Market preferred to outsource their internal audit function and almost all (90%) of these PLCs that outsourced paid RM100,000 or less in a year.
“The amounts incurred indicate that very junior staff or very few staff were in the audit team and a limited scope was covered. The low amounts are also a sign that the staff are not professional staff and may not have the experience and skillset to effectively carry out the work, thus less is spent,” the institute said.
“PLCs should consider the professional qualifications, certification and experience of their OSPs (outsourced service providers) in relation to the scope of the work required to ensure adequate coverage of risk areas and reliable reports are issued.”
These are among the findings of Dr Grace Mui Yanchi, Thye & Associates co-founder and principal research consultant, who was commissioned to conduct the study to construct the profile of internal audit functions and audit committees in Malaysian PLCs.
The study used the annual reports of 785 companies listed on Bursa Malaysia’s Main Market.
Another finding is that outsourcing of the internal audit function is more prevalent in smaller companies, with 87% of those surveyed preferring OSPs.
“The factors which could have determined their choice are the costs of establishing and maintaining an in-house internal audit function and costs of engaging professionally qualified internal auditors. When selecting OSPs, PLCs needs to ensure that OSPs are independent and their staff have professional qualifications, and not only low costs,” IIAM said.
On the finding that the majority of PLCs that outsourced were likely being serviced by few or very junior staff, covering probably a limited scope, IIAM said that PLCs should consider the professional qualifications, certification and experience of their OSPs in relation to the scope of the work required.
This is to ensure adequate coverage of risk areas and reliable reports are issued.
Another issue spotted was the poor disclosure of professional qualifications of the in-house head of internal audit and lead auditor from OSPs.
“From the annual reports, the qualifications and backgrounds of both audit parties were not disclosed, straining the study process,” the organisation said.
Mui’s research also found that 41% of audit committee chairs did not have professional accounting qualifications.
“These professional qualifications are important to ensure that the audit committee chair has the skills to lead and deliberate on financial matters as well as to oversee that end results reflect the understanding of the audit committee chair,” IIAM said.
IIAM president Lucy Wong said the institute was able to advise PLCs on the above matters and provide professional training, guidelines as well as many more services to in-house internal audit function and OSPs.
On gender diversity, IIAM noted that out of the 785 companies covered, 92% of their audit committee members were male.
“Women are highly recommended as the difference of views may provide different perspectives to the audit committee.... PLCs need to consider approaching women to increase the diversity of the audit committee,” IIAM advised.
Separation of the audit committee chair from the board chair contributes to good governance in the decision-making process.
“However, the study shows that roughly 7% of audit committee chairs were also board chairs,” it said.
“An individual carrying out both the roles can lead to impairment of the board chair to exercise independent judgement if the decision taken at the audit committee is different from that at the board level.
“The difference in views could also cause frictions. Separation would allow decisions to be taken without judgment and bias.”