AUDIT SOLE PRACTITIONERS STEPPING UP YOUR GAME · “Sound firm-wide quality controls ... An audit...
Transcript of AUDIT SOLE PRACTITIONERS STEPPING UP YOUR GAME · “Sound firm-wide quality controls ... An audit...
BY THE ACCOUNTANTS TODAY EDITORIAL TEAM
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AUDIT SOLE PRACTITIONERS
STEPPING UP YOUR GAME
AS the primary providers of financial services to small and medium
enterprises (SMEs) that are the backbone of the Malaysian economy,
small and medium practitioners (SMPs) play an extremely important
role in the business ecosystem. They are also a critical part of
MIA’s membership body.
“Currently, there are over 1,400 audit firms in Malaysia.
Approximately 70 per cent of them are small practices i.e.
audit firms in sole proprietorship,” said MIA President
Salihin Abang at the inaugural MIA Forum with
Audit Sole Practitioners 2018.
IN ITS QUEST TO DEVELOP
THE PROFESSION, MIA
IS HELPING TO EQUIP
AND UPSKILL AUDIT
SOLE PRACTITIONERS TO
BECOME MORE RESILIENT
AND RELEVANT.
10 ACCOUNTANTS TODAY | MAY / JUNE 2018
AUDIT SOLE PRACTITIONERS: STEPPING UP YOUR GAME
Recognising their value in
business, MIA has devoted substantial
time and resources to implementing
targeted initiatives to support the
SMPs.
For instance, MIA recently
organised seven engagement
sessions with SMPs, with the theme
of Members’ Dialogue with MIA
President and Technical Updates.
To broaden outreach and help MIA
leadership put their finger on the
pulse of members’ concerns, MIA
held these sessions in Kuala Lumpur
as well as the key regional markets
of Penang, Sabah, Sarawak, Ipoh,
Melaka and Terengganu. These
sessions were very well received and
attended by 919 members, with over
40% of participants coming from Sabah
and Sarawak.
Together with MICPA, MIA
organised workshops on Practical
Auditing Methodology for SMPs. As
of end May 2018, 38 workshops have
been held - 21 in Kuala Lumpur and
17 in regional locations and these were
attended by close to 1,500 participants
(Please refer to the article on Enhancing
SMPs: Workshops on Audit Guide for
Practitioners (AGP) and Illustrative
Audit Working Papers (IAWP) on pages
22-24).
MIA is also looking into ways to
encourage the adoption of technology
among SMPs. SMPs are encouraged
to invest in suitable technologies to
enhance their effectiveness and
efficiency, such as audit software that can
automate routine processes, improve
accuracy and reduce workloads.
MIA hopes that these initiatives will
help to strengthen and upskill SMPs to
overcome their challenges and deliver
highly valued and relevant services to
their clients. Among the challenges
currently facing SMEs are “higher
audit concentration (meaning that their
practice is not sufficiently diversified),
staff retention, technology adoption,
limited access to funding and lack of
business opportunities overseas,”
enumerated Salihin, who is himself the
founder and partner of a SMP.
By developing and regulating audit
sole practitioners, MIA is optimistic
Follow up
review shall
be dropped
Type 3 firms to
submit Remedial
Action Plan (RAP)
No Practice
Review Fees will
be charged
Type 4 rating
shall be
introduced
Type 3 firms to
attend remedial
audit workshop
Tougher
Sanctions
MAIN
CHANGES
IN THE
ENHANCED PR
FRAMEWORK
SIX
Among the challenges currently facing
SMEs are “higher audit concentration
(meaning that their practice is not sufficiently
diversified), staff retention, technology
adoption, limited access to funding
and lack of business opportunities overseas.
Salihin Abang
MIA President
MAY / JUNE 2018 | ACCOUNTANTS TODAY 11
Audit Sole PrActitionerS: StePPing uP Your gAme
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By adopting ISQC 1, SMPs stand to gain tremendous benefits, especially from the implementation of robust quality controls that can reduce their risks. “Sound firm-wide quality controls reduce the risks of inappropriate engagement reports being issued and would therefore reduce the exposure to the risk of liability.
Dato’ Narendra Jasani, Vice - President and Chairman of the SMP Committee, MIA
that SMPs in the market will be able to enhance audit quality, improve regulatory compliance and good governance, and strengthen their infrastructure and resources to become more resilient and more relevant.
enhanCinG audit Quality throuGh isQC 1
Reliable structure is the key to quality audit.
“To consistently deliver high quality audits, it is of paramount importance for audit firms to have a proper structure and system in place,” said Dato’ Narendra Jasani, Vice-President and Chairman of the SMP Committee, MIA, speaking at the recent inaugural MIA Forum with Audit Sole Practitioners 2018.
Audit firms are required to comply with the International Auditing and Assurance Standards Board (IAASB)’s International Standard of Quality
Control (ISQC) 1, which provides firms with a structure to raise their quality and promotes a culture that places quality at the forefront of the firms. Systems of quality control in compliance with the ISQC are required to be established by 1 January 2010 for audit firms in Malaysia
Benefits of isQc 1By adopting ISQC 1, SMPs
stand to gain tremendous benefits, especially from the implementation
Review Reports
Firm complies with ISQC 1 – No breach of mandatory standards noted
Some weaknesses noted in compliance with ISQC 1 and mandatory auditing standards – not pervasive as weaknesses were noted in some files but not in others. Generally mild weaknesses requiring written broad assurance and commitment from firm that remedial action and improvement will be implemented immediately
(i) Severe weaknesses noted in non- compliance with ISQC 1 and mandatory auditing standards – requiring adequate action plan and evidence of compliance and assurance of implementation of action plan to be drawn up by the firms
(ii) Basis of audit opinion is not adequately supported.
In such of the following situation arising, where:(i) An audit firm has committed an offence or a
breach against the laws and regulations of the country and the Institute's regulation; or
(ii) The basis needed to form the opinion expressed on the engagements reviewed was not supported for reason, inter alia,- the member failed to produce audit working
files for his audit engagement ( firms engaging in essentially no audit at all);
- inadequate manpower to cater to the volume of audit services engaged or no evidence of involvement in the review performed by engagement partner;
- engaging non - member firms to perform the audit work who are not within the control and supervision of the audit firms.
