AOB Urges Auditors to Improve Audit Effectiveness, Beef Up Internal Capacity

Auditors must raise professional scepticism amid changing landscape


Kuala Lumpur, 26 June 2023

The Securities Commission Malaysia’s (SC) Audit Oversight Board (AOB) has urged auditors of public interest entities (PIEs) to uphold a high level of audit quality by investing in adequate resources to ensure audit effectiveness.

Every year, the AOB inspects Major Audit Firms that have more than 50 PIE audit clients with a total market capitalisation of above RM15 billion. These firms collectively audit 95% of the market capitalisation of public listed companies (PLCs) in Malaysia. The AOB’s inspections are risk based and are aimed at responding to emerging risks in a timely manner.

According to the AOB’s Inspection Report 2022 released today, there was an increase in the number of audit engagements inspected by the AOB that required significant improvements. The AOB observed that the complexity of the PIE’s portfolio has posed challenges to firms’ audit planning, judgement and execution, particularly in identifying and managing potential risk areas.

The AOB’s Annual Inspection Report provides insights into the common findings affecting auditors during the AOB’s inspections of firms and audit engagements of PIEs in that year.

In 2022, the AOB carried out a survey on PLC audit committee (AC) members to understand how they used the Annual Transparency Report (ATR) issued by the eight Major Audit Firms and to identify any areas for improvement. Around 94% of the survey respondents found the information in the ATRs useful in the selection and re-appointment of the auditors of their companies.

Talent attrition remains a concern among audit firms. In 2022, the AOB interviewed audit staff from six of the Major Audit Firms who were serving their resignation notice period to understand the firms’ working environment and the causes that contributed to staff resignations.

It was observed that staff resignation has largely been attributed to heavy workloads. Firms are strongly encouraged to take decisive measures including increasing resources and capacity to address resignations arising from heavy workloads faced by audit personnel.

In addition, the AOB will continue to work with auditors and key stakeholders on corporate reporting, audit quality and corporate governance. This is to ensure that auditors and ACs are adequately informed and equipped with relevant information to carry out their respective roles effectively.

This year, the AOB will focus on areas surrounding sustainability of audit practices, firms’ system of quality management along with an emphasis on complex accounting treatment and significantly judgmental areas of financial statements.

The AOB’s Annual Inspection Report 2022 is available here

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