Regulators act on complaints: MIA to name and shame errant professionals

We have a due process to investigate any complaints made against any of our members,” MIA chief executive officer Ho Foong Moi (inset pic) told StarBiz.

PETALING JAYA: The auditors who signed off on the controversial 1Malaysia Development Bhd (1MDB) accounts will be investigated by the Malaysian Institute of Accountants (MIA).

Confirming this to StarBiz, MIA chief executive officer Ho Foong Moi said this was following complaints made by an Opposition Member of Parliament (MP).

DAP’s Petaling Jaya Utara MP Tony Pua had made two complaints to MIA, one in March and another in May.

“We have a due process to investigate any complaints made against any of our members,” Ho said.

MIA would not say when it aimed to complete the investigation. Ho said the deadline would depend on many factors as the case was complex.

“It also depends on whether we can obtain the relevant documents as well as prompt responses from the relevant parties,” she said.

On how impartial the probe would be, given that several council members of the MIA also work for three firms or the Accountant General’s office – who are involved with 1MDB – Ho said that any conflicted party would not be involved in the MIA investigation.

Three of the Big Four accounting firms were at one time or another working for 1MDB. The three are Ernst & Young, KPMG and Deloitte. The Accountant General’s Department is an authority under the Finance Ministry and advises the minister on who to appoint to the MIA council. Nine out of the MIA’s 29 council members work for the three firms or the Accountant General’s office.

The RM42bil debt chalked up by 1MDB has been the interest of many, but this is the first time the MIA is stepping in.

There have been previous calls for it to check on the auditors. The chairman of the Public Accounts Committee, which is holding an inquest into 1MDB, said he had found some accounting issues.

Datuk Nur Jazlan Mohamed said a few major accounting principles seemed to have been stretched to achieve the unqualified opinion in 1MDB’s 2014 accounts.

He called for regulators like the MIA and the Audit Oversight Board to step up and enforce the law. But the board has made it clear that it has control only over auditors of public listed companies.

The MIA, on the other hand, is a regulator for the accountants in Malaysia. The body has the power to investigate and punish members. It can even bar members from practising. But Ho stressed that the body can investigate only individuals, and not firms.

When the misconduct is less serious, the MIA can reprimand or fine the member. The MIA can also suspend a member for up to three years.

Move to name and shame errant auditors

PETALING JAYA: The regulator of audit firms in Malaysia has raised the issue of firms not fixing problems it had raised during inspections.

To put pressure on such firms, the Audit Oversight Board (AOB) will to make its inspection report public.

“We are concerned that audit firms may have started to be complacent with the deficiencies and issues raised in our inspection reports and have not given the required attention to the effectiveness of their remediation plans as indicated earlier to the board,” said executive chairman Nik Mohd Hasyudeen Yusoff in the AOB annual report 2014.

He noted that while firms have been enhancing their quality control, the board had found little actual improvement.

Last year, the board set stricter conditions for registration. It refused an application for recognition by a foreign audit firm because that firm failed to meet the board’s standards.

Also, the board acted against another firm for failing to meet critical measures on independence.

The board said new and revised standards next year would be a possible game changer to raise the quality of auditing and financial reporting in the country.

It was referring to the rules from the International Auditing and Assurance Standards Board that take effect on Dec 15, 2016.

Nik said these new standards would require auditors to put in key audit matter disclosures in their reports.

This would make the reports tailored to the clients rather than the mostly standard terms and boilerplates.

The board expects this to give more insights “of the risks surrounding a particular reporting entity and some of this may have market impact”.

The annual report said there was no major change in the number of registered and recognised audit firms and individual auditors.

Six major audit firms and four others audited 957 public-interest entities (PIE), covering 98.6% of the market capitalisation of public listed companies in Malaysia in 2014.

Last year, the AOB acted against a firm and two individual auditors.

It was the first time it had barred a firm from accepting any PIE as a client for 12 months. The firm also had to pay a penalty of RM30,000. In the past, the penalties were limited to a reprimand and the highest fine was RM10,000.

Regulator AOB expects and has mechanism to ensure audit firms strictly adhere to the laws

PETALING JAYA: The Audit Oversight Board (AOB), which has taken enforcement actions against two individual auditors and an audit firm last year, expects audit firms to adhere strictly to the laws.

