Abdul Halim Ismail Receives The Royal Award For Islamic Finance 2014

Let me reproduce the report from BERNAMA on the conferment of the Royal Award for Islamic Finance to Datuk Dr Abdul Halim Ismail, more known in Malaysia as the founder of Bank Islam, the first financial institution in Malaysia which operates based on Islamic principles.

Being first for a Malaysian, Datuk Dr Halim has certainly led innovation is this very important part of the society, finance. Without such an effort, a large portion of the community, the Muslims, will be disfranchised from the main stream economics opportunities as many of them are very concern about avoiding interest-based transactions, which is strictly prohibited in Islam.

Datuk Dr Abdul Halim receiving the award from Yang Dipertuan Agong

KUALA LUMPUR, Sept 2 (Bernama) -- Islamic finance visionary Datuk Dr Abdul Halim Ismail becomes the first Malaysian recipient of the Royal Award for Islamic Finance in recognition of his pivotal role in establishing the organisational structure and operating procedures of the first Islamic bank in 1983.

The award was conferred by the Yang di-Pertuan Agong Tuanku Abdul Halim Mu'adzam Shah at a dinner in conjunction with the Global Islamic Finance Forum 2014 (GIFF 2014) here, tonight.

Held every two years, the Royal Award is spearheaded by Bank Negara Malaysia and the Securities Commission Malaysia (SC) under the Malaysia International Islamic Financial Centre's initiative.

It recognises Islamic finance visionaries who contribute significantly to the growth of the global economy and social progress.

Commenting upon receiving the award, Abdul Halim, who was former Bank Islam managing director, said Islamic finance is deeply connected with the real economy, offering ethical investments and funding options for businesses.

"The principles of Islamic finance also encourage inclusiveness to create a fair and equitable financial system that is accessible to all. I am honoured to receive the royal award," he added.

The former dean of the Faculty of Economics, Universiti Kebangsaan Malaysia, Abdul Halim's expertise in Syariah law and Islamic banking put him in good stead to sit in Syariah boards of regulators in Bank Negara Malaysia, the SC, and the Labuan International Business and Financial Centre.

He had also served as Syarikat Takaful Malaysia chairman and helped set up Malaysia's first Islamic stockbroking company, BIMB Securities.

Under his vision and stewardship, both the industry and financial institutions flourished, making Islamic finance an increasingly attractive sector, complementing conventional finance.

He has been widely cited in published articles for his knowledge on Islamic economics, banking and finance.

Meanwhile, The Royal Award Chairman of the Jury Panel Tun Musa Hitam described Abdul Halim as a man of vision who has played a vital role in developing the region's Islamic banking industry.

Musa said 48 candidates were nominated for the award this year, a 25 per cent increase since it was first introduced in 2010.

He said Islamic finance is a still a work in progress in every aspect with its global asset expected to swell to US$2.5 trillion by 2015 from US$1.6 trillion at present.

Previous recipients of the Royal Award were Shaikh Sale Abdullah Kamel (2010) and Iqbal Khan (2012).

The Royal Award also accorded the late Dr. Ahmad El-Naggar with a posthumous honourable mention in 2010.

-- BERNAMA

Abe Yee and his grand children

A long weekend is always welcomed, especially at this stage of life. I took the opportunity to visit Abe Yee, a family friend and a masseur. A former member of the Malaysian Special Force, he has been known to me for avery long time especially when he was invited to our home in Kota Bahru whenever he needed treatment for his muscular pain. Off course we will be at his house on the second day of Aidil Fitri as his wife, Kak Mah, cooks the very delicious Nasi Dagang.

Abe Yee is very good at identifying the root causes of muscular and joints pains. Instead to focusing on where the pain is felt he will track their sources and deal with them decisively. One needs to endure some pain to survive his treatment. In many cases, Abe Yee will massage your stomach instead of your back if you complain about back pain and in most cases it works! A 20 minutes treatment should be sufficient.

Abe Yee with one of his grand children

There was a situation when I took a flight from Kuala Lumpur to Kota Bharu to be treated by Abe Yee for around half an hour. It was worth it and I always recommend him to my friends. As for payment, he will never ask you for any specific rate and it is up to you to show how much you appreciate his work. Could he be applying value-billing where customers pay based on the value received rather that cost incurred as believed by many accountants who are still charging based on time cost and complain about how much their services are not appreciated by their clients?

