Thursday 26 April 2012

AOB Annual Report 2011

AOB tells audit firms to think twice before accepting more jobs

KUALA LUMPUR: Audit firms, many of which face problems in the form of talent shortage and work overload, should think twice before accepting more audit jobs, says the Audit Oversight Board (AOB).

The industry watchdog reminded audit firms about this in its 2011 annual report released yesterday.

"We would like to reiterate the need for audit firms to reconsider their capability in respect of time and resources before accepting further audit engagements," it said.

The AOB noted that while some audit firms have tried to spread the workload of their partners, statistics gathered during its inspection of these firms last year revealed insufficient time charged by partners.

It was observed that the supervisory function was not effective.

The concentration of audits with similar financial year-end added to the concern about the workload of partners, the AOB said.

Audit firms last year continued to voice concern about the relatively low audit fees in Malaysia, although generally, the AOB observed marginal increments in the fee level.

"The increase, however, may not be sufficient to cover the general rise in salary costs due to greater competition for talent in Malaysia," it noted.

In 2011, the AOB - set up in April 2010 by the Securities Commission (SC) to oversee the auditors of public-listed companies (PLC) - conducted inspections on 17 audit firms which audit over 98 per cent of the market capitalisation of PLCs, or 86 per cent of the total number of PLCs.

It noted that audit firms are responding to the findings of inspections by implementing remediation plans to improve the overall quality of their audit work.

"While the auditing framework remains strong and all international standards are adopted, the findings from the AOB oversight activities suggest that more efforts are required to enhance audit quality," its executive chairman Nik Hasyudeen Yusoff said in a statement issued by the SC.

This year, the AOB's audit inspection will continue to be on audit work of high-risk areas, which include fair value, the evaluation of going concern, revenue recognition, segmental reporting and compliance with ethical standards.

It said emphasis will be placed on key areas of judgment and the application of professional scepticism.

Effective 2012, Malaysia officially joined over 100 countries in adopting the International Financial Reporting Standards as the reporting standard for PLCs.

Read more: AOB tells audit firms to think twice before accepting more jobs

AOB: Firms remediation plans key


KUALA LUMPUR: Having completed two annual cycles of registering and inspecting auditors, the Audit Oversight Board (AOB) is now concentrating on ensuring that the firms come up with concrete plans to address deficiencies observed during the inspections, and that these plans are executed properly.
Auditors that fail to do so may be penalised by the publication of the AOB's inspection reports, thus exposing the firms' weaknesses and failure to comply with auditing standards.
In its Annual Report 2011 released yesterday, the board said it had conducted inspections of 17 audit firms last year, compared with six in 2010. The listed companies audited by these firms accounted for 98% of the total market capitalisation of the companies on Bursa Malaysia.
Nik Hasyudeen: ‘Inspection is just to identify the issues.’
As at the end of last year, 75 firms have registered with the AOB, which began operations in April 2010.
Following an inspection by AOB, an auditor is required to come up with remedial measures and timelines to boost audit quality. This proposed remediation plan is taken into account when the board finalises its inspection report on the firm.
AOB executive chairman Nik Hasyudeen Yusoff described the follow-up to the remediation plans as the main thrust of the board's work.
He pointed out that the AOB wanted to avoid the experience of the audit regulatory bodies in some developed countries, where there appeared to be little headway in improving audit quality.
“Do we want to keep on reporting the same problems year after year or do we do something different? That's why we have decided that our focus should be on the remediation plans. We cannot be doing the same things and end up with the same results,” he said in a media briefing to coincide with the release of the annual report.
“Inspection is just to identify the issues, but what matters to us is what the firms do with the findings. Of course, if they cross the line too far, we will take action against them. But more important is to get the firm to figure out the root causes of the deficiencies and to tell us what they are going to do about these.”
He added that the firms were also expected to indicate how they would measure the effectiveness of their remediation plans.
By the end of last year, the board had issued 16 final inspection reports, while six more were pending finalisation. It also approved 13 remediation plans, which focused on the strengthening of governance structure, improvement of methodology and the rebalancing of partners' portfolio and workload. These are now in various stages of implementation.
Nik Hasyudeen said it was too early to assess the effectiveness of the remediation measures because the process began in the middle of last year and many of the measures needed time to have an impact.
Examples of such measures are the introduction of new partnership agreements that specify the importance of audit quality, and performance evaluation systems for partners and staff that clearly link audit quality and remuneration.
However, he said the AOB would not dictate the measures that the firms needed to adopt, saying the board was “not in the business of running firms”.
He warned that the board would publish the inspection report if a firm failed to take the relevant remedial measures. “That's quite a powerful disincentive. If that report goes out, it will be very bad for the firm,” he said.

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