Type 1 (satisfactory)Type 2 (Assurance of compliance required)
Type 3 (Remedial Action Plan Required)
Type 4
TYPES OF REVIEW REPORT
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Member Firm of
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AUDIT SOLE PRACTITIONERS: STEPPING UP YOUR GAME
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Approval of final report by PRC
Remedial Action Plan (RAP) is required
Type of Ratings
Outcome
Consequences
Type 3
Fail
Agreed Remedial Action Plan
Fulfil Fail
Ends Refer to Registrar
for purpose of
investigation
Hearing by DC
and sanctions, if
appropriate
Inadequate Remedial Action Plan (submitted within stipulated timeline)
Resubmission of Agreed Remedial Action Plan with two weeks
extension of time given
Fulfil Fail
Ends Refer to Registrar
for purpose of
investigation
Hearing by DC
and sanctions, if
appropriate
Remedial Action Plan not drawn up
Refer to Registrar
for purpose of
investigation
Hearing by DC
and sanctions, if
appropriate
ENHANCED PRACTICE
REVIEW FRAMEWORK
Within one
month after
being notified
on the rating
Monitoring
visit shall be at
least three
months
after the
implementation
of the remedial
action plan
of robust quality controls that can
reduce their risks. “Sound firm-wide
quality controls reduce the risks of
inappropriate engagement reports
being issued and would therefore
reduce the exposure to the risk of
liability,” advised Dato’ Narendra.
At the operational level, quality
control policies and procedures can
help firms to retain talent. People
are the lever to implementing
ISQC 1 successfully, he stressed.
Therefore, firms considering ISQC
1 are encouraged to send their staff
for the relevant training. “This would
contribute to higher staff morale and
motivation, and indirectly lead to
improved staff retention rates.”
Implementing an effective control
regime need not be sophisticated
or scary. “Quality controls should
be tailored to fit the operating
characteristics, size and nature of the
firms.”
While ISQC 1 adoption might
require some investments in terms
of time and costs, in the long run, the
benefits of implementing ISQC 1 will
far outweigh the costs. “The ISQC 1
is an effective and workable solution
to improve audit quality,” said Dato’
Narendra.
Based on the results of MIA
Practice Review, many practitioners
believe that ISQC1 is too complicated
for their small practices. Dato’
Narendra urged them to change this
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AUDIT SOLE PRACTITIONERS: STEPPING UP YOUR GAME
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AN ENHANCED REGIME FOR AUDIT PRACTITIONERS
Practice Review
MIA has finetuned its Practice Review
regime to improve the effectiveness of
the PR process. “The Practice Review
process is very important. If there are
no consequences to failing Practice
Review, nobody will take it seriously
and the bad hats will affect the entire
profession. Practice Review is not a
pleasant job, but someone must do it for
the good of the profession,” said Huang
Shze Jiun, Chairman of the Practice
Review Committee at the recent Forum
with Audit Sole Practitioners, the first
of an inaugural series of engagements
with this important segment of the
profession.
To reassure participants about the
forthcoming changes, he stressed that
the enhanced Practice Review is meant
to be “corrective and not punitive. We
are not out to punish but to regulate
in order to bring up audit quality. MIA
aims to make Practice Review a premier
driver of audit quality for the profession
in Malaysia.” Other objectives of Practice
Review are to work with audit firms
to enhance their compliance with
professional standards and legal and
regulatory requirements. Crucially, the
enhanced regime aims to reduce the
Practice Review failure rate (Type 3 firms)
to 30% over a three-year period ending
FY2019/2020 and subsequently to 10%
thereafter.
Citing findings from previous Practice
Review cycles, Huang pointed out some
shortcomings impacting audit quality.
These include the non-performance of
stocktake, and the non-reconciliation
of bank statements and trade debtors,
much less sampling. Importantly, audit
practitioners should assess and evaluate
the tone at the top. They should address
the relationship between firm culture
and tone at the top for an effective
quality control system, as internal culture
shaped by strong tone at the top that
focuses on audit quality is crucial. There
is a tendency for partners and owners to
pin blame for audit deficiencies on staff,
but while practitioners “can delegate
the work, they cannot delegate the
responsibility,” he said.
Under the enhanced regime, firms
will no longer be sampled at random for
Practice Review. Firms at high risk will
mindset because they risk “producing
low-quality work that does not comply
with professional standards. In the
long run, this may jeopardise their
livelihood as their professional work
has to be monitored closely and
their licences might be suspended
or withdrawn by the Ministry of
Finance,” he warned.
COLLABORATING FOR ISQC 1
SUCCESS
While there are challenges to
ISQC 1 implementation, MIA stands
committed to supporting audit
sole practitioners on their ISQC 1
journey. MIA especially recommends
that firms collaborate strategically
with one another to ease ISQC 1
implementation. Firms can form
industry alliances with similar firms,
establish reciprocal arrangements
with another firm, or even do a merger
and acquisition (M&A).
By collaborating with other
firms, small practitioners can beef up
Type of Ratings
Outcome
Consequences
Type 4
Fail
Hearing by DC and
sanctions,if appropriate
- Refer to Registrar for
purpose
- Referral to other
Regulators
ENHANCED PRACTICE
REVIEW FRAMEWORK
16 ACCOUNTANTS TODAY | MAY / JUNE 2018
be prioritised for review first than those
at lower risk. Eventually all firms will be
reviewed.
The changes to the Practice
Review framework were designed to
demonstrate MIA’s willingness and ability
to regulate its member firms effectively
and stay relevant, said Huang. There are
six main changes to the framework:
Review i.e. no charge
Action Plan
audit workshop
With the revisions, firms will fall
into one of the four categories: Type
1 – pass, Type 2 – marginal pass, with
assurance to be provided by AF, Type
3 – unsatisfactory with required follow-
up, and Type 4 – failure – referred for
disciplinary action.
Type 3 firms are required to submit a
Remedial Action Plan because MIA wants
to institute a paradigm change in audit
quality and culture. “We don’t want firms
acceptable Remedial Action Plan or risk
being referred to MIA’s Investigation and
Disciplinary Committees. “We want to
see firms taking the right steps so that
they don’t bring down the profession.”
