AUDITING AND ASSURANCE SERVICES IN MALAYSIA

TOPIC 3: COMPANIES ACT 1965 & BY-LAW OF MALAYSIAN INSTITUTE OF ACCOUNTANTS (MIA)

References: Chapter 4, The Companies Act 1965 & MIA By-Law of MIA AUD390 2014AUDITING AND ASSURANCE SERVICES IN MALAYSIA

LEARNING OUTCOMESAUD390 2014APPROVED COMPANY AUDITORDISQUALIFICATION AS AUDITORAPPOINTMENT AND REMUNERATIONRESIGNATION AND REMOVAL DUTIES AND RIGHTSMIAS BY-LAWS (ON PROFESSIONAL ETHICS, CONDUCT AND PRACTICE)

QUALIFICATION OF AUDITOR The Companies Act 1965AUD390 2014S8 requires a company to appoint an approved company auditorAn approved company auditor is a qualified person approved by the Ministry of Finance to act as an auditor, is of good character and competent to perform duties of an auditor under the Companies Act. A person planned to be an approved company auditor must have a professional accountancy qualification with adequate practical training before being recognized as MIA member holding the designation of public or licensed accountant

ContAUD390 2014S9 highlight necessary qualifications of an auditorS9(1): a person shall not be appointed as auditor for any company if:S9(1a) if he not an approved company auditorS9(1b) if he indebted to company, its holding or subsidiaries company in an amount exceeding RM2,500S9(1c) if he is:An officer of the companyA partner, employer or employee of an officer of the company

AUD390 2014A shareholder or his spouse is a shareholder of a company whose employee is an officer of the companyS9(1d) if he is responsible for or if he is the partner, employer or employee of a person responsible for the keeping of the register of members or debentures holdersS9(2) a person is deemed an officer of company if he/she had been an officer of the company for the preceding period of 12 monthsCont

DUTIES & RESPONSIBILITIES The Companies Act 1965AUD390 2014S174 (1-3) DUTIESAuditors duty to make a report to members on the accounts & the companys accounting and other records relating to those accounts in the general meetingAuditors duty to express an opinion in his report:True & fair view of the accounts as required by S169Books, records and register are properly kept

AUD390 2014Disclose names of subsidiaries of which he is not the auditorDuty to report of any defects, irregularities in the accountsAuditors duty to form an opinion as to each of the following mattersTo ensure that he has obtained all the information and explanationTo ensure that proper accounting and other records have been kept by the companyCont

AUD390 2014To ensure that returns received from branch offices of the company are adequateTo ensure that procedures & method used by the holding or subsidiary were appropriate to the circumstances of the consolidationTo attend any general meeting & to receive all communications relating to any general meeting which may concern the auditor in his capacity as auditorCont

AUD390 2014S174(4-9) POWER OR RIGHTS OF AUDITORSA right of access at all times to the books & recordsA right to information & explanation he considers necessaryA right to attend any general meetings that concerns him as an auditorA right to make written representations when the company proposes to dismiss him as an auditorCont

AUD390 2014To attach auditors report to annual report and to be read in General meetingCont

APPOINTMENT The Companies Act 1965AUD390 2014S172(1): Powers of Directors to appoint Auditor before 1st AGM. If the directors do not appoint the first auditor, the members are entitled to do so in the general meetingS172(2): A company shall appoint auditor at each AGM. The term of office of auditor starts from his appointment at the present AGM until the conclusion of next AGM. The company must at every AGM appoint or reappoint auditors to hold office until the conclusion of the next AGM

AUD390 2014S172(3): Power to directors to appoint auditor to fill any casual vacancy (termination of business-winding up cases, etc.)S172(10): Power to CCM to appoint auditor after the dismissal/removal of auditor if the company does not appoint another auditor on the application in writing of any member of the company to make the appointmentCont

DISMISSAL The Companies Act 1965AUD390 2014S172(4): Dismissal of auditor at general meeting of which special notice of an ordinary resolution to remove an auditor has been givenS172(5): On receipt of special notice, the company must sent a copy of the special notice to the auditor concerned & CCM. The auditor may within 7 days after the receipt of the special notice by him, make representations in writing to the company and request that representations be sent by the company to all members entitled to receive notice of the general meeting

