KUALA LUMPUR: The Audit Oversight Board (AOB) of the Securities Commission Malaysia has called on audit firms to raise the bar on audit quality by reinforcing professional scepticism in financial statement audits and tightening their internal monitoring systems.
In its Annual Inspection Report 2024, the AOB stressed that auditors must challenge management’s assumptions more rigorously in high-risk areas such as impairment testing, revenue recognition, and asset valuations. It warned that undue reliance on management explanations without sufficient corroborating evidence continues to undermine audit effectiveness.
The board reminded major audit firms—those with over 50 public-interest entity clients and total market capitalisation exceeding RM15 billion—to give greater consideration to the complexities of their clients’ businesses in order to avoid lapses in professional judgement. Other firms were urged to strengthen technical competencies and ensure the consistent execution of fundamental audit procedures.
The report reviewed 40 audit engagements and 40 partners across nine major audit firms and four other firms. Findings showed that some practices still fall short of the International Standard on Quality Management (ISQM 1), particularly in documenting monitoring activities such as the nature, timing, and scope of procedures. These shortcomings, the AOB noted, raised concerns over the robustness of firms’ monitoring processes.
The regulator emphasised that firms must ensure audit procedures are sufficiently designed to obtain adequate evidence on the operating effectiveness of internal controls. It also underscored that audit quality must be upheld as a core value, rather than subordinated to commercial interests.
The inspection further identified instances of non-compliance with ethical requirements, including breaches of the Malaysian Institute of Accountants (MIA) By-Laws on Professional Ethics, Conduct and Practice. The AOB cautioned that maintaining auditor independence is vital to preserving investor confidence and urged firms to closely monitor adherence to ethical standards.