He has a strong passion for soccer and served a number of state teams such as Kelantan, Pahang and Melaka in helping the players to recover for their next games. When those teams had financial problems, he was not spared. A very telling fact about the "professionalism" of the management of our professional soccer league.

Already in his mid 60's, Abe Yee spends his time either at his home in Kota Bharu or at his son's house in Nilai. Since retiring as a Kemas teacher, Kak Mah had started supplying Kelantanese delights to some food outlets around Nilai. I am quite confident her income will exceed what she earned last time if she continues this endeavour as her cooking is really good.

Now they are looking after their grand children when the parents are not around for work. When I was there this morning, the kids were at their top performance. Running, shouting and quarrelling over things that we could not imagine.

I am sure all of us went though similar experience. Sometimes, it is difficult to let go and we continue to behave like kids even when we grow up. The difference is we quarrel over different matters and in many times, the ways we quarrel are worse than kids. If kids can quarrel over who should sit on a particular chair, adults do have the same problem, albeit the chair that we quarrel over may lead to things that kids would not imagine. Given adults are supposed to be smarter, we would justify our behaviours through all means of communication and we make sure the whole world knows that we are quarrelling. Kids on the other hand may forget what they are quarrelling about if they have new stuffs that attract their attention.

If grand parents like Abe Yee could feel the challenge in looking after their grand children, especially when those kids are quarrelling, how would we feel when adults around us are behaving the same over matters which sometimes are insignificant. Hope we all we really grow up and behave like real adults. Well, we may need another 57 years to achieve that!

so when any of you need some help with muscle pain of join problem, Abe Yee should be able to help. 

Merdeka, Merdeka, Merdeka!

Look before you leap

This holidays period allows me to spend more time reviewing news from all sorts of sources. Given what is happening nationally and globally, there are all sorts of news from all sorts of sources which shape our world views and opinions. Social media and news portals are amongst those sources which are frequently used by many of us.

Considering the responses and comments made by readers to messages and news available on these platforms, I am quite concern that many of us take these news and information on face value, do not understand the background of the sources, may not be able to comprehend the context and are trigger happy in responding.

While slowly we are getting used to deal with instantaneous flow of information and are expected (especially by our bosses) to react in similar fashion as well, we may have not developed the skills of comprehending information of such nature. This creates the risks that our instantaneous response may not reflect our thorough thoughts and views. Remember, once you press the RETURN button on your computers or smartphones, your views, thoughts or even LIKES are electronically captured. Even if you decide to delete or remove them later, somebody, somewhere could have gotten the records (especially Big Daddy).

I suppose remembering and applying the old wisdom of "Looking before you leap" remains relevant if not more crucial in the world where the flow of information is unfiltered and the sources may not be reflective of realities.

You may want to consider the following tips:

Diversify our sources of information

Different sources of information have different ways of reporting, sharing and more importantly angles to the issues being reported. By having wider sources, we should be able to sense the general views and direction of the issues. Relying on a single information point will expose you to rely on bias views or angles.

Understand the context

Context will add value to facts that you are considering. A child who cries over a prolonged period could be considered a nuisance until we know that both parents had just passed away. The more you understand the background of an issue, you would be able to have more sense of the information which you are considering.

Take a 20,000 feet view

Before forming your views, step back and look at the big picture. Remember when you are on a flight, at 40,000 feet you may see nothing, when the aircraft lands, your views are limited to thing that are in front of you. However, at 20,000 feet or thereabout, you are able to see bigger picture of the terrain below you. The challenge is to decide how wide the perspective should be and how much details you need before making a decision.

The source of information may be bias

If you watch different news channels, you may find that their coverage could differ even when reporting on the same event. Inherently, people are bias towards what they believe (or told to believe) what is true. If we do not filter this, we will be sucked into their game plan. Even on social media, this is also relevant. Be careful in believing hot news or interesting photos as many may not even be true. I am not surprised that some news portals in Malaysia are paid to side a certain group of people in certain issues. Are they the "information age mercenaries"?

