What the Audit Oversight Board will do ICAAMICPA

What the Audit Oversight Board will do ICAA-MICPA Audit Forum 3 August 2010 © Securities Commission, Malaysia 1

Financial Reporting Ecosystem Domestic Commercial transactions / results Securities Commission Directors and management Foreign Commercial transactions / results Companies Commission Financial reporting function Other experts: Valuers, Actuarists, Lawyers Financial statements Ministry of Finance External auditors Malaysian Institute of Accountants Bursa Malaysia © Securities Commission, Malaysia Internal audit function Bank Negara Malaysian Accounting Standards Board Audit Oversight Board

Drivers of financial statement quality Reporting regulation and standards Appropriateness, clarity and simplicity Reporting entities Availability of guidance when necessary Corporate governance practices Reporting function competency Professionalism and business principles Financial Statements Firm level quality control & risk management Application of standards in engagements Financial reporting infrastructure Users Knowledgeable Context of usage © Securities Commission, Malaysia Auditors

About the Audit Oversight Board • The Securities Commission has the function to (S 31 B): • Promote and develop an effective and robust audit oversight framework in Malaysia: • Promote confidence in the quality and reliability of audited financial statements in Malaysia: and • Regulate auditors of Public Interest Entities (PIE) © Securities Commission, Malaysia 4

About the Audit Oversight Board • Among the responsibilities of the AOB are: • • • Implement policies and programmes in ensuring an effective audit oversight system Register auditors of PIE Conduct inspections and monitoring programmes Conduct inquiries and impose appropriate sanctions Cooperate and liaise with relevant authorities and relevant oversight bodies in Malaysia and internationally © Securities Commission, Malaysia 5

Diagram 1 “Promoting confidence in the quality and reliability of audited financial statements of public interest entities in Malaysia through having effective and robust regulation and audit oversight” Strategic Themes Services Areas Outcomes Confidence in audited financial statements High quality and reliable audited financial statements Support adoption and implementation of standards Promote high quality audit practices Standards setting and guidance Registration Inspection and Inquiry Independent and high quality audit Influence financial reporting ecosystem Resourceful and high quality audit practices High quality financial reporting practices © Securities Commission, Malaysia Promotion of quality practices Leverage on stakeholders support Collaboration and cooperation

About the Audit Oversight Board • The Audit Oversight Board (AOB) became operational from 1 April 2010 • The AOB consists of: • An executive chairman • 6 non-executive members • Not more than 2 non-executive members of the AOB shall be members of the Malaysian Institute of Accountants © Securities Commission, Malaysia 7

Standard setting § Compliance with established auditing and ethical standards benchmark against international best practices is an integral aspect in ensuring audit quality § The AOB expects the accountancy profession to adopt all IFAC standards. The power to direct MIA to establish, amend, modify or alter its prescribed standards will only be exercised if there is a gap in the scope and timing of the adoption © Securities Commission, Malaysia

Registration process • AOB seeks to register audit firms and individual auditors of public interest entities (PIEs) who are fit and proper which includes (S 31 P): • Auditor approved under S 8 of the CA • Not convicted of an offence involving fraud and dishonesty • Not a bankrupt • Not engaged in practices with reflect discredit in meeting professional standards © Securities Commission, Malaysia 9

Inspection process • The AOB will conduct annual inspection of audit firms • The audited financial statements will be monitored and when necessary, auditors and their audit work will be inspected • Firms and engagements will be inspected based on a risk-based approach • Audit firms auditing high number of PIEs, for example, will be inspected annually while the rest will be inspected within 3 years © Securities Commission, Malaysia 10

Inspection process • Audit inspections would be conducted at the firm level and the engagement level • At the firm level, compliance with ISQC 1 will be reviewed: • • • Leadership and responsibilities within firm Ethical requirements Acceptance and continuance of audit clients Human resources Engagement performance Monitoring © Securities Commission, Malaysia 11

Inspection process • At the engagement level, inspection is targeted at compliance with International Standards on Auditing and relevant regulation and laws • The performance of the Engagement Partner and the Quality Control Reviewer will be assessed • This includes: • • • Audit planning Risk assessment and risk response Sufficiency and appropriateness of audit evidence Documentation Compliance with regulation © Securities Commission, Malaysia 12

Inquiry and Sanctions To enable effective and proportionate sanctions to be taken… § Inquiry conducted when there is reason to believe that provisions of the Act, written notice or guidelines are breached § AOB officers will conducting inquiries § be Inquiry officers will be appointed and will have necessary powers to conduct their duties © Securities Commission, Malaysia Cancelling or suspension of registration Monetary fines Censure Requiring errant auditor to comply with the Act Requiring additional professional education