AOB Enforcement - Audit Oversight | Securities Commission Malaysia

AOB Enforcement

The principle of proportionality, efficiency and achieving the desired outcome continue to be essential to the strategic enforcement approach adopted by AOB. In determining the type of sanction that is imposed on any contravention or breach, AOB takes into account the nature and seriousness of the offences, previous regulatory record and other aggravating and mitigating factors. Among the matters considered by AOB is the impact of the contravention on the integrity of the profession, the capital market as a whole and the impact of the breach on the confidence and reliability of audited financial statements of the PIE in question.

The sanctions are:

Directing the person in breach to comply with the provisions of Part IIIA of the SCA or any condition, written notice or guidelines;
Reprimand;
Requiring professional education to be undertaken;
Assigning a reviewer to oversee an audit that is undertaken by the auditor concerned;
Financial penalty of not exceeding RM500,000;
Prohibit the person concerned from accepting any public interest entity or schedule fund as its clients or preparing reports in relation to financial information of any public interest entity or schedule fund, as may be required under the securities laws or guidelines issued by the Commission, for a period not exceeding twelve months; and
Prohibit the person concerned from auditing financial statements or preparing reports in relation to financial information of a public interest entity or schedule fund, as may be required under the securities laws or guidelines issued by the Commission, for a period not exceeding twelve months or permanently.

The focus of AOB enforcement is whether the auditors comply with the recognised auditing and ethical standards. Such action from the AOB may not necessary imply the audited financial statement does not give a true and fair view.

Frequently Asked Questions

FAQ - Appeal Process
Can I appeal against the decision of the Audit Oversight Board with regard to the sanction imposed? If so, how should I appeal?
Yes, a person who is aggrieved by the decision of the Audit Oversight Board under subsection 31P(1) or (1A), section 31Q or subsection 31Z(2) of the Securities Commission Malaysia Act 1993 may appeal in writing to the Securities Commission Malaysia
When must I file the appeal?
The appeal must be filed within 30 days from the date on which you are notified of the said decision.
What should I state in my appeal?
In your appeal, you must clearly state the ground(s) of your appeal and attach all relevant documents to support your appeal.
To whom should the appeal be addressed to?
The appeal should be addressed to –

Commission Secretary
Securities Commission Malaysia
No. 3, Persiaran Bukit Kiara
Bukit Kiara
50490 Kuala Lumpur
When will my appeal be decided by the Securities Commission Malaysia?
Pursuant to section 31ZB(4), the Securities Commission Malaysia shall decide on an appeal within a period of three (3) months from the date the appeal is made.
Will the sanction imposed by Audit Oversight Board against me continue to take effect after I have filed my appeal to the Securities Commission Malaysia?
Where there is an appeal against the decision of the Audit Oversight Board, the decision of the Audit Oversight Board under subsection 31P(1) or (1A), section 31Q or subsection 31Z(2) of the Securities Commission Malaysia Act 1993 shall not take effect until the appeal is disposed of.
What is the possible outcome of my appeal?
The Securities Commission Malaysia may –

a. affirm the decision of the Audit Oversight Board;
b. set aside the decision of the Audit Oversight Board; or
c. substitute the decision of the Audit Oversight Board with its own decision. In any event, you will be notified in writing as to the decision of your appeal.
FAQ - Auditors Prohibited from Auditing and/or Accepting PIEs and Schedule Funds as its Clients
What does a prohibition entail?
Pursuant to section 31Z(2)(f) of the SCMA, the AOB may impose prohibition on a person concerned from accepting any PIE or schedule fund as its client or preparing reports in relation to financial information of any PIE or schedule fund.

Pursuant to section 31Z(2)(g) of the SCMA, the AOB may impose prohibition on a person concerned from auditing financial statements or preparing reports in relation to financial information of a PIE or schedule fund.

The prohibition includes work carried out by a person or firm in his/its capacity as an Auditor and/ or a Reporting Accountant.
How long is the prohibition period?
Pursuant to section 31Z(2)(f) of the SCMA, the prohibition from accepting any PIE or schedule fund as client may be imposed on the person concerned for a period not exceeding 12 months. Meanwhile, section 31Z(2)(g) of the SCMA states that the prohibition from auditing financial statements or preparing reports of a PIE or schedule fund may be imposed on the person concerned for a period not exceeding 12 months or permanently.

Read more on the enforcement action imposed on auditors including the period of the prohibition from https://www.sc.com.my/aob/aobs-sanctions.
What is the purpose of prohibition?
The AOB imposed the prohibition based on the facts of the case, the degree of the auditors’ non-compliance with the auditing and ethical standards, severity of the breach, impact to the capital market and the need to protect public interest regardless of size or affiliation.

The prohibition is primarily intended to ensure auditors have ample time to build sufficient internal capacity to enhance an audit firm’s audit capability and competency to the required standard.
Will the prohibition affect the auditors’ license under the Companies Act 2016?
No, the prohibition would not affect the auditors’ license issued under the Companies Act 2016 unless decided otherwise by other relevant authorities. The prohibition only prohibits auditors from auditing and/or accepting PIE or schedule fund as audit clients during the prohibition period. The prohibition does not prohibit auditors from continuing their engagements with their non-PIE or non-schedule fund audit clients.
If the auditor is prohibited, is the auditor still considered to be an AOB registrant?
Yes, the prohibited auditor is still registered with the AOB until the auditor applies to withdraw his/her registration with the AOB or their registration or recognition is revoked by the AOB.
Can a PIE or schedule fund appoint an auditor who has been sanctioned by the AOB?
The PIE or schedule fund may or may not appoint an auditor who has been sanctioned by the AOB depending on the types of sanction imposed. The PIE or schedule fund cannot appoint an auditor if -

• the auditor has been prohibited from accepting and/or auditing PIE or schedule fund during the prohibition period; or
• the auditor’s registration with the AOB has been revoked.
What should a PIE or schedule fund do when the appointed auditor is prohibited from auditing and/or accepting PIE or schedule fund as its client?
The PIE or schedule fund should consider whether the continued appointment of the auditor who has been sanctioned by the AOB, would have an impact on the entity, in particular any legal consequences and its investor confidence on the AFS.

The PIE or schedule fund should immediately consult with its legal counsel and engage the auditor concerned. The PIE or schedule fund should ensure that there is no disruption to the completion of the statutory audit and that the AFS can be issued within the required time.