Inspection Activities - Audit Oversight | Securities Commission Malaysia

Inspection Activities

Section 31E (1)(d) of the Securities Commission Malaysia Act, 1993 (“SCMA”) provides that one of the key responsibilities of the AOB is to conduct inspections and monitoring programmes on auditors to assess the degree of compliance with auditing and ethical standards.

In discharging the above responsibilities, the AOB conducts inspection which include an assessment of the degree of compliance by auditors with auditing and ethical standards applicable in Malaysia and the quality of the auditors’ report relating to the Audited Financial statements of Public Interest Entities(“PIE”) and Schedule Funds at the firm level and engagement level.

A firm level review focuses on the review of an audit firm’s quality control systems and practices and the degree of compliance with the requirements of the International Standards of Quality Management 1 (“ISQM 1”) while an engagement level review aims to assess the auditor’s compliance with the International Standards on Auditing (ISAs) and relevant ethical standards at the audit engagement level.

Frequently Asked Questions

1. What is the scope of AOB’s inspection?
Section 31V of the SCMA provides that the AOB shall, from time to time, conduct inspections to assess –
the degree of compliance with the auditing and ethical standards by an auditor; and
the sufficiency and appropriateness of the audit evidence obtained in relation to the audit report prepared by an auditor relating to the audited financial statements of public interest entities or schedule funds.
2. How AOB select engagement for inspection?
The AOB adopts a risk-based approach in the planning and engagement selection for its inspection and monitoring programmes, taking into consideration the potential impact of an audit failure to the capital market and public confidence.
3. Will the audit firm be notified by the AOB before an inspection is carried out?
The AOB will notify the audit firm in writing before an upcoming inspection, stating the purpose and timing of the inspection. Notwithstanding that, the AOB may not give any notice period for an inspection that requires immediate action due to significant impact on public interest.
4. Who will be conducting the inspections?
Section 31V(2) of the SCMA provides that inspections shall be carried out by any officers of the AOB or any person authorized by the AOB who is referred to as an “Inspection Officer”.
5. What are the obligations of the audit firm during inspections conducted by the AOB?
Section 31V(3) of the SCMA provides that the audit firm, its partners and employees shall cooperate with an Inspection Officer who is conducting an inspection, in the following matters –
providing access to all books, accounts, working paper or other related documents;
furnishing copies of or extracts from such books, accounts, working papers or other related documents; and
providing information by oral interview, in writing or in any other manner as may be determined or required by an Inspection Officer.
6. What is the process undertaken by the AOB in finalising the Inspection Report?
At the conclusion of the inspection, the Inspection Officer shall prepare a draft inspection report and a copy of the draft report shall be extended to the audit firm. Thereafter, the audit firm would be given 10 working days to provide its written responses to the draft inspection report. After taking into account the written responses from the audit firm, the draft inspection report shall be finalised.
7. What further actions would be required from the audit firm upon receiving the final inspection report?
The audit firm is required to identify the actual root causes to all the findings identified by the AOB and put in place the relevant remedial measures to address the root causes. The audit firm should provide its remedial action plan within 21 working days from the date of the final inspection report. The AOB will closely monitor the implementation of the audit firm’s remedial action plan. On a quarterly period, the audit firm is required to provide an update to the AOB on the progress of their remedial action plan.
8. Can the AOB share findings from inspections of auditors and audit firms?
On some occasions, the AOB highlighted the findings from its inspections to the Audit Committees of the respective PIE. This happens when the AOB views that the findings may have a severe impact to the PIE’s financial reporting and requires immediate escalation. Since the inception of the AOB in 2010, it has only done so on two occasions.
AOB goes through the meticulous process of assembling all common findings arising from its inspections of firms and auditors into the Annual Inspection Report (“AIR”).
The Annual inspection report is available at: About AOB - Audit Oversight | Securities Commission Malaysia.