Think before you share your thoughts

While people are free to share their views and opinions, it is worthy to consider what you are saying or writing to ensure you are not far off from truth. Given the ways social media works, for example, once information is released from you side, there is no turning back. As the new saying goes, there is no delete button on internet. What more when, due to your enthusiasm to share you views and thoughts, you are alienating many good friends of yours, both in the real world and the virtual world.

I am sure there are more issues to consider before we act but I believe the able are sufficient guidance to ensure the rest of the world are not laughing at us when we have not done enough before pressing the RETURN button on our keyboards.

Have we forgotten about being human?

I tired to find the scientific definition of human on Wikipedia but the complex definition is beyond my comprehension. However, I am sure you understand who am I trying to talk about, you and me.

While we share the same classification as human, physically we may not necessarily look the same. Some people have fairer skin colour than others. Some have different types of hair, facial features and many more differences. Many of us use those physical differences to classify us into different ethnic and sub-ethnic groups. They ways we communicate also differ, resulting in many languages being spoken around this planet.

If we explore the softer part of human, we have different beliefs, principles, values and many more. This results in further sub-classification of human, on top of their physical features mentioned above.

On the other hand, we also many things in common. All of us want to be happy, loved and live in an environment where we could achieve most of what we want without interfering with others' rights and interests. The problem is, instead of pursuing this, many of us chose to focus on our differences and behave selfishly without bothering the effect of our conducts on others.

Due to the above, we live in nation states where we choose (in some countries, this option is not available) our leaders, where they are entrusted to manage whatever wealth that we have on our behalf and ensure we live in societies where the rule of law is respected. Are you experiencing such an ideal state? I leave it for you to have your own assessment.

Due to the many differences that we have and the inclination for us to focus on the differences and our self-interests, conflicts are just a second nature. On a daily basis, we have to deal with all sorts of conflicts, minor issues at home to differences between larger groups of people and even nation states.

If we observe the animal kingdom, their dispute resolution is very simple. They fight amongst themselves and either the other side is killed or they leave the territory to avoid further humiliation. We always refer this as the law of the jungle. Is it so? Or are we also using the same rule to resolve our disputes?

With technology nowadays, we are able to know what are happening around the world. We can see events where humans sportingly compete amongst themselves and honour each other in victory or defeat. We trade among ourselves and despite they are winners and losers, all parties are able to respect the rules and will continue to trade again in the future. 

Whenever there are more serious crisis leading to war, groups of people who carry high moral values will intervene, with persuasion or if necessary with force. We call them the United Nations. The funny thing about this arrangement is that the whole world are governed by a smaller group of people who won the Second World War. They are the permanent members of the Security Council of the United Nations. Each carry a veto to override what ever consensus which the permanent members do not agree. Very fair indeed!

Fortunately or not, these permanent member could do whatever that they like with their veto powers, including declaring that invaders and occupiers are the victims should they are harmed by the people who they invade and occupy. It seems that human lives have different value to different people. Some may argue that this is a speculation of mine. Unfortunately, we could observe this daily on our television sets or other means of communication which we use. All the high moral grounds and principles are tossed away when truth and justice collide with self-interests and group interests. Humanity is just a definition in dictionaries but in reality, they are people who have more rights and privileges over others.

Off course they have friendly information suppliers who would tell their side of the story and lie repeatedly so that their version of truths are accepted. While we cherish freedom of information, a free flow of information in only a particular direction and only by those who have control over what we read, watch and hear may not be an ideal state.

In summary, while many of us talk about humanity, fairness and justice, many of us are also sufferings from the conduct of these very people. Given the devastation shown of the media, I wonder whether collectively we have forgotten about what does it takes to be human. I do not know the answer but I will need more convincing that all humans are equal before our own eyes.

Living the spirit of Ramadhan

Let us be honest with ourselves. When the month of Ramadan is mentioned, what do we picture in our minds?

While many would be thinking about refraining from food and other undesired behaviours, many others would be looking forward to the verity of food and desserts, sold at Ramadan bazaars as well as at hotels and restaurants which offer special fast-breaking deals.

While many would expect to eat less as Ramadan is about submission to Allah and appreciating the sufferings of those who are not that fortunate, surprisingly it is also a period where many Muslims would be consuming more food than other months. What could happen is the timing for breakfast, lunch and dinner are re-arranged? On top of that, people are naturally attracted to buy more than what they need when preparing for the fast-breaking.

