Discuss the role of Malaysian AOB (Audit Oversight Board) When was the AOB set up? The Audit Oversight Board (“AOB”) is established under Part IIIA of the Securities Commission Act 1993 (“SCA”) which came into force on 1 April 2010 to promote and develop an effective audit oversight framework and to promote confidence in the quality and reliability of audited financial statements in Malaysia. The chronology of events of establishing AOB in Malaysia is as follow: September to October 2007: Budget 2008 Announcement by YAB PM – “Government will establish a Public Companies Accounting Oversight Board under the auspices of the SC”.
Consultations held with industry groups and regulators. January to April 2008: Appropriate audit oversight framework for Malaysia Securities Commission (Amendment) Bill 2009 which contains the establishment and functions of the AOB passed in both Houses of Parliament. December 2009 Securities Commission (Amendment) Bill 2009 which contains the establishment and functions of the AOB passed in both Houses of Parliament. 1 April 2010 Part IIIA Securities Commission (Amendment) Act 2010 came into force. (Establish of Audit Oversight Board) What is it supposed AOB to do?
Under Part IIIA of the SCA 1993, AOB is responsible to 5 major functions in order to assist the Security Committee (SC), which listed as below: (i)Standard setting AOB has the power to direct the Malaysian Institute of Accountants (MIA) to establish, adopt, amend, modify, alter or by any combined ways, the auditing and ethical standards to be applied by registered auditors. It is also responsible to implement policies and programmes in ensuring an effective audit oversight system in Malaysia. (ii)Registration Auditors of public interest entities (PIEs) must register and recognized by AOB to ensure the auditing process is fit and proper.
It is an offence for non-registration. (iii)Sanctions AOB has the power to impose appropriate sanctions against registered auditors who fail to comply with auditing and ethical standards. (iv)Inspection In accordance with Section 31V(1) of Part IIIA of the SCA, the registered audit firm and auditor will be subject to inspections by the AOB to assess the degree of compliance withthe auditing and ethical standards by the auditor and the quality of the audit reports prepared by the auditor relating to the audited financial statements of the PIEs. v)Inquiry Section 31W of the SCA on the other hand empowers AOB to conduct an inquiry if there is a reason to believe that any auditor has contravened any provisions of Part IIIA of the SCA, any condition imposed under section 31O(4) of the SCA or any written notice or guidelines issued by the SC. Why do we need an AOB? The need of audit oversight board (AOB) is to make sure all audit procedure is follow probably by the auditor. By doing this it is means that AOB is the one who check the work of audit.
In other way it as act audit oversight framework in Malaysia. It is important to have AOB is because by doing so, audit work are more reliable. Besides that, AOB needed to promote confidence in the quality and reliability of audited financial statements in Malaysia. There are many cases which involve the quality of audited reported such as Enron, Parmalat, World Com, Transmile and etc. By having a more independent party the AOB, which promote more confidence and reliable report. Thus create interest for investor to invest in Malaysia market.
What is the AOB achieved so far? Based on the news of AOB on ‘The Edge’ magazine on 4 October 2012. AOB has formed an official collaboration in audit oversight with the Japan Financial Services Authority and the Certified Public Accountants Audit Oversight Board (CPAAOB). “This collaboration would facilitate audit regulators to oversee cross border audits towards enhancing the soundness of the securities markets and investor protection in the respective countries,” said by chairman Nik Mohd Hasyudeen Yusoff
The SC said the collaboration was the AOB’s first arrangement with other regulators outside the Asean region. The official cooperation will allow the audit regulators to share information upon request, with respect to foreign audit firms that fall within the respective regulatory jurisdiction. This will, eventually, promote the confidence of overseas users in using the audited reports in Malaysia. What are the findings and consequences of AOB so far? After the establishment of AOB, there are a certain major change in the audit field.
All audit firm are require to register their company with AOB in Malaysia. The register of audit firm is need for AOB to continue measuring the audit work of the firm. Based on AOB, every company partner will be measure their work every few year. Audit partner licenses will also be forfeit if found their work are not in tit he correct procedure. This action, have cause many auditor to do more work or more working paper. By doing so, much cost will be incurred to the audited firm.
The reason auditor doing so is to search for more audit evidence and also to avoid being sack as an auditor. On 16 July 2012, there are partner being penalized by AOB after few year of establishment of AOB. The senior partner of a mid-tier accounting firm is the first auditor to be penalized for breaching a condition imposed when he registered with the board. Last Thursday, Alvin Tee Guan Pian of UHY Malaysia was reprimanded for “failure to comply with the relevant requirements of the recognized auditing standards in Malaysia i. . the International Standards on Auditing”. ( Enrol Oh, Starbiz, 2012) Audit oversight board is also given the power to penalized a auditor if found misstatement in audit report. By doing so, the auditor report are more reliable to external user due to there is another independent body which is the AOB involve in the Malaysia audit field. In a whole, the establish of AOB had promote more advantage to the audit firm compare to disadvantage. It is similar to what other countries have experienced?
Malaysia are not the first country which establish AOB, but Malaysia are the 2nd country in ASEAN country and top 10th is Asian country which establish AOB. This has show that Malaysia auditing practices are following the improvement of international standard. Besides that, also show Malaysia is concern about the change in accounting standard to other country. AOB in other countries which have already establish are similarly same in their function of standard setting, registration, sanctions, inspection and inquiry.