“AOB has in place a robust enforcement mechanism with sufficient safeguards to ensure that fairness and justice will prevail,” it said.

From April 2010 to December 2013, eight auditors were sanctioned for failure to comply with the recognised auditing standards in the performance of their audit of the financial statements of public-interest entities (PIE) and failure to comply with the ethical and professional standards of the Malaysian Institute of Accountants by-laws.

In 2014, action was taken against two auditors and one audit firm.

AOB has prohibited Wong Weng Foo & Co from accepting PIE clients for 12 months. The audit firm was also imposed a penalty of RM30,000.

The AOB has also rapped two registered auditors, Lim Kok Beng of Ong Boon Bah & Co and Chan Kee Hwa of Khoo Wong & Chan, for non-compliance.

They were reprimanded for not complying with the International Standards on Auditing while auditing the financial statements of public interest entities.

In addition to the reprimand, a penalty of RM10,000 was imposed on Lim

Salaries of audit firm employees higher than fees

PETALING JAYA: For the first time in two years, growth in employee costs has outstripped audit fees among Malaysian firms.

While the growth in audit fees has dipped by a quarter from 12% to 9% in the past year, the growth in staff cost has remained constant for the past two years.

There has been higher headcounts in the past year, which rose by 6.6%, according to the Securities Commission’s Audit Oversight Board’s (AOB) annual report 2014. “Based on three years of analysis of the top 10 audit firms, salary costs continue to increase at a higher rate compared with the growth in the audit fees, which is a challenge for audit firms,” the board said.

Staff turnover was also another concern.

While the overall turnover has stabilised at about a quarter of the staff each year, the non-executives were leaving at a higher rate.

“This is a concern as turnover at this level may indicate the lack of attractiveness of audit as a career among younger accountants, which could be detrimental in the long term,” it said.

The report is compiled from 10 top audit firms, which collectively audited 957 public-interest entities (PIEs) covering 98.6% of the market capitalisation of public-listed companies in Malaysia.

The number of registered audit firms had decreased from 83 in 2010 to 52 last year.

The number of registered auditors has remained stable for the past five years. The number of registered auditors rose to 304 individuals in 2014 from 302 in 2013.

The annual report, AOB’s fifth, was released yesterday. AOB also questioned audit deficiencies for major firms. AOB inspects accounting firms regularly to promote and develop an effective audit oversight framework and promote confidence in the quality and reliability of audited financial statements in Malaysia.

Sources: The Star/Asia News Network

Related:

 Board reminds audit firms of their duties

 Who can review the 1MDB audits?

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MIA, Malaysian Institute of Accountants needs to change

World Bank report says it should improve its governance structure

PETALING JAYA: After a recent assessment of the accounting and auditing environment in Malaysia, the World Bank has concluded that there ought to be changes in how the Malaysian Institute of Accountants (MIA) is governed.

The report on the observance of standards and codes, released in February, noted among other things, that the institute's governance structure and lack of resources were “posing some challenges”.

The report focused on accounting and auditing standards and practices in corporate Malaysia, as well as the institutional framework that underpins the corporate financial reporting system.

“An independent review of the governance structure of the MIA should be conducted to provide recommendations for improving its structure and operations,” said the World Bank.

“In particular, these actions should address the structure and membership of the MIA council, and the streamlining of the investigation and disciplinary process.

“These changes should also facilitate the process of approving any increases in membership fees, as it appears that a lack of resources is impacting the MIA's ability to discharge effectively all its obligations.”

The report noted that the institute's governing body, its council, had 30 members, 10 of whom are elected. The rest are appointed by the Government.

“All the members of the investigation, disciplinary, and disciplinary appeals committees are required to be members of the council, which limits the volume of cases these committees are able to process,” said the World Bank.

The institute has already taken steps to address this. In an interview with StarBiz earlier this month, MIA president Datuk Mohamed Nasir Ahmad said the institute had submitted to the Government a draft of proposed amendments to the Accountants Act 1967.

Among the changes sought was that the MIA be allowed to create multiple sub-committees to deal with investigations, with the subcommittee members possibly coming from outside the council.

However, the World Bank report did not mention any dissatisfaction over the council's composition, although this has been a longstanding complaint among some MIA members.

