Audit Quality Framework in MalaysiaNik Mohd Hasyudeen YusoffPresidentMalaysian Institute of Accountants

The Financial Reporting Chain

Board of Directors

Audit Committee

Management

InternalAuditors

ExternalAuditors

Regulators Shareholders Other users

Roles of the PlayersThe Players in the reporting chain General Role

Board of Directors Set the tone for corporate governance

Audit Committee (All independent) Oversee the implementation of internal control and financial reporting matters

Management Implements good internal control and effective financial reporting

Internal Auditors Provide reasonable assurance on internal control and risk management

External Auditors Provide reasonable assurance on the financial statements

Regulators Enforce the laws

MIA and professional bodies Educate, set standards and enforce standards

Regulatory Requirements

•Financial Reporting Standards•Companies Act•Conditions on the Audit License•Capital Market and Services Act•Bursa Malaysia Listing Requirements•Banking and Financial Institution Act

Applicable Standards by MIA

• International Standards on Auditing • International Standards on Quality Control• International Education Standards 8 (Competency

Requirements for Audit Professionals)•MIA By-Laws (On Professional Conduct and Ethics)•Financial Reporting Standards Implementation

Committee (FRISIC)•Recommended Practice Guides

International Standards of Quality Control

• ISQC1 is the standard specific on Quality Control of audit of historical financial information

• It establishes the basic principles and essential procedures and to provide guidance regarding a firm’s responsibilities for its system of quality control for audits and reviews of historical financial information, and for other assurance and related services engagements

Objectives of the System of Quality Control•A firm should establish a system of quality control

designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued by the firm or engagement partners are appropriate in the circumstances

•A system of quality control consists of policies designed to achieve the above objectives and the procedures necessary to implement and monitor compliance with those policies.

Elements of System of Quality Control▫Leadership Responsibilities for Quality within the Firm▫Ethical requirements▫Acceptance of Continuance of Clients Relationships

and Specific Engagement▫Human Resources▫Engagement Performance▫Monitoring▫Documentation

Key Players in Quality Control in a Firm•Engagement partner•Engagement Quality Control Reviewer•Quality Control partner•Engagement partner and Engagement Quality

Control Reviewer are rotated out after 5 years for public interest entities engagement and have to sit out for 2 years

•For public interest entities audits, a firm must have a minimum of 5 partners

Competency Requirements for Audit Professionals

• Auditing is a structured process that:▫ involves the application of analytical skills, professional

judgment and professional skepticism;▫ is usually performed by a team of professionals, directed

with managerial skills;▫uses appropriate forms of technology and adheres to a

methodology;▫ complies with all relevant technical standards, such as

International Standards on Auditing (ISAs), International Standards on Quality Control (ISQCs), International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS), and any applicable international, national or local equivalents; and

▫ complies with required standards of professional ethics.

Competency Requirements for Audit Professionals

•Knowledge content•Professional skills•Professional Values, Ethics and Attitude•Practical experience•Continuing Professional Education

• Its about DEMONSTRATING ALL of the ABOVE

The Ethical Framework

PRINCIPLES THREATS SAFEGUARDS

PROFESSIONAL JUDGEMENT

Auditors’ Independence rules

Framework of Principles:

IdentifyThreats

EvaluateThreats

ApplySafeguards

Decide onEngagements

Self-Review

Self-Interest

Advocacy

Familiarity

Intimidation

Significant?Assuranceteam, firm,

network firm?

Profession orlegislation

Assuranceclient

Firm’sInternal

procedures

Eliminatethe threatsor withdrawfromengagement

Auditors’ Independence rules

AuditClient

Client

Non-auditAssurance

client

Type of Assurance Engagement

Assurance team, firm and network firm

Non-audit, not restricted use

Assuranceteam and firm

Non-audit,restricted use

Assurance teamand firm has no

material financialinterest

Independence requirement:

Issues •Can Audit Quality maintained for audit of all

companies? Audit threshold in certain countries•What is the minimum size of an audit firm that would

be able to generate required quality?•Audit Oversight Board for public interest entities

audit• Is Audit still RELEVENT in the way it is done?

Q&A and Thank You