The Audit Oversight Board (AOB) has urged audit firms to embrace a quality-oriented culture as the tone at the top will positively influence partners and audit engagement teams’ behaviour and their commitment to audit quality.
In releasing its 2015 Annual Report, the AOB reported that its inspection findings have shown that audit firms need to do more to ensure that their quality control systems are more effective. These efforts need to be holistic and cover areas such as partner accountability, human resources, training and monitoring functions.
Importantly, the AOB observed that firms which maintain audit quality and professional standards were not worse off economically compared to their peers, and in certain market segments were more competitive, debunking the myth that doing so is financially costly to firms. This sends a clear signal that sustaining quality and upholding professional standards make good business sense. Audit firms should not compete at the expense of audit quality.
The AOB also noted that audit fees continued to grow in the same trajectory as in the last few years while the pressure on salaries moderated, although the overall salary cost was still on the uptrend. However, with the appropriate pricing model, audit firms would have enough margins to ensure that they are able to carry out their audit work more effectively.
The AOB was set up by the Securities Commission Malaysia in 2010 to oversee the auditors of public interest entities (PIEs) and schedule funds, protect investors’ interest and promote confidence in the quality and reliability of audited financial statements of PIEs and schedule funds.
In 2015, AOB inspected six major audit firms and six other audit firms which collectively audited 872 PIEs covering 97% of the market capitalisation of public-listed companies in Malaysia.
The AOB is encouraged to note that out of nine firms re-inspected in 2015, four firms did not have any recurring findings while the number of recurring findings for two other firms had reduced. However, it also observed significant findings on some of the key audit areas of engagements belonging to Major Firms. The AOB urges the relevant firms to address this issue immediately.
The AOB also reprimanded and imposed a monetary penalty of RM50,000 on one auditor for failure to comply with auditing standards in the audit of a PLC and, for the first time, revoked the registrations of an audit firm and two of its partners for failing to remain fit and proper to audit public interest entities.
Moving forward, AOB will continue to deal with failure of maintaining audit quality and professional standards decisively while working closely with audit firms to address issues in a timely manner.