In a statement sent to StarBiz, the Malaysian Accounting Firms Association (previously known as the Association Of Small & Medium Accounting Firms of Kuala Lumpur and Selangor) pointed out that although the MIA was “wholly supported by members subscriptions”, 20 of the council members were appointed by the Finance Minister on the advice of the Accountant-General, as provided under the Accountants Act.

“The MIA is probably the only members-only professional body in Malaysia, and possibly in any country, with such a majority of unelected members in council,” said the association.

“If at all any amendment to the Act is to be proposed, it should start with reinstating the rights of the members to govern themselves as professionals should.”

The association issued the statement in response to the StarBiz article on April 16 on the proposed amendments to the Act.

Mohamed Nasir said the MIA was also proposing that its council be given the authority to make or amend certain rules, instead of having to wait for a general meeting to approve new rules.

The association frets that this may enable the MIA to unilaterally increase its membership subscription rates.

It said: “To put that in context, members have rejected subscription increases sought in the last two AGMs due to unhappiness with the institute.”

The World Bank report alluded to the institute's previous attempts to seek a subscription hike.

“The MIA derives almost twice as much income from its professional development programmes than it collects from annual membership fees. The annual membership fees stand at RM250, and two recent attempts to increase annual fees were voted down,” said the bank.

By ERROL OH
errol@thestar.com.my

Auditing in hard times

OPTIMISTICALLY CAUTIOUS By ERROL OH

HOW bad will things be this year? Everybody has some thoughts on that, but nobody really knows, of course. But if you're thinking of turning to the accountants and auditors for some reassurance and optimism amid the gloom, you're definitely barking up the wrong tree.

The fact is, this fraternity is already bracing for the worst and is calling upon members to be on the lookout for signs of trouble as they carry out their work.

On Dec 28, the International Auditing and Assurance Standards Board (IAASB), the New York-based independent standard-setting body, issued a press release to draw attention to the challenges that accounts preparers and auditors currently face.

“The global economy continues to experience difficult conditions as the effects of the financial crisis for example, on corporate cash flows and access to credit persist. Volatility in capital markets, and issues including measurement and disclosure of exposures to sovereign debt of distressed countries, continue to create uncertainty,” says the board.

“The impact of these issues and uncertainty has wide-ranging financial reporting implications that often extend beyond national borders.”

The IAASB points out that such conditions make it challenging for management of entities, those charged with governance, and auditors to do their jobs.

According to the board, among the tough aspects of this groups' responsibilities are assessing an entity's ability to continue as a going concern and making relevant disclosures in the financial statements and auditor's report.



(In accounting, the going-concern concept assumes that an entity will continue operating indefinitely. Therefore, its accounts are prepared accordingly and there's no need to reflect the possibility that the entity will soon grind to a halt and its assets sold off.)

The board reminds auditors of the requirements of the International Standards on Auditing (ISAs). It adds that in every assignment, an auditor must weigh whether it's appropriate for the management to use the going-concern assumption.

Said IAASB chairman Professor Arnold Schilder: “Difficult economic conditions give rise to many important audit considerations, but none more important or more difficult than evaluating management's assessment of an entity's ability to continue as a going concern and determining the appropriate auditor reporting in the circumstances.”

What's interesting is that the board has asked auditors to refer to a three-year-old document titled Audit Considerations in Respect of Going Concern in the Current Economic Environment.\

“While this Audit Practice Alert was released in context of the 2008-2009 credit crisis, many of the matters addressed in it are equally relevant today,” said Schilder.

“For example, an entity may be experiencing a decline in its financial health, or may have material uncertainties arising from direct or indirect exposures to sovereign debt of distressed countries. Auditors are therefore encouraged to review the Alert and, importantly, the relevant requirements in the ISAs.”

On Wednesday, the Malaysian Institute of Accountants (MIA) came out with a circular that's largely based on the IAASB press release.

Says MIA executive director Ho Foong Moi in the circular: “Auditors in Malaysia similarly should take cognisance of the currently-challenging global economy and accordingly must remain alert throughout the audit to identify and critically examine evidence of events or conditions that may exist nationally or globally which may cast significant doubt on an entity's ability to continue as a going concern.

“Auditors must continue to exercise professional scepticism and judgment in evaluating financial-statement disclosures and the implications for the auditor's report when a material-uncertainty exists relating to events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern.”

