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Part IIIA of the SCA provides that the AOB, in assisting the SC in discharging its audit oversight functions is responsible to implement policies and programmes in ensuring an effective audit oversight system in Malaysia, register auditors of PIEs, direct the MIA to establish or adopt or by way of both, the auditing and ethical standards to be applied by registered auditors, conduct inspections and monitor programmes on registered auditors to assess the degree of compliance of auditing and ethical standards and conduct inquiries and impose appropriate sanctions against registered auditors who fail to comply with auditing and ethical standards.
The first phase of its mission is to promote good governance of the auditing profession and auditors who are engaged by a public interest entity on or after 1 April 2010 to audit the public interest entity's financial statements. The AOB will cooperate with other relevant regulatory agencies such as the Companies Commission of Malaysia, Bank Negara Malaysia and the Malaysian Institute of Accountants to make sure that there is in place a holistic regulatory framework for auditors in Malaysia to promote the growth of the Malaysian auditing profession with good governance.
AOB share information with these bodies, granting it a wider regulatory and enforcement reach. In other words, the AOB will facilitate regulatory oversight and enforcement, in the wake of the recent global financial crisis that has reshaped thinking and tested capital market regulators, placing new demands and responsibilities on both institutional and independent regulation. The AOB also playing a important role in establishing mutual relationships with foreign country, which has been provided for under the Act, enabling it to enter into arrangements and share information with foreign audit regulators. Critically, where local audit firms are concerned, compliance with ISQC 1 will be vital if they want to take advantage of international opportunities.
AOB is the first establish a registration process for all individual auditors and audit firms to determine auditing ability and capacity. The AOB's activities will encompass inspection, inquiry, enforcement and standards-setting, which will coalesce into a supervisory model. Non-registration will be an offence, and auditors who are found unfit run the risk of suspension or may have their licences revoked. Any registered auditors who fail to comply with any provisions in Part III A of the Act, notices or guidelines issues by the SC will be sanctioned.
Establishment of the AOB is the way to strengthen the independent oversight of auditors. AOB have an oversight system independent of auditors. AOB modernise appeal process and have in place a broad range of sanctions.
There are various functions of AOB. For the registration, Registration process will encompass individual auditors and audit firms of PIEs to ensure every party involved in the auditing process is fit and proper. Non-registration is an offence and introduction of transparent registration eligibility criteria in section 31PSCA and AOB Handbook for Registration. For auditors found not to be fit and proper, suspension, revocation or non-registration will be imposed and any person aggrieved may file appeal to SC. Finally, all the registration is done on an annual basis.
For the inspection, it takes the risk based approach in regards to frequency of inspection. Inspection officers to have power to access working papers, books and accounts and to take down oral or written information by the guide of international practise. After that, inquiry conducted when there is reason to believe that provisions of the Act, written notice or guidelines are breached and AOB inquiry officers will conduct AOB inquiries. To enable effective and proportionate, sanctions had been taken like monetary fines, cancelling or suspension of registration, requiring additional professional education and required errant auditor to comply with the Act Censure. Lastly, AOB has the right to direct MIA to establish, amend, modify or alter its prescribed standards if the need should arise to ensure reliability of the company's audited financial statement
The Public Audit Oversight Board (PCAOB) is a private sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the auditors of companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair and independent audit reports.
There were five members in PCAOB which are chairman, each of whom is appointed by the U.S. Securities and Exchange Commission (SEC) and precisely two members of the PCAOB must be or have been a Certified Public Accountant.
All accounting firms that wish to prepare or issue audit reports on U.S. public companies must register with the PCAOB. The PCAOB Registration Page gives a list to registered accounting firms like forms, example, FAQs, other registration documentation, and a link to online registration. The inspection section included information about and reports on the Board's continuing program of inspections of registered public accounting firms. Then, its enforcement section explains its approach to investigations and includes lists of Disciplinary Proceedings.
Under Section 101 of the Sarbanes-Oxley Act, the PCAOB has the power to register public accounting firms that prepare audit reports for issuers. Secondly, it can set auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports by issuers. After that, it can conduct inspections of registered public accounting firms. PCAOB investigate and proceed disciplinary and impose appropriate sanctions which were justified upon, registered public accounting firms and associated persons of such firms.
PCAOB also perform other duties or functions as the Board determines are necessary or appropriate to promote high professional standards among and improve the quality of audit services offered by registered public accounting firms and their employees. Besides that, PCAOB has the power to sue, complain and defend in its corporate name and through its own counsel with the approval of the SEC in any Federal, State or other court. It also conduct operations, maintain offices, and exercise all of its rights and powers in any part of the United States, without regard to any qualification, licensing or other provision of State or municipal law.
