The audit regulator also announced that it will start publishing inspection reports of audit firms which failed to effectively remediate their weaknesses, in order to uphold audit quality and standard.

Nik Hasyudeen Yusoff, Executive Chairman of AOB said, “Audit quality is and will continue to be the principal attention for AOB. It is an important factor which influences confidence in financial statement disclosures. Our findings suggested efforts to improve audit quality should go beyond process improvements and training. This should include the overall strategy of competing in the market, alignment of incentive and business model of the firm.”

“How the audit teams embrace and actualise professional ethics and values should also be the focal point. In this respect, the leadership of audit firms should set a clear tone for the rest to follow,” added Nik Hasyudeen.

The AOB was set up by the Securities Commission in 2010 to oversee the auditors of public-interest entities (PIEs), protect investors’ interest and promote confidence in the quality and reliability of audited financial statements of PIEs.

In 2014, six major audit firms and four other audit firms collectively audited 957 PIEs covering 98.6% of the market capitalisation of public-listed companies in Malaysia. The AOB noted incremental improvements where the number of recurring findings had reduced with respect to the engagement reviews involving re-inspected firms. However, consistency of engagement performance among engagement partners remains a key challenge for most firms.

The audit regulator has taken a total of three enforcement actions in 2014, including for the very first time barred an audit firm from accepting any PIE as a client for 12 months. The audit firm was also imposed a monetary penalty of RM30,000. In the past, the sanctions exercised were confined to a reprimand and the highest monetary penalty was RM10,000.

Moving forward, AOB views the implementation of the New Auditor Reporting Standard, which will take effect on 15 December 2016, as a possible game changer in enhancing the quality of auditing and financial reporting in Malaysia. The new standards would require auditors to disclose Key Audit Matter in their reports, leading to a more informative and tailored reporting specific to the clients’ circumstances instead of the present reporting approach consisting of standard terms and boilerplates.

Please click here to view the Audit Oversight Board Annual Report 2014.