To Muslims, Ramadan is a month full with blessings. The fast performed during the days will rewarded with blessings, forgiveness and salvation from the hellfire, if the fasting is performed honestly with the sole purpose of attaining the pleasure of the Creator of the Heavens and Earth. During night time, special prayers are offered and other specific deeds would earn multiple rewards compared to normal months. This is the reason why extended fast-breaking events may deter Muslims from exploiting opportunities available during Ramadan.

As what happen to other major activities in our society, slowly simple and meaningful events are turned into commercial opportunities. Once corporates start to turn Ramadan into a commercial exploitation opportunity, its meaning and values are slowly eroded. That is why to some of us, Ramadan is more about having more food rather that the opposite!

Things will be more commercialised towards the end of Ramadan when Muslims are starting their preparation to welcome Aidil Fitri. Ironically, the last ten nights of Ramadan is when Lailatul Qadar will occur. This is a night where any deed is rewarded as if it is performed over 1,000 months. Given the commercial attractions, many may not be able to concentrate of their prayers but busy shopping for cloths and other necessities for the forthcoming festivities. A miss opportunity?

At the end of the day, how we approach Ramadan is dependent on our honesty to seek the pleasure of Allah and using all the opportunities during Ramadan to be closer to Him and obtain his forgiveness. Once this is lost, Ramadan is all about hungry, food and shopping. The choice is with you and me.

Who Got Talent?

Ask any leader of organisations on matters which concern them and the chances are talent would be high on their list. It is amazing that in the world where information is readily available and educational institutions are mushrooming, recruiting and retaining talent appears to be one of the key challenges faced by organisations. This is not a phenomena faced by Malaysia alone, many countries around this region are having the same challenge, notwithstanding the strength of their currencies.

Where have all the talents gone?

Maybe I can start by considering talents at the entry point, the graduates. Despite the differences in approaches taken by organisations in assessing talents, the top scorers would certainly be preferred. However, this group would be only around 20% of graduates entering the job market. Most of the time, the kind of employers who are able to recruit these top talents would be large organisations which have allocations to train and nurture the talents that they recruited.

What will happen to the rest? For those who are at the bottom 20%, regretfully, they would find it difficult to be employed. Those who are stuck at the middle, on the other hand, may ended up with less resourceful employers which may not have comprehensive programmes for talent development.

We could see from the above the kind of "mis-match" between skills and competencies and further talent development. Those who are good will be further nurtured which those who displayed moderate results may not be provided with the same opportunities. Perhaps this is none of the reason organisations which employ graduates from the middle segment would be complaining about the "quality" of graduates without admitting that they themselves may have not made adequate investment in their own people. Organisations at the end of the scale would only be able to employ the remnants of students, based on their inferior grades. I am sure you would be able to anticipate the outcome of such situation.

We may have also heard about the issue relating the quality of graduates. Depending where you are on the supply chain, this issue could be viewed in many perspectives.

Employers would always demand for the best, which to my mind is rightfully so given that through their organisations, economic activities are created, which eventually contributing to our economic growth and providing employment opportunities. On the other hand, those at the institutions of higher learning may not necessarily share the view that graduates that they produce should serve the need of industries. They would argue that our education policy is a holistic one which attempts to equip graduates with knowledge and humanistic values, not necessarily serving the need of employers. 

I do not see any problem with the two views. The only question that I may want to ask is why those who are nurtured to have both education and values could not adjust quick enough when they are employed? In fact, many employers would be complaining about the graduates' thinking' and problem solving skills. I am not sure whether thinking and problem solving are not part of the holistic policy? Or, could it be that the standard set is pitched towards the standard of thinking and problem solving of their educators?

As a taxpayer, I would certainly like to see that money that I contributed towards nation building is well spent. Since many of our institutions of higher learning are funded by public funds, they should not ignore the expectations of people who are funding them, the Rakyat!