AUD390 2014S172(8&10) A company shall inform in writing of the removal of auditor the registrar. The power to CCM to appoint auditor after the dismissal/removal of auditor if the company does not appoint another auditorCont

RESIGNATION The Companies Act 1965AUD390 2014S172(14) An auditor may resign If he is not the sole auditor of the company orAt a general meeting of a companyS172(15) An auditor shall give notice of resignation to directors and the resignation will only be effective on the appointment of another auditor

AUD390 20141st issued on April 1990. Revised in 2002 and the latest revision (2011) specifically on MIA By-Laws on Professional Independence, which came into forced from July 2004Sample of MIA By-Laws MIA BY-LAWS (ON PROFESSIONAL ETHICS, CONDUCT & PRACTICE)

ContAUD390 2014Comprise two parts. Part I relates to the By-Laws on Professional Ethics which is substantially based on the Code of Ethics for Professional Accountants issued by the International Federation of Accountants (IFAC)Part II relates to the By-Laws on Professional Conduct and Practice which contain prescriptive obligations applicable to members or member firms of the MIA.

AUD390 2014Purpose of the establishment to inculcate of sound professional practice and for the prevention of illegal dishonorable practice by membersTo be observed by auditors as a standard of conduct in their daily professional lifeIt is important for the auditor to gain public confidence in the quality of their service

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Group Discussion & PresentationAUD390 2014Fundamental PrinciplesProfessional Competence and Due Care ConfidentialityAdvertising, Marketing and PromotionsProfessional Appointments Fees & Commission Method of PracticeRequired:1. Definition of each component of MIA By-Laws2. Provide 1 scenario/example which represent the component

Fundamental PrinciplesAUD390 2014Define a members duties to community which covers the qualities of integrity, objectivity, competency and professionalism expected of accountantsIntegrity: adherence to moral & ethical principles, soundness of moral character or simply honestObjectivity: impartiality (unbiased) in performing all servicesCompetency: have the necessary skills & proficiency to carry out the professional workProfessionalism: member in at all times perform his work objectively & impartially & free from any influences

Professional IndependenceAUD390 2014Regarded as the auditors most critical characteristics (differ from any other professionals)Independence in auditing taking an unbiased viewpoint in the performance of audit tests, the evaluation of the results and issuance of the audit reports

AUD390 2014Independence in FactExists when the auditor is actually able to maintain an unbiased attitude throughout the auditIndependence in Appearance The result of others interpretation of this independenceCont

AUD390 2014Factors that can compromise independence:Personal or blood relationship with the clientHas direct or indirect material financial interest in the clients company e.g. buying shares, high audit fees, etc.He has within proceeding period of 12 months was an employer or employee of an officer of the companyGiving/guaranteeing a loan to a client or accepting a loan from a client/loan guaranteed by a clientCont

AUD390 2014Being indebted to a client for more than RM2,500Heavy involvement in other services

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Competence & Due CareAUD390 2014Competence Member should have formal education in accounting, adequate practical experiences and continue professional education through Continuing Professional Education (CPE)CPE is important due to the rapid changes and expansion in knowledge that is required for accountants to discharge their professional obligations effectively & responsiblyCPE Program comprises structured & unstructured learning

AUD390 2014Structured CPE learning may be obtained through courses, conferences, seminars or from post graduate studiesUnstructured CPE learning include private study and technical research for practical

Due care Member is a professional responsible in fulfilling their duties diligently and carefully E.g. consideration of the completeness of the working papers, the sufficiency of audit evidence and the appropriateness of the audit reportsCont

Method of PracticeAUD390 2014Prohibit a member from using a trade name or fictitious name to practice the profession Member in public practice shall practice as an auditor or licensed accountantIn his own name; orIn the name or names of his partner or partners, being auditors or licensed accountants; or

AUD390 2014

In the name of a firm existing at the time of the coming into operations of the Accountants Act 1967 or formed thereafter provided that the partners in Msia are eligible to he registered as auditor or licensed accountantsBy-law 6 on Description and Designatory Letters is related to Method of PracticeRequires every member in describing himself as an accountant in Msia shall use the designatory letters C.A.(M) or L.A.(M)Cont

