AOB Emphasises Need for High Quality Audit; Urges Firms to Strengthen Capacity Building

AOB Emphasises Need for High Quality Audit; Urges Firms to Strengthen Capacity Building

14 July 2022 | Kuala Lumpur

The Securities Commission Malaysia's Audit Oversight Board (AOB) has called on auditors to strengthen their audit quality to better address the challenging business environment. According to the AOB's Annual Inspection Report 2021 released today, auditors are advised to increase their alertness to risks stemming from the unpredictable business environment. Focus should be given to areas such as fraud risks, related party transactions and management override of controls.

The AOB also urged audit firms to strengthen their talent pipeline and provide adequate and continuous capacity-building programmes across various roles and levels to facilitate higher quality audits.

The AOB Chairman Dato' Anantham Kasinather emphasised, "Capacity and competency of audit practice talent remain one of the key audit quality indicators. Audit firms should consider longer term solutions to high talent attrition rates with expedited technological adoption being a key consideration, along with more concerted efforts for greater gender diversity and promote positive audit work culture."

The Report highlights key findings of the AOB's inspection of 14 audit firms, covering 45 partners and 54 audit engagements in 2021. In addition to its inspection to further strengthen its monitoring process, the AOB continues to conduct off-site monitoring reviews for 118 audit engagements by analysing auditors' reports and disclosures made within the Annual Reports and audited financial statements of the respective public listed companies (PLCs).

Incorporating a data-driven approach for Major Audit Firms, the AOB's inspection focused on areas of potential heightened risks that can affect the auditor's overall audit strategy, allocation of resources, and extent of effort and attention given by auditors during audits.

Further, recognising the importance of audit firm culture in influencing audit quality, the AOB embarked on a thematic review of the Major Audit Firms' culture last year. While the Major Audit Firms have fared well in most of the areas assessed, the challenge remains for them to maintain consistently high audit quality across all engagements as five of the six Major Audit Firms had at least one engagement that required significant improvements. In addition, some of these audit firms can improve in reinforcing a positive culture, particularly in building greater trust in the audit firms.

As for the Other Audit Firms, the AOB has found an increasing trend in the number of engagements reviewed by the AOB requiring significant improvements.

In light of these observations, the AOB reminds all Audit Firms against complacency and the need to strive for high quality audit particularly in an increasingly challenging business environment.

Audit Committees are strongly encouraged to understand and discuss the findings and firm-level statistics shared in the AOB's Annual Inspection Report and the Annual Transparency Report with their respective auditors to strengthen their oversight role. The AOB will continue its ongoing engagement with Audit Committees to strengthen PLCs' oversight on auditors and how the Audit Committee can support and enhance the effectiveness of the audit process.

The AOB's Annual Inspection Report 2021 is available here.

SECURITIES COMMISSION MALAYSIA