Employers should also play their role in nurturing talents and cannot expect all graduates posses knowledge, skills and values which fit exactly with their requirements. For the accountancy profession for example, many accountancy firms will require their staff to complete professional accountancy qualifications, to ensure the baseline standards for accountants are achieved. This is not cheap as it requires investments in terms of money, time and efforts in the form of guidance and mentoring. However, the outcome of such investment would certainly make them more effective and competitive.

Graduates should not expect employment as something which does not require them to further work on their competencies. At the early stages of employment, the focus would be on skills and competency development. At the later stages, their management and leadership skills will determine how far they can grow in the organisations.

I suppose the talent issue will remain with us for a long time. However, this should not deter organisations to review the processes which they deploy to develop talents. Graduates should also not expect everything would be given on silver platters, they need to work harder to fit into the organisations which employ them.

AOB Annual Report 2013: Oversight focus on internal monitoring systems

Audit firms are reminded to perform the necessary audit procedures to evaluate whether the overall presentation of the financial statements is in accordance with the applicable financial reporting framework, according to the Audit Oversight Board (AOB) in releasing its fourth annual report.

The report highlighted that while the presentation and disclosure of financial statements is the management’s responsibility, there are specific ISA requirements that need to be adhered to by auditors.

The AOB Annual Report 2013 has captured its oversight focus in the past year on activities that reinforced the quality control system of audit firms in Malaysia and encouraged best practices which enhance the quality of their audit work.

The oversight board’s inspections activities stressed on key elements including the tone set by leadership of audit firms, consistency of performance of partners within an audit network and the effectiveness of their internal quality monitoring systems.

Audit firms’ internal monitoring processes were given added focus during inspections to allow AOB to have a better picture of their scope, implementation and effectiveness. In his Chairman’s statement, Nik Mohd Hasyudeen Yusoff, Executive Chairman of the AOB said, “Based on our findings, we believe audit firms need to enhance this component of their quality control procedures to ensure better effectiveness.”

AOB’s 2013 Annual Report also lists down potential root causes to audit deficiencies for major firms.

Lack of resources due to continuous high attrition rate, amount of involvement and insufficient supervision and direction by engagement partners, failure of the firms’ monitoring control mechanism to surface relevant issues and lack of application of professional scepticism in evaluating audit evidence continue to be top potential issues.

Meanwhile, the potential major root causes in other audit firms were weak messages on audit quality by their leadership, lack of understanding of the business of audit clients, inadequate technical competencies in both accounting and auditing, insufficient technical support to safeguard audit quality which includes consultation process and internal monitoring reviews, lack of application of professional scepticism in evaluating audit evidence; insufficient involvement, supervision and direction by engagement partners and ineffective Engagement Quality Control Reviewer (EQCR).

“More honest and holistic approaches in identifying root causes and devising appropriate remediation plans to address the actual drivers of the deficiencies would strengthened audit firms’
system of quality control, and position audit firms in better footings.,” Nik said.

In enforcing auditing standards the AOB took enforcement actions against 6 auditors in 2013, mainly for their failing to comply with the requirements of auditing standards in the performance of their audit.

“While the AOB has always been focusing on working with audit firms to enhance their performance, we would not hesitate to take enforcement actions against serious deficiencies and breach of ethical conducts which will affect confidence on the audited financial statements in Malaysia,” Nik said.

The report also found that audit fees charged by top 10 audit firms had increased by 6% and 9% in 2011 and 2013 to compensate for the increase in salary cost which rose 18% and 13%, respectively, in both years, and an increasing trend has been observed in audit fees since 2010.

The AOB was set up by the Securities Commission in 2010 to oversee the auditors of public-interest entities (PIEs), protect investors’ interest and promote confidence in the quality and reliability of audited financial statements of PIEs.

In 2013, the number of audit firms registered with the AOB went down to 53 in 2013 compared to 67 in 2012. However, the number of registered individual auditors has gone up from 293 compared to 302 in the previous year.

AUDIT OVERSIGHT BOARD

The AOB 2013 annual report can be downloaded here

A Close Encounter With the Power That Be

I was prepared for the worst based on the information that was related to me by friends. Long queue, being throughly scrutinised and even being denied entry. To my relief, none of that happened. Our flight was the first to arrive on that Saturday morning and I cleared immigration and custom within half and hour. I was then on the soil of the United States of America!