Type 4 firms are beyond help. These
include cases of firms charging audit
fees but not doing the work. “These
are immediately deemed as failure
cases which will be directly referred to
the Investigation Committee and the
Disciplinary Committee.”
To make sanctions more punitive
for recalcitrant firms, MIA has proposed
tougher sanctions and fees, but these are
dependent on legislative amendments
to the Accountants Act 1967. Tougher
sanctions will add bite to Practice Review
and make it more effective. “If firms feel
that there are no consequences for bad
behaviour, they will take it lightly,” said
Huang. In the meantime, he warned that
MIA will no longer support the renewal
of licences for failed Type 3 and Type 4
firms and these offenders face possible
suspension of membership.
resources and construct an effective
monitoring programme for their
quality control systems. If a firm
belongs to a network of firms, it could
also engage practitioners from its
peers within the network to inspect
and review its engagements.
Another option is to enrol in the
MIA-MICPA Quality Assessment
Programme (QAP) to support the
monitoring process. The QAP could
serve as one of the monitoring controls
of a firm by identifying deficiencies
in the quality of audit procedures
performed, documentation and the
overall quality control procedures
of the firm. Subsequently, the QAP
can recommend action plans to
improve the quality of the firm and
its engagements. (Read more about
the QAP and one firm’s experience on
pages 26-27).
MIA strongly encourages the use
of technology to help firms improve
monitoring and quality. “Consider
implementing a practice management
AUDIT SOLE PRACTITIONERS: STEPPING UP YOUR GAME
system or using audit software for
efficient performance of engagements.
Currently there is an array of practice
management software and audit
software in the market to choose
from,” advised Dato’ Narendra. He
added that MIA is looking at ways to
help smaller firms manage the costs of
technology adoption, perhaps through
bulk purchases of audit software or
other form of collaboration.
to just look at their symptoms. A lot of
failures are tied back to key deficiencies.
The root cause analysis shows that
what causes all these symptoms is a
lack of tone from the top. If the culture
of audit quality is in place, these
symptoms will not arise.” Key areas for
improvement, said Huang, are improving
documentation and quality of staff, and
being more selective in choosing quality
clients. “If it is not documented, it is not
done!” he emphasised.
Type 3 firms are advised to comply
to Type 1 and Type 2 levels. “Go back to
but to address fundamental issues,” said
Huang. Firms are expected to draft an
MAY / JUNE 2018 | ACCOUNTANTS TODAY 17
BY JENNY CHUA YU CHIN
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SIXINGREDIENTS
FOR ACCOUNTANCY
M&AsCould an M&A be right for your firm?
MIA Member Firms Merger & Affiliation Listing
In 2010, MIA developed a portal on Member Firms Merger &
Affiliation Listing with the objective of providing a platform
for member firms seeking local mergers or affiliations to
publicise their intention on a complimentary basis. To view
the portal, please log on to http://www.mia.org.my/e-merger/
18 ACCOUNTANTS TODAY | MAY / JUNE 2018
MERGERS and acquisitions (M&As) have emerged as a popular business
tactic for growing the bottom line, for enlarging markets, and for branding
purposes.
Within the profession, it’s a popular growth strategy for accounting
firms looking to build their practice and clientele. In addition, M&As
among small and medium-sized accounting practices (SMPs) have become
a viable succession planning strategy for practitioners looking towards
retirement.
SIX INGREDIENTS FOR SUCCESS
Six ingredients have been identified as essential in formulating an M&A
proposal in the business world: the timing for a compelling business case,
the strategic fit, the financial fit, the leadership fit, the cultural fit and the
people fit. These six ingredients are useful as well for accounting firms in
considering a potential M&A.
SIX INGREDIENTS FOR ACCOUNTANCY M&As
THE TIMING FIT
For M&As among
accounting firms, the
right timing will depend
on the drivers for
M&A. There are many
drivers for M&A among accounting
firms, such as geographical expansion,
talent acquisition, succession planning,
achieving a niche specialty, etc. If the
market is rewarding growth through
M&As and owners of accounting firms
see opportunities in the market to
gain this reward, this will drive them to
pursue M&As. A firm that is doing well
in terms of growth, profitability, talent
management, technology adoption, etc.
is going to catch the eye of a potential
acquirer when the time is right.
THE STRATEGIC
FIT
According to
an article published
in the McKinsey
website by Goedhart
et al. in March 2017, every deal has
its own strategic logic. Based on their
experience, most successful deals have
specific, well-articulated value creation
ideas compared to less successful deals
where the strategic rationales — such
as pursuing international scale, filling
portfolio gaps, or building a third leg of
the portfolio — tend to be vague.
Diversification also seems to be a key
driver for accountancy M&As. A recent
February 2018 interview by Accounting
Today entitled “The Shape of M&A in
2018” with M&A advisors who work with
accounting firms to find appropriate
merger partners, revealed that the
biggest landscape change to M&A this
year versus last year is the continual
movement of larger CPA firms acquiring
non-CPA firms. Larger firms seem to be
trending away from general compliance
practices, to acquiring consulting,
advisory and outsourced-type practices,
whether it be wealth management,
cybersecurity, outsourced accounting, or
a niche practice.
Other drivers include the ability to
recruit talent, to service growing clients,
and to invest in technology as emerging
technologies such as blockchain, artificial
intelligence and robotics are expected
to dramatically change the profession in
the coming years.
THE FINANCIAL
FIT
The purchase
price package is a
critical ingredient
when formulating
an M&A proposal. Every party in
negotiation wants to walk away with
the best bargain given their financial
objectives and relative strength of
negotiation. The seller wants the highest
price and as much cash as possible, with
the least tax obligation. The buyer wants
the best price with maximum discount,
favourable purchase terms and for the
seller to have a vested interest in the
future, normally in the form of deferred
or contingent considerations.
The purchase price package is
important and it does contribute to
the systematic pursuit of successful
deals. However, the right price may be
arbitrary, depending on strategic intent
and other external market factors.
THE LEADERSHIP
FIT
Strong leadership
and management
buy-ins are perhaps
the most important
success factors driving M&As.
