What the Audit Oversight Board will do

1. What the Audit Oversight Board will do ICAA-MICPA Audit Forum 3 August 2010

2. Financial Reporting Ecosystem Domestic Commercial transactions / results Securities Commission Companies Commission Bank Negara Malaysia Ministry of Finance Directors and management Financial reporting function Internal audit function Financial statements External auditors Audit Oversight Board Foreign Commercial transactions / results Other experts: Valuers, Actuarists, Lawyers Malaysian Institute of Accountants Bursa Malaysia Malaysian Accounting Standards Board

3. Drivers of financial statement quality Reporting regulation and standards Appropriateness, clarity and simplicity Availability of guidance when necessary Reporting entities Auditors Corporate governance practices Professionalism and business principles Financial Statements Reporting function competency Firm level quality control & risk management Financial reporting infrastructure Application of standards in engagements Users Knowledgeable Context of usage

4. About the Audit Oversight Board • The Securities Commission has the function to (S31B): • Promote and develop an effective and robust audit oversight framework in Malaysia: • Promote confidence in the quality and reliability of audited financial statements in Malaysia: and • Regulate auditors of Public Interest Entities (PIE)

5. About the Audit Oversight Board • Among the responsibilities of the AOB are: • Implement policies and programmes in ensuring an effective audit oversight system • Register auditors of PIE • Conduct inspections and monitoring programmes • Conduct inquiries and impose appropriate sanctions • Cooperate and liaise with relevant authorities and relevant oversight bodies in Malaysia and internationally

6. Diagram 1 “Promoting confidence in the quality and reliability of audited financial statements of public interest entities in Malaysia through having effective and robust regulation and audit oversight” Strategic Themes Services Areas Outcomes Support adoption and implementation of standards Standards setting and guidance Confidence in audited financial statements High quality and reliable audited financial statements Registration • Promote high quality audit practices Inspection and Inquiry Independent and high quality audit • Influence financial reporting ecosystem Promotion of quality practices Resourceful and high quality audit practices • Leverage on stakeholders support High quality financial reporting practices Collaboration and cooperation

7. About the Audit Oversight Board • The Audit Oversight Board (AOB) became operational from 1 April 2010 • The AOB consists of: • An executive chairman • 6 non-executive members • Not more than 2 non-executive members of the AOB shall be members of the Malaysian Institute of Accountants

8. Standard setting • Compliance with established auditing and ethical standards benchmark against international best practices is an integral aspect in ensuring audit quality • The AOB expects the accountancy profession to adopt all IFAC standards. The power to direct MIA to establish, amend, modify or alter its prescribed standards will only be exercised if there is a gap in the scope and timing of the adoption

9. Registration process • AOB seeks to register audit firms and individual auditors of public interest entities (PIEs) who are fit and proper which includes (S31P): • Auditor approved under S8 of the CA • Not convicted of an offence involving fraud and dishonesty • Not a bankrupt • Not engaged in practices with reflect discredit in meeting professional standards

10. Inspection process • The AOB will conduct annual inspection of audit firms • The audited financial statements will be monitored and when necessary, auditors and their audit work will be inspected • Firms and engagements will be inspected based on a risk-based approach • Audit firms auditing high number of PIEs, for example, will be inspected annually while the rest will be inspected within 3 years

11. Inspection process • Audit inspections would be conducted at the firm level and the engagement level • At the firm level, compliance with ISQC1 will be reviewed: • Leadership and responsibilities within firm • Ethical requirements • Acceptance and continuance of audit clients • Human resources • Engagement performance • Monitoring

12. Inspection process • At the engagement level, inspection is targeted at compliance with International Standards on Auditing and relevant regulation and laws • The performance of the Engagement Partner and the Quality Control Reviewer will be assessed • This includes: • Audit planning • Risk assessment and risk response • Sufficiency and appropriateness of audit evidence • Documentation • Compliance with regulation

13. Inquiry and Sanctions To enable effective and proportionate sanctions to be taken… • Inquiry conducted when there is reason to believe that provisions of the Act, written notice or guidelines are breached • AOB officers will be conducting inquiries • Inquiry officers will be appointed and will have necessary powers to conduct their duties Cancelling or suspension of registration Monetary fines Censure Requiring errant auditor to comply with the Act Requiring additional professional education