Given that my hotel room was not ready, I had around 5 hours to kill. This worked quite well as I had the time to explore Washington DC, one of the most powerful capitals of the world where many decisions were made that affected millions of lives elsewhere around the planet. The weather was very kind, the sun was shinning and it was right in the middle of cherry blossom, something which I did not appreciate until I saw the nice beautiful flowers around the Tidal Basin.

My first stop was the White House, the residence of the President of the United States of America. Incidentally on the plane, I watched the movie The Buttler, a recollection of experience of a black American who served a number of American Presidents even before blacks were treated equally in the United States. That certainly helped me to appreciate the 1600 Pennsylvania Avenue better. I picked up few souvenirs from the shop besides White House. That allowed me to take few photos as if I were the most person in the world.

The White House

Am I this powerful?

Next was the Smithsonian Complex where all the interesting museums are located. The Smithsonian's National Air and Space Museum was my choice as I have been interested in planes since I was a kid. It was a very interesting place to visit as we are able to see the development of aerospace industry since the Wright Brothers tried to fly for the first time.

The space capsule at the Smithsonian's National Air and Space Museum

The museum is not that far from Capitol Hill, the symbol of American democracy. While the building was certainly elegant, the politicians and lobbyists  who make this place their first home were not visible from afar. Nevertheless, buildings located around the park are not only historically significant but are still influencing the lives of people who may be living thousands of miles away. This is where power is concentrated!

The Capitol Hill

My visit was perfectly timed when the Cherry Blossom Festival was celebrated. The flowers around the Tidal Bay was certainly beautiful and the number of visitors who were there to experience the occasion was amazing. to a certain extend, it camouflage the atmosphere of power in Washington DC, very deceiving indeed.

In the next few days I met a number of individuals who had strong influence in DC and the rest of the world. One of the person who I met was Senator Sarbanes, the co-writer of the Sarbanes and Oxley Act which created the Public Companies Accounting Oversight Board, a structure which influences audit regulation until today.

I did not miss the opportunity to experience the american past time activity, enjoying a baseball game where the Washington Nations was playing. I could observe how sports and leisure intersected especially how much hotdogs and burgers were consumed during the game. Unfortunately we left the game venue at the seventh inning, when one of the players hit a grand slam at the very next!

Cheering the Nations

My stay was certainly a great opportunity to provide me with the insights of the American way of thinking, especially in a place where many major decisions were made and will continue to be made which affect us, a place well remote from Washington. There are also many universities and institutions in Washington, which reflect the amour of intellectual power as well. It is not a surprise to me that such existence may be necessary given the kind of community which Washington attracts.

In summary, my first encounter with the place where the power that be are operating was a very pleasant one.

IFIAR 2013 Global Survey on Inspection Findings

Washington, DC, April 10, 2014 – Audits of public companies around the world suffer from persistent deficiencies in critical audit areas, raising increasing concern among international audit regulators, the International Forum of Independent Audit Regulators (IFIAR) reported today.
“The high rate and severity of inspection deficiencies in critical aspects of the audit, and at some of the world’s largest and systemically important financial institutions, is a wake-up call to firms and regulators alike: More must be done to improve the reliability of audit work performed globally on behalf of investors,” said Lewis H. Ferguson, IFIAR Chair and Board member of the U.S. Public Company Accounting Oversight Board.

Report on Inspection Findings

IFIAR’s Report on 2013 Inspection Findings Survey summarizes key inspection results from audits of public companies, including systemically important financial institutions, submitted by 30 IFIAR members. These results came from inspection reports issued during the members’ most recent annual reporting periods that ended by July 2013.

• The leading areas of deficiency in inspected audits of listed public interest entities, or public companies, relate to auditing fair value measurements; internal control testing; and procedures to assess the adequacy of financial statement presentation and disclosures.
  
• The leading areas of deficiency in audits of systemically important financial institutions, including global systemically important banks, relate to auditing of allowance for loan losses and loan impairments; internal control testing; and auditing of the valuation of investments and securities.
  
• Audit firms' own quality control systems had the highest number of inspection findings in the areas of engagement performance; human resources; and independence and ethics requirements.
  

“The survey makes clear that these important inspection findings are prevalent across many nations and firms,” said Chair Ferguson. “IFIAR has an important role to play in monitoring and promoting audit quality across borders.”