According to J. Keith Dunbar writing
in the September 2014 Harvard Business
Review article “The Leaders Who Make
M&A Work”, senior leadership capabilities
in acquiring companies and middle
management leadership in targeted
companies are equally important in
predicting the success of an M&A. Senior
leadership capabilities in acquiring
MAY / JUNE 2018 | ACCOUNTANTS TODAY 19
THE PEOPLE
FIT
The role of HR is
critical in engaging
people during M&A, in aligning the
structure of the merging firms, in
addressing HR issues arising out of M&A,
and in handling the merger syndrome,
such as incompatible cultures, loss of key
talent and clash of management styles.
In all organisations, one of the
most valuable resources would be
human talent. Developing good talent
is hard and it takes years; harder still
companies include thought leadership,
results leadership and people leadership,
he added.
The right leadership is important
in an M&A as it can influence the
strategic intent of M&A, purchase price
of the target, corporate culture and will
eventually affect the effectiveness of
HR strategies and integration plan post-
M&A.
THE CULTURE FIT
Every business has
a culture. Bain & Co
cites culture clash as the
single biggest reason for
failed mergers when two autonomous
corporate cultures meet in an M&A.
Cultural clash is inevitable when
integrating two different entities into
a new and reconstituted entity. As the
owner, it is important that you clearly
articulate your vision, niche and focus
for your clients, employees, teammates,
referral sources, and partners.
Cultural incompatibility will
ultimately affect the M&A performance.
Hence, ignoring a potential clash of
cultures can lead to M&A failure. Cultural
due diligence is as important as financial
and legal due diligence in the M&A
process.
is to substitute such talents as the
replacement may have the technical
expertise sought but not organisational
or cultural fit. Losing good talent is akin
to a lost opportunity.
Many research studies have shown
that a good HR strategy to tackle these
human capital challenges that arise
from M&As, using the right change
management tools, and effective
communications to support employees
in the entire integration process are key
when formulating an M&A proposal.
ENSURING GOOD FIT FOR YOUR FIRM
By finding a firm that’s a good fit, you’ll guarantee continuity for your
clients, a good working place for your staff, and the peace of mind for your
retirement.
Nevertheless, there is no standard formula for a successful M&A.
The unpredictable behaviour of M&A remains a mystery due to the
interconnectedness and complex relationships among ingredients, and the
difficulties in determining the right mixture of ingredients needed in each
deal. There is no one size fits all formula and the absence of one ingredient
might lead to the failure of an M&A deal.
NOW, IT’S YOUR TURN
Has your firm grown via M&A or did you use M&A as an exit strategy?
If so, let us know your story by contacting MIA at [email protected].
SIX INGREDIENTS FOR ACCOUNTANCY M&As
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20 ACCOUNTANTS TODAY | MAY / JUNE 2018
How Future-Proof is Your Job? Throughout history technology has transformed work. Innovations brought on
revolutions similar to the digital revolution we see today.
The Internet is considered innovative
65% of children born today will be working in roles that currently
do not exist.2
Managing and developing people (9% automation potential)5
Decision-making, planning, or creative work (18% automation potential)5
IN THE EYES OF THE CFOs:7
ATTITUDES ABOUT AUTOMATION:6
60 Paya Lebar Road, #06-19 Paya Lebar Square, Singapore 409051
Office: +65 64933113 | +65 6909 5647 [email protected]
10 Paragon Drive, Suite 1, Montvale, NJ, U.S.A, 07645
(800) 638-4427 or +1 (201) 573-9000 [email protected]
imanet.org
THE HARDEST ACTIVITIES TO AUTOMATE:
These jobs require the human skills of caring, connecting, and coaching.3 Financial managers and directors are among finance functional roles with the lowest (40.33%) probability of automation versus financial administrators and financial and accounting technicians who have the
(56.08%) probability of automation.4
68%
of accountantssee their
role changing in some form through
automation
53%
see their roles becoming
more strategic with the use of
automation
96%
of survey respondents are optimistic about what lies ahead
10 YEARS AGO PRESENT DAY
The Social networking revolution begins.1
25 YEARS AGO
85%
plan to invest in process automation
94%
believe that being an influencer is an important
skill to initiate change
83%
will be investing in development and training
77%
will focus on leadership capabilities in their
teams
1.“Robotic Process Automation in the Finance function of the future,” Ernst & Young, 2016; 2.“The Future of Jobs,” World Economic Forum, January 2016; 3.“What Jobs Will Emerge In the Future Of Work?” Forbes, December 5, 2017; 4.“Future Smart: Why Robotics Changes Everything,” Deloitte CFO Insights, July 2017; 5.“Where machines could replace humans-and where they can’t (yet)”, McKinsey & Company, July 2016; 6.“The Practice of Now,” Sage Limited, 2017; 7.“The Path to the Transformational CFO,” Armanino White Paper/CFO Survey Report, 2017
Pursuing a CMA is one way to future-proof your career. Learn how to do it.
REPORTING BY THE MIA SMP DEPARTMENT
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To strengthen SMP competitiveness and
enhance audit quality and compliance, MIA
and MICPA have been conducting a series of
joint workshops on the Audit Guide for
Practitioners (AGP) and illustrative
Audit Working Papers (IAWP).
While the workshops are geared to
auditors at all levels, SMPs would
benefit more if partners attend and
demonstrate tone from the top and
support of audit quality.
Enhancing SMPsWorkshops on Audit Guide for Practitioners (AGP) and Illustrative Audit Working Papers (IAWP)
THE audit profession continues to
evolve to meet the emerging needs
of stakeholders, requirements of
regulatory bodies, advancements in
technology, and business innovations,
amongst others. As such, it is important
that the small and medium practices
(SMPs) practitioners keep abreast and
comply with these regulatory changes
by attending seminars and workshops.
In spite of the changing landscape,
one thing that will always remain
constant for an auditor is his ultimate
role in expressing an opinion on
whether the financial statements show
a “true and fair view” in all material
aspects.
Auditing (ISAs). The IAWP provides
samples and work programmes for
SMPs to adopt to comply with the audit
documentation requirements of the
ISAs.
This two-day workshop on AGP
and IAWP served as an important and
effective avenue for SMPs to gain a
better understanding on the practical
aspects of auditing Small and Medium
Enterprises (SMEs), which meets
the requirements of the Clarified
International Standards of Auditing.