Other than that, PCAOB can hire staff, accountants, attorneys and other agents as may be necessary or appropriate their mission. It also enters into contracts, execute instruments, incur liabilities and do any and all other acts and things necessary, appropriate or incidental to the conduct of its operations and the exercise of its powers.
Some parts of the PCAOB's power is to set rules for the auditing industry includes the power to regulate the non-audit services that audit firms may offer their audit clients such as consulting or tax services. This power come out a result of allegations such as Enron, that auditors' independence from their clients' managers had been compromised because of the large fees that audit firms were earning from these ancillary services.
Some more, as part of the PCAOB's investigative powers, the Board is empowered to require that audit firms, or any person associated with an audit firm, provide testimony or documents in its possession. If the firm or person refuses to provide this testimony or these documents, the PCAOB may suspend or debar that person or entity from the public audit industry. The PCAOB may also seek the SEC's assistance in issuing subpoenas for testimony or documents from individuals or entities not registered with the PCAOB.
Under Section 103 of the Sarbanes-Oxley Act of 2002, PCAOB was to establish auditing and related attestation, quality control, ethics, and independence standards and rules to be used by registered public accounting firms in the preparation and issuance of audit reports as required by the Act or the rules of the Securities and Exchange Commission.
PCAOB periodically issue Inspection Reports of registered public accounting firms. While a large part of such reports are made public, portions of an inspection report that deal with criticisms or potential defects in the firm's quality control systems are not made public only if the firm addresses those matters to the Board's satisfaction within 12 months after the report date. However, if the Board determines that a firm's efforts to address the criticisms or potential defects were not satisfactory or the firm makes no submission evidencing any such efforts then the reports need made public.
Students expectation on Audit Oversight Board (AOB) roles and responsibilities in Malaysian Context
The Public Company Accounting Oversight Board (PCAOB) is a private-sector, non-profit corporation created by the Sarbanes-Oxley Act (SOX), a 2002 United States federal law, which also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' under the jurisdiction of Securities and Exchange Commission (SEC) to manage the auditors of public companies. The purpose of PCAOB is to protect the interests of investors and public interest in the preparation of fair, informative and independent audit reports.
In Malaysia, the Audit Oversight Board (AOB) is established under Part IIIA of the Securities Commission Act 1993. AOB is intended to assist Securities Commission (SC) in overseeing the auditors of public interest entities (PIE) and to protect the interests of investors by promoting confidence in the quality and reliability of audited financial statements of public-listed companies and public-interest entities.
The creation of both PCAOB and AOB were a result of the increasing number of accounting restatement by public companies and a series of high-profile accounting scandals such as Enron and WorldCom. Their goal is to improve the quality of audited financial statements, reduce the risk of auditing failures, and increase public trust in financial reporting processes and of the auditing profession.
The PCAOB has five members, including a chairman, each of whom is appointed by U.S. Securities and Exchange Commission (SEC). Precisely two members of the PCAOB must be or have been a Certified Public Accountant. However, if the chairman of the PCAOB is one of those two members, he or she may not have been a practicing certified public accountant for at least five years prior to being appointed to the Board. Each member serves full-time, for staggered five-year terms. The salary of the PCAOB's chairman is currently $556,000 per year, while the salaries of other board members are $452,000 annually. The Board's annual budget of approximately $180 millions, which must be approved by the SEC each year, is funded by fees paid by U.S. securities issuers. The organization has a staff of over 600, and its headquarters is in Washington, D.C.
However, AOB has seven members, including chairman, each of whom is appointed by the Malaysia Securities Commission (SC).
PCAOB is responsible to register auditors and firms that audit U.S. public companies, set auditing and ethical standards, conduct investigations, disciplinary proceed in respect of auditors of public companies and enforce compliance with SOX.
AOB is responsible to register audit firms and auditors of public-interest entities, adopt auditing and ethical standards of MIA, conduct inspections and monitoring programmes, inquiries and impose sanctions and cooperate with relevant authorities and other oversight bodies outside Malaysia. In shorts, the functions of AOB are registration, inspection, inquiry, sanctions and standard setting.