So, the message is clear these days, auditors have to be more questioning about the standard-management assumption that a business is in a position to go on and on. After all, which management will readily admit that the entity is reaching the end of the road?

The truth is, many businesses fail, even in the best of times. And when the economies and industries go through rough patches, it's harder to hide flaws in business models and weaknesses in how businesses are run. And when this happens, many people depend on the accountants and auditors to raise the red flags.

Therefore, the huge economic uncertainties we're experiencing now are as much a test of the profession's alertness and integrity as they are a test of the businesses' strength and resilience.

Executive editor Errol Oh didn't like tests when he was in school and that hasn't changed. But now he at least recognises that testing serves a purpose.

Talents on the move

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Local accountants attracted by foreign greener pastures

By LIZ LEE lizlee@thestar.com.my 

 KUALA LUMPUR: Despite unwavering interest in accountancy courses at universities and colleges, mid-tier accounting and auditing firms are finding it difficult to hire and retain their accountants.

The problem: the outflow of local talents to foreign “greener pastures”.

Baker Tilly International chief executive officer and president Geoff Barnes told StarBiz that something needs to be done about this, as “a strong audit profession underpins an economy with good corporate governance, a strong capital market and an economic environment that can cross borders.”

Barnes said the accounting profession has always demanded the brightest of people globally and that good firms have always had this “war for talent, because we are all looking for the best people”.

Barnes (left) and Heng stressing on the importance of retaining accounting talents.

 

Local member firm, Baker Tilly Monteiro Heng (BTMH) chief executive partner Heng Ji Keng said many Malaysian accounting graduates see better opportunities in Hong Kong, Shanghai, Shenzhen, Singapore and Australia.

Heng added that many graduates left mainly due to the salary disparity. To counter this, he said firms needed assistance from the Government as “a word from the Government is better than a thousand words from practitioners”.

“We need to slowly bridge the gap between the salary we pay here and that offered in the countries attracting our talents. We need assistance from the regulators to impress upon clients that low fees also affect the quality of an auditing job,” Heng said.

A fresh graduate can earn up to RM100,000 per annum in China, around RM85,000 per annum in Singapore while Australian firms pay about RM160,000 per annum. Locally, they would earn about RM30,000 only.



SJ Grant Thornton (SJGT) managing partner Datuk Narendra Jasani said an estimated 500 accounting graduates out of 1,500 from local universities leave the country every year.

Both firms, BTMH and SJGT, said the Government could further benefit the country's accounting profession by liberalising immigration policies.

Heng said the many foreign students studying here could be a good source of accountants for local firms, provided the Government revises the related immigration restrictions.

“We must acknowledge their potential and train them to become qualified professional accountants,” he said.

Both Heng and Jasani suggested that the Government could look into giving foreign students a work permit of three to four years after their studies.

“To avoid disheartening our Malaysian accountants, a quota could be set for firms to employ no more than 20% foreign accountants,” Jasani further suggested.

Heng pointed out that another turn-off for young accountants to begin their career here is the difficulty in getting a licence to practise.

“The accountants have to go through about a decade of university education and training, topped off with a scrutinising interview that tests them on the technicalities of the industry before the Finance Ministry issues a licence,” Heng said.

Specifically, Malaysian accountants need three years for a university degree, three years of working experience, another three years of post-Malaysian Institute of Accountants membership and an interview to determine whether they would qualify for a licence. The tedious process and no guarantee of getting a licence to practise has become a deterrent to young accountants when embarking on their careers.

“We also have to change work procedures. One aspect is to change the audit methodolgy no more ticking and checking all the time but more thought-processing, overviews and comparative analysis which is more suited to the younger generation,” SGJT's Jasani said.

Grant Thorton International chief executive officer Ed Nusbaum said the rapid economic growth and expansion in the entire Asia-Pacific region has caused the shortage of talent.

“The demand is greater than the number of students graduating from universities and qualified experienced talent within the region. Whether you are talking about Malaysia, China or India, we need to attract people to the accounting profession,” he said, adding that dynamic firms also contributed to attracting young accountants.

“Being part of a growing organisation makes (one's career) interesting and employee retention is better because people see opportunities,” Nusbaum concluded.