PETALING JAYA: The Securities Commission Malaysia’s Audit Oversight Board (AOB) on Thursday urged auditors to be more vigilant and diligent in the execution of their duties during the current period of economic uncertainties due to the Covid-19 pandemic.
In its Annual Inspection Report 2020, the AOB noted that it is the responsibility of the directors and Audit Committee to assess a company’s ability to continue as a going concern when preparing financial statements. This responsibility extends to ensuring disclosure on significant judgements arrived at in order to reach those conclusions.
Auditors are then required to verify and challenge the appropriateness of the going concern assumptions, as well as the adequacy of the related disclosures. Due to prolonged uncertainties arising from the pandemic, it is even more important now for auditors to exercise appropriate professional scepticism in conducting their audits.
The AOB’s Annual Inspection Report 2020 includes key highlights on the new and revised auditing standards relating to the firms’ system of quality management which is to be implemented by Dec 15, 2022. Audit firms are advised to take the necessary steps to implement these standards by the due date.
The introduction and implementation of the Annual Transparency Reporting in year 2021 would require eight AOB-registered audit firms that meet the reporting criteria to share their Transparency Reports with the Audit Committees of their public interest entities (PIE) clients.
The qualifying audit firms are required to disclose information pertaining to their legal and governance structures, measures to uphold audit quality and manage risks, as well as the measurements of audit quality indicators. In year 2022, the qualifying audit firms will also be required to publish their Annual Transparency Report to the public.
The Audit Committees of PIEs should take into consideration the information presented in the Annual Transparency Reports when deciding on the appointment and re-appointment of its auditors.
The AOB’s Annual Inspection Report 2020 also provides insights into the findings from its inspections during the year 2020. It also offers observations on the impact of Covid-19 on the financial results of public listed companies, including disclosures in the annual reports and audited financial statements (AFS). A total of 38 audit firms and 339 auditors are currently registered with the AOB.
In 2020, the AOB inspected 10 audit firms and performed monitoring and thematic reviews on four other audit firms. The monitoring and thematic review programme included follow up assessment on remediation actions taken to address past AOB inspection findings, including evaluation of the firms’ internal monitoring review results and thematic reviews on specific areas of concern. In this regard, the 2020 inspection and review had covered firms which collectively audit 72.6% of the total number of PIEs.
The AOB observed a significant increase in the percentage of audit engagements which required further evaluation and investigation, from 44% in 2019 to 88% in 2020.
Moving forward, the AOB will continue to work closely with various stakeholders to uphold high audit quality in Malaysia in order to drive improvements in financial reporting ecosystem.
While audit firms undertake measures to uphold audit quality in these difficult times, directors and Audit Committees are also reminded of the need for vigilance in managing the expanding range of issues and risks, particularly those relating to complexities in financial reporting caused by Covid-19.
Ongoing engagements with their auditors are essential to manage these matters on a continuous basis. The AOB also urges audit firms to invest in adequate level of training and resources to ensure that high quality audits are carried out at all times.