The workshop was facilitated by subject
matter experts who combined technical
expertise with a pragmatic and hands-
on approach and covered the following
STRENGTHENING SMPs THROUGH AGP AND IAWP WORKSHOPS
To enhance SMP competitiveness,
MIA working jointly with MICPA
through our SMP department is always
striving to improve audit quality. One
highly effective initiative was to conduct
joint workshops on the Audit Guide
for Practitioners (AGP) and illustrative
Audit Working Papers (IAWP).
The AGP is a revised edition of an
earlier version published by MICPA,
revised to meet the requirements of
the Clarified International Standards on
22 ACCOUNTANTS TODAY | MAY / JUNE 2018
ENHANCING SMPs: WORKSHOPS ON AUDIT GUIDE FOR PRACTITIONERS (AGP) AND ILLUSTRATIVE AUDIT WORKING PAPERS (IAWP)
areas (see Chart 1).
For the past ten (10) months, beginning in
August 2017 up to end May 2018, MIA has run
21 workshops in Kuala Lumpur and 17 in the
Regional offices and smaller towns, including
Tawau, Kota Bahru and Ipoh. In total almost
1,500 auditors attended the workshop.
MORE WORKSHOPS IN FUTURE
Going forward, MIA together with
MICPA will continue to conduct future
editions of this workshop to reach out to
more SMPs and help them to enhance their
Audit Quality. The Institute hopes that all
SMPs will benefit from this workshop and
ultimately, improve the rating of the MIA
Practice Review Programme. By improving
ratings, we bolster assurance and public trust,
and this contributes to the global positive
perception of our Malaysian profession and
the country as a whole.
Going forward, MIA together with MICPA will continue to conduct future editions of this workshop to reach out to more SMPs and help them to enhance their Audit Quality.
FOUNDER AND PARTNER OF SMP,
KUALA LUMPUR
“The workshop is definitely a
comprehensive refresher for partners in
SMPs like me. The AGP and IAWP are two
good guides and references for us in our
future audit in meeting the requirements
of Clarified ISAs. We will then be more
confident in facing the MIA Practice
Review too.
Partners and experienced auditors
should attend this workshop to enhance
SMP AUDIT PARTNERSBENEFITING FROM THE AGP AND IAWP WORKSHOPSA total of 502 Audit Partners from SMPs have attended and benefitted from the AGP
and IAWP workshops so far. The following are testimonials from participants of the
workshops, all but one of whom are audit partners who rated the workshops as being
highly relevant and useful, especially in setting the tone from the top. MIA would like to
thank them for their participation and feedback.
Chart 1
+ Overall Objectives of the Independent Auditor and Conduct of an Audit
+ Agreeing to the Terms of Audit Engagements
+ Quality Control for an Audit of Financial Statements
+ Planning an Audit of Financial Statements
+ Risk Assessment Procedures
+ Conducting an Audit
+ Completing the Audit
+ Communication with Those Charged with Governance
MAY / JUNE 2018 | ACCOUNTANTS TODAY 23
ST
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ENHANCING SMPs: WORKSHOPS ON AUDIT GUIDE FOR PRACTITIONERS (AGP) AND ILLUSTRATIVE AUDIT WORKING PAPERS (IAWP)
the audit quality of the firm, as the key
to an efficient audit is to have the correct
“Tone at the Top”.
PETER LIM, FOUNDER AND PARTNER OF TK
LIM & CO, KUALA LUMPUR
“The workshop on the AGP and
IAWP is highly recommended for
audit assurance partners of Small and
Medium Practices (SMPs) to enhance
the competency and quality on the
performance of audit work.
As a partner, I must say that much
can be learnt from the workshop
and I wanted to ensure that my staff
will also learn from me to increase
their competency level and be able
to discharge their duties to the firm’s
expectations.
The tone from the top is definitely
an important factor contributing to
audit quality. In this regard, I strongly
encourage audit assurance partners of
SMPs to attend together with their audit
staff.”
BILLY KANG, PARTNER OF BILLY KANG &
CO., KOTA BAHRU
”It is commendable that MIA came
up with this training. Together with
my key audit staff, we attended this
training. My staff found it insightful and
(it provided) practicable suggestions
for our SME environment. Personally, I
found it refreshing to walk through the
basics of auditing and incorporate new
approaches to auditing.
The audit manual provided as the
training material certainly eases the
’pain’ of having to re-design the new
approaches to the audit procedures.
Moving forward, I would encourage all
SMPs to participate in this programme to
enhance our quality.”
NURNAJAHA RAIS, MANAGER OF SANIZA &
ASSOCIATE, PENANG
“The course was comprehensive
and the speaker explained (the material)
step by step. It was easy to understand,
providing hands-on application of the
working papers in an audit.”
PARTNER OF A TWOPARTNER SMP,
KUCHING
“We are glad that MIA has taken the
initiative to assist SMPs in upgrading the
standard and quality of AWP. Overall, the
workshop was good and refreshing.
The cost of training is very
reasonable, making it affordable for all
our partners and most of our staff to
attend. The two manuals, though not
complete, are good for future reference.
We are adopting some of the specimen
audit letters with modifications and we
hope more specimens can be included
in the future manual.”
DATUK LAI VAI MING LAI KHENG MING,
PARTNER OF V.M LAI & CO., SANDAKAN
”This workshop has been helpful
in our constant changes and updating
of audit documentation and should be
conducted on an annual basis to widen
our knowledge.”
RIZDUAN JOHARI, PARTNER FROM
RIZDUAN JOHARI & CO, JOHOR BAHRU
“The whole content of the course
and materials provided to us were
very good and very comprehensive. I
salute the presenter who has shared
his knowledge on the Audit Guide
for Practitioners and Illustrative Audit
Working Paper. However, based on
my observation, the presenter mostly
gave examples that emphasised public-
listed companies which apply mainly to
medium-sized practitioners under the
AOB or the Big Four and these may not
be relevant for small practitioners like
me.”
