KUALA LUMPUR (June 26): The Securities Commission’s Audit Oversight Board (AOB) has uncovered fewer recurring findings by the 13 audit firms it inspected last year.

It noted the overall reduction in the number of recurring findings — out of eight firms re-inspected, only one recurring finding each was noted in two of the audit firms — in a statement issued in conjunction with the release of its Annual Report and Annual Inspection Report for 2018.

In comparison, in 2017, out of the eight re-inspected firms, five recorded recurring findings.

The 13 audit firms that the AOB inspected last year — six of which were major audit firms — collectively audited public listed companies (PLCs) representing about 94% of the total market capitalisation of PLCs on the local stock exchange.

"While firms are taking measures to improve audit quality, the AOB remains concerned that issues in areas such as sampling and the audit of revenue recognition still persist," the statement read.

Hence, it urges audit firms to adopt a more structured and formalised root cause analysis framework to ensure that the remediation measures taken to address the findings raised are effective and sustainable.

The AOB also noted that it took enforcement actions last year against 11 individual auditors and three audit firms for failing to comply with laws, regulation and auditing standards. Last year also marked the first time that the AOB took enforcement actions against Engagement Quality Control Review (EQCR) partners for their failure in exercising their gatekeeping functions in the audit engagements.

The AOB also shared inspection findings of an inspected audit engagement with the Audit Committee of the public
listed company, given AOB’s concerns on the audit quality and outsourcing of its audit work to other auditors.

“The AOB believes that audit quality is a cornerstone of good governance and ultimately, boards are responsible to put in place policies and processes to ensure auditors’ independence and commitment to deliver good quality work as well as audit processes that are fully supported by the management,” AOB chairman Datuk Gumuri Hussain said.

The AOB plans to distribute its Annual Inspection Report 2018 to all PLCs in order to deepen boards and Audit Committees’ understanding of the findings and to facilitate discussions between public interest entities (PIEs) and their respective auditors to ensure that risk areas specific to their entities are adequately addressed.

The report, it said, shares common inspection findings, trend analysis, and assessment of remediation efforts and progress taken by inspected audit firms.