Advertising, Publicity & SolicitationAUD390 2014Advertising & Publicity are the use of various media, such as magazines and radio to communicate favorable information about the services of the CA firmMembers are prohibits from advertising by any means, except:-Issuing circulars to their clients or to persons with whom there has already been established a professional connection

AUD390 2014Publish the firm name & address for the purposes such as advertisement for vacancies, for sale of business or property on behalf of the client, or a receiver, or to announce change of address or telephone numbers Firms stationery or name plate or business cards do not include a claim that the member is a specialist in many aspects of public interest

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AUD390 2014Solicitation consist of various means that CA firm use to engage new clients, other than accepting new clients that approach the firmFor e.g. taking prospective clients to lunch to explain firms services, offering seminars on current tax law changes to potential clients & advertisements in the Yellow pagesCont

AUD390 2014Distinction to be drawn between advertising & the need to impart knowledgeConducting seminars & publishing articles for the purpose of disseminating accounting knowledge are permitted, with condition such activities do not tantamount to deliberate promotion of the member

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Fees & CommissionAUD390 2014Professional fees charged should be a fair reflection of the value of the work performed for the client, taking into account of:The skill & knowledge required for the type of work involvedThe level of training & experience of the persons necessarily engaged in the workThe time necessarily spent by each person engaged in the worksThe degree of responsibility & urgency that the work entails

AUD390 2014No member shall mislead his client of the public by charging an unrealistically low fee which may result in the lowering or compromising professional standardsAudit fee that less than RM800 is unrealistic lowExcept ~ Member may charge charitable bodies & non profit organisation low fees or no fees at all provided that there is no element of any inducement to secure professional work by such action

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AUD390 2014By-law 13 Rule on Commission is related to FeesObjective: To discourage the payment or acceptance of commission by members in their dealings, which could compromise in ethical & professional standardsProhibit member from paying a commission to obtain a client, or accepting a commission for a referral to a client of products or servicesCont

ConfidentialityAUD390 2014Prohibits a member from using confidential information acquired in the course of the professional work for personal advantage, except with the consent of the clientHowever, a member may disclose confidential information without the consent of the client under the following situations:For the purpose of discharging his duties to his clientIn accordance with the provision of any written law or where disclosure is compelled by the process of lawWhere disclosure is reasonably necessary to protect the members interest

Changes in Professional AppointmentAUD390 2014Provides guidance on the changes in professional appointment when there is disagreement between the existing accountant and the client over ethical or technical principles in the course of workProcedures that a member must exercise before accepting a new clientThe successor auditor should get the prospective clients permission to communicate with the existing predecessor auditor. If the permission is not given, the successor auditor should decline the appointment.

AUD390 2014The successor auditor should inquire the predecessor auditor whether there is any professional reason for the proposed change. If there are such reasons, the successor auditor should request the predecessor auditor to provide him with all necessary details in order to decide the acceptance of the appointment.If the successor auditor does not receive a reply to his inquiry, he is required to send a reminder to the predecessor auditor or communicate with him through other means.Cont

AUD390 2014If no response within a reasonable period after sending of 2 reminders, the successor auditor should inform the predecessor auditor of his attention to accept the engagement.Cont

Tutorial QuestionsAUD390 2014The meaning of an approved company auditor in accordance with CA Act.3 reasons for disqualification of a person from acting as an auditor.State and explain the provisions pertaining to the appointment of auditors.Explain the auditors reporting responsibilities under S 174(2) of the CA Act.What are the auditors right under CA Act.Explain the requirement under CA Act regarding the auditor resignation.What are the rules in dismissal of an auditor at an AGM.What is the main objectives of the MIA By-Laws.Explain the need for a code of professional ethics for the members of MIA.Explain the concept of independence in audit and its importance.List 4 factors which are likely to impair an auditors independence.Every MIA member is required to fulfill the Continuing Professional Education (CPE) in order to maintain membership. CPE programs comprise structured and unstructured forms of learning. Identify the three forms of structured CPE activities.State 2 conditions as stipulated in the MIA-By Laws that every member must comply with in advertising their services.