24 ACCOUNTANTS TODAY | MAY / JUNE 2018
REPORTING BY THE MIA SMP DEPARTMENT
ST
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TONY NG: FIRST-HAND QUALITY ASSESSMENT PROGRAMME (QAP) REVIEW
EIGHTEEN months after MIA and
MICPA introduced the QAP, MIA caught
up with Tony Ng of sole proprietorship
YF Ng to get a practitioner’s perspective
on QAP. Tony commenced the QAP
from June 2017 and received his final
report in November 2017.
YF Ng has been around since 2000.
The firm mainly services audit and has
more than 1,000 clients. Tony himself
has 18 years’ experience in public
practice and specialises in auditing.
Below, Tony tells us about his
experience:
How did you know about the QAP
Programme?
I received an email blast from
MIA and thought that this would be
good for the firm because we are
committed to improving audit quality
to serve our clients better. Hence, I
forwarded the email to my team for
further consideration and action. Since
I am a sole practitioner, we do not
have a second partner to look at the
firm’s Quality Controls. I also wanted an
independent review of my firm’s policies
and procedures.
Describe the QAP Process briefly.
the Practice Profile Information
Questionnaire, which can be
downloaded from the SMP
website.
reviewers sent a questionnaire
with a list of documents required
for QAP.
the questionnaire and prepare the
documents for the QAP.
WHAT IS IT LIKE TO PARTICIPATE IN THE MIA-MICPA QUALITY ASSESSMENT
PROGRAMME (QAP)? TONY NG, ONE OF THE EARLIEST QAP PARTICIPANTS,
SHARES HIS INSIGHTS.
26 ACCOUNTANTS TODAY | MAY / JUNE 2018
TONY NG: FIRST-HAND QUALITY ASSESSMENT PROGRAMME (QAP) REVIEW
quality among SMPs. A joint collaboration
between MIA and MICPA since the
MICPA’s commitment towards continuous
improvement in the audit quality of SMPs in
Malaysia.
HOW THE QAP WORKS
Member firm by reviewer(s) appointed by
MICPA. The review of the whole firm will
comprise two parts:
1. A review of the firm’s compliance
with the International Standard of
2. A review of the documentation
of at least one completed audit
engagement.
on a voluntary basis and designed to be
educational in nature. The review will be
conducted at the firms’ premises. At the end
will provide a report on the findings and
the reviewed firm will provide the proposed
remedial action plans for implementation.
OBJECTIVES OF THE QAP
1. Promote continuous improvement in
audit quality in Malaysia.
2. Assist audit firms in assessing
compliance with the applicable auditing
standards and MIA By-Laws in relation
to audit engagements on financial
statements prepared in accordance with
the applicable approved accounting
standards and the Companies Act 1965
or the Companies Act 2016, as the case
may be.
to obtain a better understanding
of the firm’s policies and
procedures and was attended by
both partner and senior staff.
the review for three days
followed by an exit meeting to
discuss on the findings
remediation plan with the
assistance of the reviewers.
highlighting the findings of the
reviewers and the remediation
plans to be undertaken by the
firm. We were also advised that
we may enrol for a follow-up
review in the future.
What was your main take-away
from the programme?
the importance of audit
documentation in an audit
engagement.
with the requirements of the six
elements of ISQC 1.
In what way do you think the QAP
will help you in your future audit?
Previously, the audit was
more focused on substantive audit
procedures. We may over audit and
under audit in certain areas, with
no assessment of the audit risk.
Hence, in future, we will place more
emphasis on audit planning and risk
assessment and link risk assessment
to audit procedures performed. We
will also look into testing of controls
where applicable.
In your opinion, is there any area
where you think the QAP could be
further improved?
In my opinion, rather than
just reviewing one selected client,
the reviewer should review more
files in various industries within
the stipulated budget. This will be
more beneficial for the firm under
assessment.
In your experience, do you consider
the programme value for money?
Yes, it was value for money. The
reviewers were all from practice and
they were superb. They could relate
to the practical problems faced by
a SMP.
Would you recommend that other
SMPs participate in the QAP
programme?
Definitely, if they are serious
about audit quality and have no
independent partner to do a review
of their policies and procedures.
Do you expect to enrol in the follow-
up review in the near future?
Yes, after applying what we have
learnt in the next audit, we will enrol
in the follow-up review to gauge its
effectiveness.
ABOUT THE QAP
MAY / JUNE 2018 | ACCOUNTANTS TODAY 27
BY MAJELLA GOMES
ST
EW
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HIP
Board Audit Committees
Dealing with Data Disruption
WE live in an age of disruption, where
business models are increasingly
reliant on data and large volumes of
data are available to anyone who can
harvest it, supported by innovation and
technologies. Consider this: today’s
smartphone has the same computing
power equivalent to that of the whole US
government in 1983. When companies
apply advanced analytics techniques to
harvest and interpret data, they can
hone and develop a game-changing
competitive edge.
Speaking to Board Audit Committees
on how to manage disruption and data
at MIA’s recent annual Audit Committee
Conference 2018 in conjunction with the
Institute of Internal Auditors Malaysia
(IIAM), Dr. Farouk Abdullah, Chief
Data Scientist, Azendian Solutions said
that the first principle is “to recognise
the indicators of disruption and identify
the impact of such disruption on your
organisation.” As an example, self-
driving cars are now licensed in six
US states and they have been found to
be relatively more accident-free than
human-driven vehicles. This could
mean that in the future, driving licences
may no longer be necessary, and there
will be fewer deaths on the road. This
disruption in turn will impact on the
automotive and insurance industries.
Understanding the causes and effects
of such disruption will help auto and
insurance businesses plan for the future
and strategise how to manage the
effects of disruption.
Dr. Farouk also said that disruption
does not have to be a big bang event.
“There is no major disruption. Rather,
it is a set of small events that build up
to a major disruption.” By noting minor
trends which coalesce into larger seismic
movements and having a finger on the
pulse of the environment, businesses
can move from being reactionary
to taking prepared, proactive and
preventive measures that will enhance
their sustainability and longevity.
DATA IS KING
Key to identifying and managing
disruption is data. Data-driven
businesses are business that remain
competitive by leveraging data and
analytics. Citing Airbnb, Alipay, Google,
Grab and Waze as some examples of
organisations that focus on data and
analytics, he said that these were de facto
data companies whose services were
secondary. Their main aim was to collect
data and apply it towards generating
insights that drive business growth.
