DIALOGUE WITH AUDITORS OF PUBLIC LISTED COMPANIES

							             DIALOGUE WITH
              AUDITORS OF
             PUBLIC LISTED
               COMPANIES
              MALAYSIAN INSTITUTE OF
                  ACCOUNTANTS
                  28 AUGUST 2007


30/03/2010                             1
              OBJECTIVES
    INTRODUCTION
    CONCERNS BY THE CAPITAL MARKET
     REGULATORS
    FINDINGS OF THE FINANCIAL STATEMENTS
     REVIEW COMMITTEE
    FINDINGS OF THE PRACTICE REVIEW
     COMMITTEE
    FINANCIAL REPORTING STANDARDS
     IMPLEMENTATION COMMITTEE
    INITIATIVES OF THE INSTITUTE
30/03/2010                                  2
                   INTRODUCTION
    „Front line‟ role of auditors is well
     established in the securities and company
     law; namely

            Section 99E(1) of the Securities Industries Act

            Section 174(8A) of the Companies Act



30/03/2010                                                     3
       CASES REPORTED TO SC

                Only 2 auditors have voluntarily reported to SC
                 pursuant to Section 99E (1) of the SIA

                SC had issued directives to 4 auditors pursuant to
                 Section 99E (3) of SIA to perform specific
                 examination and report their findings




30/03/2010                                                            4
 IMPACT ON CAPITAL MARKET DUE
 TO THE LACK OF VIGILANCE OVER
      FINANCIAL REPORTING
      PN4 (2001 to 2004): 128 companies
                Accumulated losses of at least RM56 billion
                Mainly mismanagement/misconduct involving
                 directors
                Blatant irregularities not picked up by auditors


      PN 17 (from 2005): 68 companies
                Accumulated losses of at least RM14.8 billion



30/03/2010                                                          5
ISSUES HIGHLIGHTED BY SC
    Some key findings on PN4 & selected
     companies
            Inflating sales vide false invoicing
            Creation of debtors to support false sales
            Transferring debtors balance to fixed assets
            Falsification of sales/purchase invoices to raise
             bankers acceptance to siphon money
            Settlement of debtors using own funds


30/03/2010                                                   6
ISSUES HIGHLIGHTED BY SC
    Based     on    SC‟s     investigation  and
     surveillance, a pattern of lapses of conduct
     is revealed as follows:
                Cozy relationship/collusion between management
                 and auditors resulting in inadequate scrutiny
                Lack of supervision of audit partners over audit
                 team‟s work
                Failure to alert audit committees, board of
                 directors & regulators
                Review over audit work is “mechanical”
30/03/2010
                Superficial review of bank reconciliations, hence7
             FINANCIAL STATEMENTS
               REVIEW COMMITTEE
    Scope of FSRC
                Has been extended to include hot pursuit to
                 safeguard public interest
                Referring offenders to the appropriate regulators
      Penalty Tariff System
                Three category – minimum action of informing
                 members to rectify the irregularities to referring
                 the member/member firm to the Investigation
                 Committee/Practice Review Committee for their
                 further action

30/03/2010                                                            8
   FINANCIAL STATEMENTS
 REVIEW COMMITTEE FINDINGS
     Going Concern
     Inadequate Disclosures
            Non-disclosures of fair values of financial guarantees
            Non-current financial assets/liabilities
            The amount due by/to subsidiary companies and
             associated companies
            Method and assumptions used to estimate fair value
    Compliance Costs
    Clarity of Presentation

30/03/2010                                                        9
    FINANCIAL REPORTING
 STANDARDS IMPLEMENTATION
         COMMITTEE
    Main function
            To provide assistance to MIA members on
             matters of common interest relating to
             accounting standards by way of providing
             implementation guidance to both preparers and
             auditors
    FRSIC has received 20 issues submitted
     by preparers and auditors
    In May 2007 – first guidance was issued on
     Deferred Tax, effective 1 August 2007
30/03/2010                                               10
    FINANCIAL REPORTING
 STANDARDS IMPLEMENTATION
         COMMITTEE
    Submission of issues to FRSIC
            Members and the public can submit issues to
             FRSIC by filling up a form which is available from
             the Institute‟s website at www.mia.org.my
            Issues submitted should be on points of principle
             and not solely relevant to a specific company




30/03/2010                                                    11
                INITIATIVES BY THE
                     INSTITUTE
    Enhancements to the
     Investigation/Disciplinary Processes of the
     Institute
            Fast tracking of cases referred by the regulators
             to safeguard public interest
    Practice Review Program
            To introduce a risk based approach


30/03/2010                                                       12
                INITIATIVES BY THE
                     INSTITUTE
    Consultative Document – A New
     Framework for the Accountancy Profession
             Proposing several models of framework for the
             profession to ensure that it is transparent,
             accountable, effective and able to cater to
             changing business and financial environment
            A framework that protects public interest




30/03/2010                                                    13
                   INITIATIVES BY THE
                        INSTITUTE
            The proposed models of framework are primarily
             focused on establishing an oversight board to
             monitor the disciplinary and compliance
             mechanism
            Disciplinary mechanisms comprise
                 Investigation Committee
                 Disciplinary Committee
                 Disciplinary Appeal Board



30/03/2010                                                14
                   INITIATIVES BY THE
                        INSTITUTE
            Compliance Mechanism comprise
                 Financial Statements Review
                 Practice Review
            Proposing to create the oversight body under a
             separate Act altogether, in the name of
             independence




30/03/2010                                                    15
                   INITIATIVES BY THE
                        INSTITUTE
            Proposing to enhance the Professional aspects
             of the profession
                 To incorporate accountancy practices so that they
                  can be regulated in order to protect public interest
                 Conducting competency assessment for future
                  accountants
                 Empowering Council to determine the criteria and
                  process for recognition of qualifications
                 Allowing temporary admission of foreign
                  accountants
            Expecting feedback by or before 15 September
30/03/2010   2007                                                    16
             OTHER MATTERS

  SC‟s proposal on Panel System for advisers
     for submissions relating to Initial Public
   Offering (IPO), Reverse Take Over (RTO)
    and Distressed Listed Companies (DLC)




30/03/2010                                        17
                  OTHER MATTERS
    Criteria based on size and competency
    2 routes proposed:
            Route I – Min of 5 partners and 8 CAs and 3
             IPO/RTO/DLC submission in the last 3 years
            Route 2 - Min of 3 partners and 5 CAs and
             audited a number of PLCs and also had attended
             MIA Reporting Accountants programme



30/03/2010                                                18
                     OTHER MATTERS
    MIA‟s Counter proposal:
            One Route – Min 3 partners and 5 CAs
            Experience:
                 3 IPO/RTO/DLC submission in the last 5 years;
                 3 listed companies; or
                 Relevant experience determined by SC
            Attended MIA Reporting Accountant Programme



30/03/2010                                                        19
             MEMBERS

 WHAT ARE THE CHALLENGES FACED BY
  YOU AND HOW CAN THE INSTITUTE BE
              OF HELP?




30/03/2010                       20