Per Section 102 of Sarbanes Oxley Act, accounting firms that intend to perform public audits on U.S. public companies have to register with PCAOB. Section 106(a) of the Act provides that any non-U.S. public accounting firm that prepares or furnishes an audit report with respect to any U.S. public company is subject to the Board's rules to the same extent as a U.S. public accounting firm. Any public accounting firm applying to the PCAOB for registration pursuant to Rule 2100 must complete and file an application for registration on Form 1 by following the instructions to that form. Unless directed otherwise by the Board, the applicant must file such application and exhibits thereto electronically with the Board through the Board's web-based registration system. An applicant may withdraw its application for registration by written notice to the PCAOB at any time before the approval or disapproval of the application.
In Malaysia, any person who is an approved company auditor under section 8 of the Companies Act 1965 and who is a signing partner or who performs the function of an engagement quality control reviewer in respect of the preparation of the audited financial statements of a PIE must be registered as an individual auditor with the AOB. However, auditor or audit firm who are not auditing the financial statement of PIE can register with the AOB only if they are currently an auditor approved by section 8 of the Companies Act 1965. Once an individual auditor or audit firm is registered with the AOB, both the individual auditor and the audit firm will be subject to the provisions in Part IIIA of the SCA which include inspections, inquiries and sanctions. Applicant may withdraw their registered status by notifying the AOB in writing the reasons for doing so and return the notification of registration to the AOB. However, the registration fee will not be refunded.
To apply for registration with the PCAOB, firm will have to go to the PCAOB's Web site at www.pcaobus.org, Web-based system, complete the registration application, and submit the application to the Board electronically. The first step in registering is to provide basic information about itself, and create a user ID and password. Once completed, the firm will receive a "confirmation code," directing it to complete its Form 1. The Form 1 registration application may be completed as a web form. Firms do not have to complete and submit the form immediately after accessing the system. Firms may save it in the system and return to it at a later time to complete and submit it. After Form 1 is submitted, application will be processed by the registration system, an invoice will be generated. Processing of application can take up to 24hours, after which applicant can come back to the registration system to view and pay the invoice via a provided link. Once paid, application will be deemed submitted.
The Board has up to 45 days after the date your firm submits your application to take action on your application. The actual number of days until approval will vary depending on the information contained in the application and the number of applications that are pending at the same time as your application. However, if the
Board requests additional information concerning the application, a new 45-day period will begin when the additional information is received. In addition, if the Board cannot determine whether it is in the public interest to approve a firm's application, the Board may hold a hearing.
For AOB, applicants may submit their application for registration in print and soft copies by hand or courier service. An AOB registration is valid for a period of 12 months from the date of registration. If submit application by hand, applicant are required to bring along a duplicate copy of a covering letter which the AOB will acknowledge upon receiving the complete set of forms and relevant documents from applicant. If submit application by courier service, an acknowledgment letter will be faxed to applicant upon receiving the complete set of forms and relevant documents from applicant. Individual auditor is applying through Form 1 while audit firm is Form 2.
Each applicant for registration must pay a registration fee. PCAOB will, from time to time, announce the current registration fee. The application fee is due at the time of submission of the application. The registration fee will be computed individually for each firm submitting a Form 1 and will be based on the number of issuer clients that an applicant audited during the preceding calendar year. Here are the charges of application fee:
Preceding Year Issuer Audit Clients
1001 and above
The annual fee is due by July 31 of each year and must be paid by each firm that is registered as of March 31 of that year. Firms that register after March 31 of the year do not begin to pay the annual fee until the following year. The Board intends to transmit invoices for the annual fee by early May of each year, but the fee is due regardless of whether the firm receives the invoice and regardless of whether the firm has filed the required annual report on Form 2. The current annual fee schedule is:
Firms with more than 500 issuer audit clients and more than 10,000 personnel
Other firms with more than 200 issuer audit clients and more than 1,000 personnel
All other firms
No portion of the registration fee is refundable, regardless of whether the application for registration is approved, disapproved, or withdrawn.
In Malaysia, the AOB will only require a registration fee on individual auditors even though both audit firms and individual auditors need to be registered. In this regard, each individual auditor seeking registration will need to pay RM5,000 upon submission of the application. These fees should be paid annually upon submission of application of renewal of registration with the AOB.
PCAOB inspects registered public accounting firms to assess compliance with the Sarbanes-Oxley Act, the rules of the PCAOB, the rules of the Securities and Exchange Commission, and professional standards, in connection with the firm's performance of audits, issuance of audit reports, and related matters involving U.S. companies and other issuers. The Act requires the Board to conduct inspections annually for firms that regularly provide audit reports for more than 100 issuers, and at least once in every three years for firms that regularly provide audit reports for 100 or fewer issuers. PCAOB will prepare a written report on each inspection to the SEC and to certain state regulatory authorities. The Board also makes portions of the reports available to the public. However, certain information is restricted from public disclosure, or its disclosure is delayed, as required by the Act.