Every time a user logs in or switches an
app on, data is being recorded, stored
and analysed to develop functionalities
to generate revenue. It’s quick, cheap
and barely noticeable. Ride-hailing apps,
for instance, are an accurate record of
where the user is, and where he/she is
going to. This sort of data can be very
valuable for marketing to specific users
Data Scientist Dr. Farouk Abdullah thinks Board Audit Committees must focus on data for better organisational sustainability and competency.
Dr. Farouk Abdullah, Chief Data
Scientist, Azendian Solutions
28 ACCOUNTANTS TODAY | MAY / JUNE 2018
BOARD AUDIT COMMITTEES: DEALING WITH DATA DISRUPTION
through understanding their profiles and
characteristics.
If organisations are now more reliant
on data, Boards and Audit Committees too
must change to reflect this new paradigm.
Traditionally, the Audit Committee
oversees the financial reporting and
disclosure process, monitors accounting
policies and principles, oversees the
hiring, performance and independence of
external auditors, regulatory compliance,
ethics and whistleblower hotlines, and
monitors internal control processes,
analyses risk management policies and
practices with management. But they no
longer have the luxury of focusing so
diligently on compliance and forensics,
and should instead switch to the preventive
and proactive to cope with disruption and
enhance governance. “Businesses should
move from just identifying issues after
a disruptive event, to diagnosing how
it (and subsequent events) should be
managed, to predicting future possible
occurrences and preventing these from
happening. Speed and time are of the
essence when dealing with disruption,”
stressed Dr. Farouk.
TIPS FOR MANAGING DATA
Since data is now the lifeblood of
companies, how can Boards and specifically
Board Audit Committees help their
organisations? Dr. Farouk recommends
that organisations and Boards should:
strategy
and how they are being used
transform their respective organisations
to focus on data to drive the business.
Keyto identifying and
managing disruption is data. Data-driven
businesses are business that remain competitive
by leveraging data and analytics.
MAY / JUNE 2018 | ACCOUNTANTS TODAY 29
BY MAJELLA GOMES
ST
EW
AR
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HIP
COMBATING CYBER RISKS WHAT THE AUDIT COMMITTEE
NEEDS TO KNOW
WHY does cybersecurity matter?
Because it can cost your business
more than financial losses. Loss of
reputation can be just as damaging
as investor confidence wanes and
shareholders rethink their stakes
in your business, warned Sanjay
Sidhu, Governor, IIA Malaysia,
kicking off his presentation on
Combating Cyber Risks: What the
Audit Committee needs to know,
at the recent Audit Committee
Conference 2018.
Take social networking giant
Facebook, whose involvement in
the Cambridge Analytica scandal
caused it to lose billions in value
practically overnight. That’s
only one high-profile case. Sidhu
estimated that cybersecurity attacks
have wiped out at least USD52.4
billion in share values in recent
years, and global ransomware
damage may have crossed the
USD5 billion mark in 2017, up from
just USD325 million in 2015. As
many as 97 out of 100 e-mails are
actually phishing attempts which
try to get confidential information which
can be exploited. Low levels of awareness
of those who are already affected, or who
are at risk of being phishing targets, further
compound the problem. They may not even
be aware that they can make reports of
these attacks despite the incidents being
very minor ones.
EVERY DEVICE IS RISKY
“The threat landscape is huge,” Sidhu
said. “Every device (pc, laptop, mobile
phone, tablet) represents a threat.
You could be hacked by a disgruntled
employee. Some people do it for fun.
Organised crime conducts attacks to steal
data.” Ransomware can even take data
hostage, in some cases – and paying a
ransom doesn’t always guarantee that the
cyber terrorist will allow you to access your
data again; both data and ransom payment
can be lost.
He cautioned that security needs to
be applied equally to the real and virtual
worlds. It is as easy for an employee, for
instance, to e-mail information out to a
third party, as it is for the information to
be printed out in hard copy and carried
out of the office. Credentials can be seen,
and identities stolen; business reputations
can be lost when there is a breach, with
far-reaching consequences. Breaches will
affect networks and systems and stop users
from accessing information. Because of all
these alarming possibilities, regulations are
already in the pipeline that will hopefully
mitigate the negative consequences of such
events.
REGULATORS TO THE RESCUE
In Malaysia, the Securities Commission
is a frontline combatant in cybersecurity
warfare and related regulatory compliance.
Australia, China and Singapore are also
SANJAY SIDHU, GOVERNOR, IIA MALAYSIA, BRIEFS THE BOARD AUDIT
COMMITTEE ON THE CHECKLIST OF KEY STEPS TO TAKE TO BEEF UP
CYBER DEFENCES.
The threat landscape is huge. Every device (pc, laptop, mobile phone, tablet) represents a threat. You could be
hacked by a disgruntled employee. Some people do it for fun. Organised
crime conducts attacks to steal data.
Sanjay Sidhu
Governor, IIA Malaysia
30 ACCOUNTANTS TODAY | MAY / JUNE 2018
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tightening their relevant laws, and the
punitive measures of some of these
are causing companies to scramble to
put systems in place before the laws
take effect. One general characteristic
of all impending regulations, Sidhu
said, was that companies which have
had breaches will be fined because
such incidents affect public welfare.
While this may not seem fair – since
the company stands to lose more than
just its data when there is a breach,
and be fined on top of that – it does
put the responsibility for securing data
squarely on companies’ doorsteps.
As those responsible for oversight
and good governance, Boards and
management have to be constantly
aware of how data is being handled
because cyber risk is now an enterprise-
level risk. “Those responsible
for enterprise can no longer plead
ignorance,” warned Sidhu. Data is a
company asset and therefore under
the firm’s control. It is the duty of
companies to ensure its integrity. This
includes knowing what resides where,
who has access to it and how it is
secured. To enable this, training is
imperative; staff needs to be trained
to recognise phishing incidents and
act accordingly. Awareness at every
level cannot be overemphasised; from
the Board to the janitor, everyone
should be vigilant because “there is no
remedy for cyber threat.”
Since cybersecurity wars are
relentless and all-encompassing,
what do companies need to know?
