YBhg Dato Dr Nik Ramlah Mahmood,
Deputy Chief Executive,
Securities Commission Malaysia
ASEAN Audit Regulators Group Forum,
14th January 2013,
Securities Commission Malaysia, Kuala Lumpur
Ladies and gentlemen,
Good morning, welcome to the Securities Commission.
Welcome to the ASEAN Audit Regulators Group Forum, organised by the Audit Oversight Board in conjunction with the 2nd ASEAN Audit Regulators Group Inspection Workshop. To all speakers and participants from abroad, I would like to welcome you to Kuala Lumpur and I hope you will enjoy your stay here.
We are delighted to have with us this morning participants from most of the ASEAN countries as well as our friends from Japan and Hong Kong. Your presence here shows your strong desire to work together and to support one another in ensuring investors are protected through high quality financial reporting and audit. Co-operation among audit regulators would also ensure more consistent approaches in dealing with audit firms many of which have cross-border operations.
This forum is another opportunity for audit regulators and market participants to share experience, ideas and views on matters which are relevant to the enhancement of audit quality. This collective effort in strengthening corporate governance is consistent with the view of the SC that corporate governance is not the sole preserve of the regulators but the obligation of investors, of intermediaries, of professionals and of participants, to exercise greater care and responsibility in promoting value creation and sustainability through mutually-reinforcing efforts.
Ladies and Gentlemen,
The International Forum of Independent Audit Regulators (IFIAR) in December 2012 published a summary of a survey of inspection findings among its members. The survey results suggest that audit firms globally need to do more to improve the consistency of performance on individual audit engagements. Many audit regulators who responded to the survey also noted that a lack of auditors’ professional scepticism on audit engagements was a significant performance issue as well as a possible cause underlying many inspection findings.
The frequency of findings across jurisdictions in the various audit areas demonstrates that audit firms should continue to improve their auditing techniques and also their oversight policies and procedures. The fact that so many findings recur year after year in the same inspection theme areas, suggests that audit firms should take steps to conduct a robust root cause analysis to gain a clearer understanding of the factors that underlie these findings and take appropriate actions to remediate those inspection findings.
Such findings also point towards the needs for audit regulators to think and act differently in engaging with audit firms to ensure your audit oversight activities would result in better outcomes and meeting your regulatory objectives.
Ladies and Gentlemen,
Audit committees play an important role in ensuring financial statements of public listed companies are prepared in compliance with the requirements of financial reporting standards. This necessitates audit committees to ensure the companies under their care have effective financial reporting functions which are capable of producing high quality financial reports corresponding to the nature and complexities of their business operations and industries they are operating in. Additionally, they should also ensure the internal control over financial reporting are running effectively and cover the foreseeable risks specific to these entities. Leveraging on the internal audit function which reports to audit committees is one of the ways for audit committee members to have real insights of the effectiveness of those controls.
At the same time, audit committees are also involved directly in the process of the appointment of auditors including assessing their suitability and independence. Suitability includes ensuring the auditors have adequate knowledge and expertise about the industries in which companies are operating, have enough reach to audit subsidiaries and associates which may also be located in foreign jurisdictions as well as having enough resources to meet financial reporting deadlines. The AOB had, through their audit inspection, noted that one of the reasons which lead to the compromise of audit quality was when the resources of audit firms were stretched resulting in partners and senior team members not being able to focus adequately on material issues in their audit.
Given the wide role played by audit committees in overseeing internal control, financial reporting and audit, it is very important for audit committees to be resourced with competent members who collectively have the relevant knowledge, experience and expertise. In addition, companies should ensure that audit committees have access to professional and expert advice to enable audit committee to discharge their responsibilities effectively.
Ladies and Gentlemen,
The credibility of financial statements would be tainted when fraud occurs. While I appreciate the long standing debate on whether auditors are watch dogs or blood hounds, the reputation of audit firms would be on the line when the financial statements they audit are associated with fraud. Thus, auditors should consider this risk seriously when assessing the risks surrounding the clients’ financial statements.
Having more experienced team members at the planning stage who have adequate industry knowledge and practices could influence the effectiveness of the planning and fraud assessment process. Additionally, knowing the clients well including their commitment towards good corporate governance and their risk appetites would also provide auditors with some sense of the likelihood for fraud to occur.
While we tend to be wiser on hindsight, being more vigilant and applying professional scepticism diligently would be among the safeguards that will mitigate the risks of auditors failing to detect material frauds or errors.
Ladies and gentlemen,
The quality of any service is highly dependent on the quality and commitment of the people providing the service. For high quality audit to be achieved, the audit team, right from engagement partners to junior associates must possess the required level of knowledge, skills and values. Unfortunately, one of the most common problems raised by audit firms is their difficulties in attracting and retaining talents.
I am pleased to note that the AOB and the Association of Chartered Certified Accountants (ACCA) had collaborated in conducting a survey of talents within the top audit firms in Malaysia. The focus of the survey was to obtain better understanding of talent attraction and retention issues with the view of providing the firms with insights on how they could manage the challenge better. Given that the ACCA had conducted similar survey in Singapore with the support of ACRA, audit firms now have more data points which they could use to devise more appropriate strategies and incentives in managing their talent pool.
I would like to thank all audit firms which had participated in the survey. I trust your collective efforts had enabled the auditing industry to appreciate more about how the staff and employees within the industry view their career progression and potentials. I believe efforts such as this will contribute towards addressing the talents issues faced by the auditing industry and would influence audit quality in the long term.
Ladies and Gentlemen,
While I had touched some of the key issues which influence the quality of financial reporting and performance of auditors, I am sure more will be explored during the forum this morning. Having panellists from a wide range of backgrounds and experience would certainly enrich the quality of the deliberation of your discussion later.
In closing, I would like to congratulate the AARG for organising the 2nd Audit Inspection workshop. Although this informal grouping is still very new, it is already able to offer a credible platform for audit regulators in ASEAN to cooperate and collaborate in strengthening your respective audit oversight regimes. This is going to be more important when ASEAN becomes a more integrated and open market with the actualisation of the ASEAN Economic Community project.
I hope more ASEAN audit regulators would be able to join IFIAR and AARG so that the quality of financial reporting and audit in this region would be further enhanced.
Thank you and have a productive forum.