Inspection findings are deficiencies in audit procedures that indicate that the audit firm did not obtain sufficient appropriate audit evidence to support its opinion. Most of these findings are consistent with the results of IFIAR’s inaugural survey issued last year, although the survey does not provide an adequate basis for year-to-year comparison of the quality of audit performance.

The findings discussed in the survey are primarily from inspections of audit firms affiliated with the six largest international audit firm networks, which are BDO International Limited, Deloitte Touche Tohmatsu Limited, Ernst & Young Global Limited, Grant Thornton International Limited, KPMG International Cooperative, and PricewaterhouseCoopers International Limited. In many cases, a regulator’s response to an inspection finding is to require the audit firm to perform additional procedures necessary to complete the audit satisfactory.

Root-Cause Analysis Needed

Measures undertaken by IFIAR to improve global audit quality include meetings with global network firm leaders to discuss inspection results and actions the firms will take to show demonstrable improvement in audit performance; and using the survey results in members’ home countries to inform their respective inspection and standard-setting activities.

In its meetings with global audit firm leaders, IFIAR expects the firms to provide information about the results of root-cause analyses, the performance measures used to assess progress, and whether measurable improvements are being made. The global network firms with which IFIAR meets have agreed to provide such information.

“The firms should develop robust root-cause analysis to gain a clearer understanding of the factors that underlie inspection findings and to take appropriate remedial actions,” said Janine van Diggelen, IFIAR Vice Chair, and Head of the Audit & Reporting Quality Division at the Netherlands Authority for the Financial Markets.

“Only with a thorough understanding of the underlying factors that have led to findings can audit firms take appropriate measures. These measures should be aimed at improving their auditing techniques, as well as their oversight policies and procedures, but also consider the cultural and behavioral influences in the firms that were relevant to the deficiencies. Both audit firms and regulators must do more to improve audit quality,” added Vice Chair van Diggelen.

In monitoring the firms’ progress in these areas, IFIAR hopes to gain insight into whether the firms are successful in addressing firm-wide issues and, accordingly, promoting consistency in the execution of their audits.

A fact sheet on the 2013 survey also is available.

2

About IFIAR
IFIAR is comprised of 50 independent audit regulators from jurisdictions in Africa, the Americas, Asia, Europe, the Middle East and Oceania. It was formed in 2006 to provide a forum for regulators to share knowledge of the audit market environment and the practical experience gained from their independent audit regulatory activity.
IFIAR publishes the results of its surveys to inform regulators, investors, the financial community, and the public about the current state of inspections of audits of public companies, including financial institutions, around the world. For further information about IFIAR and its activities, visit ifiar.org. 

Are we serious about sustainability matters?

How do you feel when there is no running water at your home while it has been raining regularly lately? What more when you are living near the equator where rainfall is aplenty? This is certainly a mystery to those who are not that educated about how we are living our lives and how much we care about the surroundings which we are living in.

Those who are living around the Klang-Valley would certainly appreciate this kind of question which is bothering my mind. Can we have rainfall and drought at the same time? Or it is simply a matter of mismanagement on the part of people who are responsible to manage our water resources. Have we, the society, been so indifferent so much so that those who are supposed to do the work (and get paid, not free ya) are also indifferent about the quality of their performance?

Perhaps one of the indicators of this indifference attitude is when we observe how Muslims, generally, perform their ablution, a practice of washing certain parts of their bodies with water, before performing prayers. Notwithstanding that Islam requires Muslims not to be wasteful, so many of them would use unnecessary amount of water. Some even leave the pipes running while they are folding the sleeve of their shirts before performing ablution. Here, we could observe the disconnect between the teachings of Islam and the practice of Muslims.

If this is extended to the society at large, we can see how our daily routines result in the waste of resources. What more when it involves things which provide us with wealth. For example, property development is a hot thing around Klang-Valley. Definitely this is a very profitable venture resulting in developers building houses on high grounds including those with high slopes. Not only our water catchment areas are slowly being encroached, hill slope failures do occur from time to time. It will be on the front pages of our newspapers for a while but when the incidence is forgotten, business will be carried out as usual.