When managing cyber risk, Sidhu
recommended:
it should be managed; it needs
to be seen as one of the items
on the Board agenda, and not
relegated and delegated as “an IT
issue.” “Cyber risk is an enterprise-
level risk,” he emphasised.
comes under; setting parameters,
access and controls.
the right level of investments in
systems and corrective measures.
systems of your peers.
and establishing an entire chain
of protection.
contractors.
He concluded that Audit
Committee members do not need to
be technical experts but they do need
to be prepared. He urged them to
“ask the right questions,” to learn and
relearn in order to be well equipped
for enforcing cybersecurity, and to
have the right beliefs and positive
mindsets that they can do this.
COMBATING CYBER RISKS: WHAT THE AUDIT COMMITTEE NEEDS TO KNOW
ST
EW
AR
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HIP
32 ACCOUNTANTS TODAY | MAY / JUNE 2018
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BY MAJELLA GOMES
ST
EW
AR
DS
HIP
WHAT do Sherron Watkins, Jeffrey Wigand
and Michael Woodford have in common?
They put themselves on the corporate map
by blowing the whistle on their respective
companies. Watkins, an accountant and VP
of Corporate Development, helped expose
the Enron fraud. Wigand, VP of R&D at
Brown & Williamson, a company that was
manufacturing reduced-harm cigarettes,
claimed that it had intentionally manipulated
its tobacco blend with chemicals. Woodford,
CEO of Olympus, exposed how the optical
equipment manufacturer was hiding its
losses. While they became the poster
children of whistleblowing, held up as
icons of integrity, their actions practically
ended their corporate careers and made
their lives very difficult indeed.
HOW IT WORKS
Whistleblowing brings bad practices to
light, said Dr. Mark Lovatt, CEO, Trident
Integrity Solutions at his presentation,
“Whistleblowing – How Best to do it?” at
the Trust & Integrity Conference 2018.
Dr. Lovatt said that if companies
depended exclusively on their accounts
to tell them that something was not
right, only a small portion of wrongdoing
would be obvious. “You won’t know
everything that is going on,” he said.
“Whistleblowing works by getting
people who have integrity to help you
expose wrongdoing.”
Besides fraud, other malpractices
that can be uncovered or reported
by whistleblowing include theft,
discrimination, harassment, damage to
property, negligence, breaches in data,
health or safety rules, insubordination,
alcohol or substance abuse, misconduct,
bringing the organisation into serious
disrepute and bullying. All this is
undesirable behaviour that needs to be
nipped in the bud or else the firm runs
the risk of it becoming accepted practice
– with even worse repercussions.
Whistleblowing is primarily an internal
DR. MARK LOVATTBLOWING THE WHISTLE
TRIDENT INTEGRITY SOLUTIONS CEO DR. MARK LOVATT TALKS ABOUT
SOME BEST PRACTICES FOR IMPLEMENTING WHISTLEBLOWING, AS WELL
AS THE EXPECTED CHALLENGES AND REPERCUSSIONS.
Whistleblowing works by getting people who have
integrity to help you expose wrongdoing.
Dr. Mark Lovatt
CEO, Trident Integrity
Solutions
34 ACCOUNTANTS TODAY | MAY / JUNE 2018
DR. MARK LOVATT: BLOWING THE WHISTLE
practice so the company has a chance
to resolve the issue before the matter
goes public, which could cause
considerable damage.
THE COSTS OF NOT IMPLEMENTING WHISTLEBLOWING
Companies that don’t have a
whistleblowing protocol in place could
pay a heavy price. Dr. Lovatt illustrated
this with a case study on the Volkswagen
“Dieselgate” scandal, which came to
light in September 2015. VW was found
to have intentionally programmed its
diesel engines to activate emissions
controls during laboratory testing,
thereby manipulating the results of
regulatory testing. This made it seem
that its vehicles were meeting emissions
standards but this was not true; 11.5
million cars were affected, globally.
When the scandal broke, VW
became the target of regulatory
investigations in multiple countries. Its
stock price took a beating; many of
its senior management resigned, was
suspended or arrested; and VW had to
spend billions of Euros on rectifying
the issues, with The Wall Street Journal
reporting that the company had taken
a USD18.28 billion hit because of the
emissions scandal. The VW Group
had included iconic marques like
Lamborghini, Audi, Bentley, Porsche,
Bugatti and Ducati; the VW name
was now mud. But all this could have
been avoided if VW had encouraged
whistleblowing. Investigations revealed
that the manipulated emissions results
had been common knowledge. VW is
not the exception; even Rolls-Royce has
experienced financial scandal – a £671m
fine arising from their practice of using
bribes to win business across the world.
Dr. Lovatt also noted that
whistleblowing could be an avenue
to combat corruption. Globally, IMF
statistics estimate that the cost of
corruption in its many forms totals about
USD2 trillion annually. In Malaysia, 30%
of companies experienced bribery and
corruption, in 2015. Having the right
systems in place with protection for
people of integrity who blow the whistle
could be a means to plugging these
leakages.
CHALLENGES AND CONSEQUENCES
If whistleblowing systems are to
work, they should be secure, Dr. Lovatt
said, with well-defined, accessible
channels and processes that allow
anonymous reporting and protection
of whistleblowers. Staff who deal
with these matters require training
too. The system should create trust
in all who use it. Dr. Lovatt cited the
efforts of multinationals Shell, Petronas
and Coca-Cola as some examples of
whistleblowing systems that tick all
the boxes. “Hotlines are an asset to a
company,” he said.
Whistleblowers, unfortunately, do
not always do well after the deed is
done, despite having great integrity
and really caring about the company
they work for. There is always fear of
retaliation, uncertainty and scepticism
that action will be taken. In Jeffrey
Wigand’s case, he claimed to have even
received death threats. Harassment,
loss of seniority or job responsibilities
and maybe even backlash from your
own colleagues are all stark possibilities.
But these hazards have not deterred
whistleblowers from heeding their
conscience and doing the right thing.
In a 1987 survey of whistleblowers,
only 20% felt their actions had affected
workplace change – but even with those
odds, more than 50% of them said they
would do it again!
MAY / JUNE 2018 | ACCOUNTANTS TODAY 35