The Securities Commission (SC)’s Audit Oversight Board (AOB) has issued its Annual Inspection Report for 2019, and urged auditors and Audit Committees to pay particular attention when discharging their responsibilities in response to the pandemic, in order to consistently uphold audit quality. These areas include going concern, asset impairment, subsequent events and group audits.
In a statement, AOB’s Chairman, Gumuri Hussain said as the audit regulator, the AOB is of the view that reliable audited financial statements remain the cornerstone of a trusted capital market.
“There is an even greater imperative for audit professionals to be cautious and highly sceptical when scrutinising disclosures and information relating to the effects of the Covid-19 pandemic, particularly with regard to public interest entities,” Gumuri added.
The AOB Annual Inspection Report 2019 provides insights into the observations arising from the inspections conducted by the audit regulator. A total of 43 firms and 337 auditors are currently registered with or recognised by the AOB.
In 2019, the AOB inspected six Major Audit Firms and seven Other Audit Firms, which collectively audited 72.6 percent of the total number of public interest entities (PIEs).
Through its inspections, the AOB noted that the performance of Major Audit Firms has been relatively consistent over the last few years.
However, the AOB is concerned that a marked difference was noted in the audit quality of Other Audit Firms, where 50 percent of the engagements inspected under Other Audit Firms require significant improvements.
For greater transparency, stronger accountability and the sustainability of audit, the AOB starting in 2021 will be mandating Annual Transparency Reporting by firms with more than 50 PIE audit clients, when they audit clients with collectively more than RM10 billion market capitalisation over two consecutive financial years. Such firms are required to disclose their legal and governance structures, the steps undertaken to uphold audit quality, and their measurement of indicators for audit quality.
The AOB introduced this initiative in August 2019, but deferred implementation to 2021, in view of the Covid-19 pandemic.
The AOB has distributed the Annual Inspection Report 2019 to audit firms and PLCs in order to deepen directors’ and Audit Committees’ understanding of the findings arising from the AOB’s inspections and to facilitate discussions between PIEs and their respective auditors, to ensure that risk areas specific to their entities are adequately addressed.