Most users find value in enhanced auditors’ report

Briefing on Enhanced Auditor

PETALING JAYA: The enhanced auditors’ report (EAR) has spurred constructive behavioural changes within the financial reporting ecosystem and improved engagement between investors and companies in Malaysia.

According to a joint study conducted by the Audit Oversight Board (AOB) of the Securities Commission (SC), the Malaysian Institute of Accountants (MIA) and the Association of Chartered Certified Accountants (ACCA), most users of audit and financial reports regard the EAR as a good tool to help them navigate complex financial statements.

Entitled “Enhanced Auditors’ Report: A review of first-year implementation experience in Malaysia”, the joint study released yesterday revealed that stakeholders found value in the new reporting standards, with two-thirds of the surveyed respondents acknowledging that it was an improvement compared to the old auditors’ report.

The results from the study were based on the review of EARs and annual reports of a sample of 190 companies listed on Bursa Malaysia with financial periods ended Dec 31, 2016, as well as views from over 170 audit committee members and investors.

In a joint statement, the SC, MIA and ACCA explained that the EAR placed greater prominence on the auditors’ opinion, and a key change introduced through EAR is the disclosure of Key Audit Matters (KAMs), resulting in a more transparent and informative auditors’ report.

“In the longer term, the EAR is expected to drive the flow of useful and relevant information to the capital market, reduce speculation on company performance and promote better understanding of financial statements,” they said.

The three institutions said for investors, the EAR had improved the relevance and value of the auditors’ report. “Investors gain more insight into the financial reporting risks of the companies they invest in, as well as the audit process,” the SC, MIA and ACCA said.

As for companies, they said, the managements were making efforts to improve disclosures in their annual reports, following discussions about KAMs.

The SC, MIA and ACCA said EAR also benefited the audit committee and auditors.

“Audit committee discussions about financial reporting risks with auditors and management are more focused and robust, putting audit committees in a stronger position to ensure accountability on behalf of investors,” they said.

“The audit process has been strengthened through more visible audit partner involvement in discussions with audit committees, due to the need for in-depth deliberation and discussion of KAMs in particular,” they added.

The enhanced auditor reporting standards were issued by the International Auditing and Assurance Standards Board and adopted in Malaysia in 2015, with an effective date of Dec 15, 2016.

Meanwhile, in a briefing on EAR findings, the AOB, MIA and ACCA said investors should take advantage of new insights gained from the new reporting standards to engage and form better understanding of company management, and so, improve accountability.

“If KAMs are unclear, seek clarification from auditors and management,” the financial bodies said, adding that investors could make use of KAMs as guidelines to asking questions at AGMs.

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