I am not going to write about governance matters as it warrant an article on its own. However, sufficient to be mentioned here that in the absence of good governance, don't expect public interests to be the highest priority of those managing our water resources. So if we don't bother and do not indicate our interest about sustainability issues, who should we blame for any misgiving which we are facing?

Where do we go from here?  

Is the MIA’s latest report a clear snapshot of audit quality in Malaysia?

By Errol Oh

IT’S easy to be sceptical about self-assessment exercises. How many people can be wholly critical and objective when evaluating what they see in the mirror? And surely fewer still are secure and honest enough to share the full results with the rest of the world.

So how should we view the Practice Review Report released this week by theMalaysian Institute of Accountant (MIA)?

The tricky element here is that the institute is a regulator as well as a professional body. Is the report an authoritative, warts-and-all survey of the profession that the institute oversees, or is it something that promotes the interests of MIA members?

Then again, these objectives don’t have to be mutually exclusive. When steps are taken to elevate the standards of the profession – starting with identification of problems – the accountants have much to gain.

In his message in the report, MIA president Johan Idris (who also chairs the institute’s Practice Review Committee) wrote, “The findings of practice review have significant educational content and are beneficial to practitioners. They serve to guide our practitioners in training their staff and alerting them to many pitfalls that may derail them in the course of carrying out the policies and procedures of the firm.”

The institute’s media release expanded this point: “This quality assessment programme will drive consistency and raise the bar on audit quality, thereby underpinning public confidence in the accountancy profession.”

The MIA’s practice review applies to all member firms that conducts audits. Practice review refers to the evaluation of the work performed by the auditors and of these firms’ internal quality controls.

The institute’s practice review programme began in 2004. The first report came out in 2009 and it was for 2004 to 2008. The latest Practice Review Report covers the period 2009 to 2013. Of the 1,363 audit firms registered with the MIA, 639 (47%) had been reviewed as at June last year. Here are some noteworthy details from the new report:

Rating the auditors

The review reports are assigned ratings. Type 1 and Type 2 are labelled ‘Satisfactory’ and ‘Assurance to be provided’ respectively.

Both ratings denote a pass in practice review.

But when a firm gets a Type 3 rating, that means a follow-up review is required.

The report hasn’t been glowing so far. Only 8% of the firms reviewed have been rated Type 1. That’s about 50 companies. Type 2 firms make up the largest group, with 48%.

The rest (44%) are, of course, in the Type 3 category. After follow-up reviews of the Type 3 cases, the MIA found that half of them had improved on their audit quality and thus passed practice review.

The others would be referred to the institute’s Investigation Committee.

The survey says

In August 2012, a survey was conducted to get feedback that may be useful if there’s a revision of the practice review framework. This involved responses from 60 practitioners whose firms were reviewed and for which final reports were issued.

The results are rather confusing. For example, 90% of the respondents say the Practice Review Programme is effective in enhancing their firms’ audit quality subsequent to the review, and 80% consider the practice review report a useful reference material for staff training purposes.

Yet, almost half of the respondents agreed that the same practice review report is fault-finding.

In addition, only 43% say the practice review findings are useful in improving the audit quality of their firms. Another 52% says the findings are “somewhat useful”.

And you know for sure that accountants are the respondents when 62% deem the practice review fee as high.

A new approach

In January this year, the Practice Review Programme adopted the risk-based approach in selecting firms for practice review. The MIA is sending out risk assessment questionnaires to the firms so that it can determine the level of risk associated with each firm.

Another new initiative is to hold dialogue sessions with practitioners to create awareness on issues relating to the implementation of the revised practice review framework. These sessions double up as an avenue to address the practitioners’ grouses about practice review.

What they found

Chief among the report’s general observations is this: “The documentation of working papers is still a key factor which is not taken seriously by some practitioners.

“Our practice reviewers find that inadequate attention is given to writing down audit procedures performed, the findings made by the auditors with respect to the sufficiency and appropriateness of the audit evidence gathered and the conclusions reached by the auditor.”

Executive editor Errol Oh is waiting for the Audit Oversight Board’s annual report 2013. That should be more interesting when read together with the MIA’s Practice Review Report.

Source: The Star Online http://www.thestar.com.my/Business/Business-News/2014/03/29/Auditing-the-auditors/