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Audit Quality Framework in Malaysia
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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