Issues faced by audit firms in Malaysia are not very different to those faced in other key markets like Singapore, Australia and the UK, with regard to the need for continuous improvements in documentation of evidence obtained and in articulating the basis for professional judgements made. 

Key specific issues for Malaysian auditors, however, are mainly related to the implementation of standards and procedures and how audit firms price their services.

“Auditors should not take things at face value as financial reporting includes exercising significant professional judgment – there is a need to debate and challenge management assumptions, particularly in areas such as determining fair value, asset impairment and going concern” Nik advised. 

Noting the shortage of talent, an aging accounting workforce where numerous senior partners are exiting the profession, the increase in cross border transactions and the audit fee pressure faced by many audit firms, the AOB observed that audit firms need to price their services appropriately to attract high quality talent in order to maintain the confidence of investors and the capital market in the audit profession. 

Through the yearly exercise of inspecting audit practices in the country, the AOB is working to build a strong foundation for the enhancement of professionalism amongst auditors in the country. 

“The AOB is in the business of creating the demand for quality auditing. Audit inspections, which assess the quality of audit practices carried out by audit firms, form the cornerstone of the work we do” Nik stressed.

At the end of each inspection, the AOB issues an inspection report which points out deficiencies identified during the inspection and audit firms are required to submit their remediation plans for the AOB’s approval and subsequent monitoring of their implementation. 

During 2010, the AOB conducted six regular inspections of the Big Four Audit Firms and two major firms with more than 10 partners, and one special inspection on one of these firms.

“The audit firms were selected on a risk-based approach because collectively they audit 73% of the Public Interest Entities(PIEs), or approximately 93%, of the total market capitalisation represented by their public-listed clients,” said Nik.

During 2011, the AOB will deepen its oversight role and extend its coverage to include other firms and increase the number of audit engagements reviewed. The regulator also intends to cover other regulated industries including banking and insurance.

The AOB was set up in 2010 to oversee the auditors of PIEs, protect investors’ interest and promote confidence in the quality and reliability of audited financial statements of PIEs.

A total of 83 audit firms and 310 auditors had registered with the AOB as at 31 December 2010.

The AOB has also issued five warning letters to audit firms for failure to register on time since its establishment on 1 April 2010.