In 2018, the AOB inspected six major audit firms and seven other audit firms. These firms collectively audited public listed companies (PLCs) representing approximately 94% of the total market capitalisation of PLCs.
Through its inspections, the AOB noted an overall reduction in the number of recurring findings – out of eight firms re-inspected, only one recurring finding each was noted in two of the audit firms.
While firms are taking measures to improve audit quality, the AOB remains concerned that issues in areas such as sampling and the audit of revenue recognition still persist. The AOB urges audit firms to adopt a more structured and formalised root cause analysis framework to ensure that the remediation measures taken to address the findings raised are effective and sustainable.
In 2018, for the first time, the AOB took enforcement actions against Engagement Quality Control Review (EQCR) partners for their failures in exercising their gatekeeping functions in the audit engagements. The AOB also shared inspection findings of an inspected audit engagement with the Audit Committee of the public listed company, given AOB’s concerns on the audit quality and outsourcing of its audit work to other auditors.
In addition, new registration criteria were introduced to ensure that the auditors’ gatekeeping role remains relevant and more importantly, to encourage audit firms to increase their capacity and improve their audit quality. The new criteria include ensuring that registered audit partners are attached to only one audit firm at all times and requiring an audit firm registered with AOB to have at least three audit partners. Additionally, the EQCRs of public interest entities (PIEs) and schedule funds audits must now be carried out by an AOB-registered partner of the same audit firm appointed as the auditor. The continued registration of an audit firm with the AOB is also subject to the audit firm having at least one PIE or schedule fund audit client in the last 24 months.
The AOB remains focus in its enforcement efforts in order to protect investors and other stakeholders and to set the tone for high quality audits. Last year, the AOB took enforcement actions against 11 individual auditors and three audit firms for failure to comply with laws, regulation and auditing standards.
AOB Chairman, Dato’ Gumuri Hussain said, “The AOB believes that audit quality is a cornerstone of good governance and ultimately, boards are responsible to put in place policies and processes to ensure auditors’ independence and commitment to deliver good quality work as well as audit processes that are fully supported by the management.”
The AOB will distribute its Annual Inspection Report 2018 to all PLCs in order to deepen boards and Audit Committees’ understanding of the findings and to facilitate discussions between PIEs and their respective auditors to ensure that risk areas specific to their entities are adequately addressed.
The AOB Annual Report and Annual Inspection Report 2018 are available
here.
