PETALING JAYA: The Securities Commission’s Audit Oversight Board (AOB) said while firms are taking measures to improve audit quality, it is 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,” said AOB in a press release today in conjunction with the issuance of its Annual Report and Annual Inspection Report for 2018.
The reports share common inspection findings, trend analysis, and assessment of remediation efforts and progress taken by inspected audit firms.
In 2018, the AOB inspected six major audit firms and seven other audit firms. These firms collectively audited public listed companies (PLCs) representing about 94% of the total market capitalisation of PLCs.
It 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.
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.
It said 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.
The EQCRs of public interest entities 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.
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.
