SHARED FROM:
STEERING
THE CAPITAL MARKET TOWARDS FINANCIAL REPORTING EXCELLENCE
BY: NIK MOHD HASYUDEEN
YUSOFF, EXECUTIVE CHAIRMAN OF THE AUDIT OVERSIGHT BOARD, SECURITIES COMMISSION MALAYSIA
ACCOUNTANTS
TODAY, SEPTEMBER 2010
One of the
important element in the capital market is a high quality and reliable audited
financial statements. It provides market
participants with information on the financial performance. The integrity of financial reporting is
highly dependent on the performance and conduct of those involved in the
financial reporting ecosystem.
Financial
statements capture the outcomes and consequences of business decisions and
activities of organizations. Dividends
payable to shareholders are based on accounting profits reported. Thus it is important to ensure suitable
building blocks are in place, by:
1. Making available properly trained
personnel to the financial team
2. Invest in appropriate systems,
technology and reporting platforms,
3. Update financial reporting teams with
knowledge regarding the latest financial reporting standards and requirement
4. Ensure financial reporting teams have
the ability to apply the knowledge effectively
Compliance
with financial reporting standards is one of the cornerstones in high quality
financial reporting. A high number of
adjustments proposed by external auditors after year end audit could be an
indicator that the financial reporting capability of a company is weak.
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ROLE OF
AUDITORS
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1
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As
gatekeepers (when they are positioned at the end of the ecosystem)
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2
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To
check on the integrity of the financial statements
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3
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Provide
professional opinion on the truth and fairness of financial statement
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4
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Auditors’
independence, competency and professional values add value to the financial
statements
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5
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Maintaining
audit quality
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DRIVERS
OF AUDIT QUALITY
(The
United Kingdom Financial Reporting Council (UK FRC))
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1
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The
culture within the audit firm
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2
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The
skills and personal qualities of audit partners and staff
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3
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The
effectiveness of the audit process
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4
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The
reliability and usefulness of audit reporting
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5
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Factors
outside the control of auditors affecting audit quality
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2
additional factors by the Australian Treasury
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6
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Audit
regulatory framework
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7
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Audit
review processes
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ROLE OF
AUDITORS OVERSIGHT BOARD (AOB)
(establish
in Malaysia on 1 April 2010)
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1
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Enhance
quality and reliability of audited financial statements
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2
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Registering
auditors
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3
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Audit
inspection:
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Compliance
of audit firm with quality controls as outlined in the Standard on Quality
Control (ISQCI).
Elements
covers:
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Engagement
review
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4
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Monitor
financial statements issued by public interest entities
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5
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Identifying
factors that might triggers further action
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6
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Engaging
with auditors
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7
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Conducting
reviews of particular audit engagements
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8
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Asses
appetite of audit firms towards delivering quality audits
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9
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Asses
system of quality control and risk management practice
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10
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Identify
stress area and area requiring improvement
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ROLE OF
AUDITORS WITH RESPECT TO FRAUD (BY AOB)
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1
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Identify
and assess risks of material misstatement due to fraud
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2
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Evaluate
designs of entity’s related controls
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3
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Determine
overall responses to address the risks:
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4
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Design
and perform audit procedure to respond to risk of management override of
controls
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5
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Determine
responses to address the assessed risks of materials misstatement due to
fraud
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6
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Consider
whether an identified misstatement maybe indicative of fraud
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Auditors should
maintain an attitude of professional skepticism. Quality financial reporting starts from the
financial statements prepared. Auditors add
value to this through an independent and quality audit. Parameters for compliance are provided by the
regulatory framework, codes on corporate governance and professional standards.
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