According to section 31V of the SCA, AOB shall, from time to time, conduct inspections to assess compliance with the auditing and ethical standards by an auditor, and the quality of audit reports prepared relating to the audited financial statements of PIE. The AOB may inspect auditors via a regular inspection program which is conducted on a routine basis or a special inspection program which could be driven by specific concerns that may be event-driven or based on industry concerns.
Further, an AOB inspection may be carried out at either the firm review level or at the engagement review level or both. A firm review focuses on the review of an audit firms quality control systems and practices and the degree of compliance with the requirement of the International Standards of Quality Control 1 ("ISQC 1"). An engagement review on the other hand aims to assess the degree of compliance with auditing and ethical standards of an audit engagement conducted by an auditor.
Sanctions imposed by the PCAOB may include suspension or revocation of a firm's registration, suspension or bar of an individual from associating with a registered public accounting firm, and civil money penalties. The Board may also require improvements in a firm's quality control, training, independent monitoring of the audit work of a firm or individual, or other remedial measures. PCAOB will provide the firms and persons in breach an opportunity for a hearing before sanctions imposed or impose sanctions designed to deter possible recurrence and enhance the quality and reliability of future audits.
Part IIIA of the SCA empowers the AOB to impose a broad range of administrative-type sanctions on any person who contravenes, fails to comply with or give effect to the provision of the Part IIIA of SCA, any condition that imposed on a registered auditor or any written notice, guidelines issued by SC. The sanctions include suspensions, monetary fine, reprimand, censure and any other appropriate sanctions. SCA requires AOB to give the person in breach a right to be heard before a sanction imposed. A person who has been sanctioned or who is dissatisfied with the decision of the AOB can appeal to SC against the said decision within 30 days from the date of the decision.
Auditing and ethical standards
In PCAOB, applicants are required to observe all auditing and ethical standards. There are two kinds of standards in auditing which are standards and interim standard. Standards are been adopted by PCAOB and approved by SEC which are AS No.1-7. In 2003, PCAOB adopted certain pre-existing standards as its interim standards. According to Rule 3200T, Interim Auditing Standards consist of generally accepted auditing standards, as described in the AICPA's Auditing Standards Board's Statement of Auditing Standards No. 95. For ethical standards, applicants need to consider for the rules and interim standards. According to Rule 3500T, Interim Ethics Standards consist of ethics standards described in the AICPA's Code of Professional Conduct Rule 102, and interpretation and rulings. In addition, Interim Independence Standards consist of independence standards described in the AICPA's Code of Professional Conduct Rule 101 according to Rule 3600T.
Applicants are required to observe all auditing and ethical standards that may be adopted by the AOB from time to time which includes all auditing and ethical standards adopted by the MIA and including by-laws and circulars published by the MIA relating to auditing and ethical standards. All of them must compliance with International Standard on Quality Control (ISQC) 1, which is the quality control for firms that perform audits and reviews of financial statements, and other assurance and related services engagements.
Student Expectation on Audit Oversight Board Roles
AOB will register all auditors and firms to ensure only fit and proper persons are in practice. Thus, students expect that AOB to provide more information about what is defined as person fit in practice as an auditor so that they would be able to handle it in the future.
On the other hand, it's important that the AOB like the US PCAOB will be well-funded to attract individuals of high quality, high calibre and impeccable integrity. By giving good benefits, then it would help to eliminate fraud that normally occur in auditing process.
AOB also to be expected that restoring fundamental human values will be the way forward in enhancing audit quality, which in turn will rebuild confidence in the accountancy profession, particularly auditors.
Indirectly, by rebuild the confidence in accountancy profession will helps to enhance confidence and reliability of audited financial statements. Besides, AOB is expected to conduct inquiries and impose appropriate sanctions against auditors who fail to comply with auditing and ethical standards. Thus, who were doing frauds will be punished and as example to future auditors so that others will know the bad consequences after doing fraud.
AOB should share knowledge of audit environment and experience of independent audit regulatory activities with students so that they will more understand the real situation of auditing in the real working environment. Furthermore, students will start to prepare themselves to suit the potential accounting and auditing careers in various aspects.
Due to globalization process, AOB should enhance the connectivity to other international bodies which have interest on audit quality and provide up to date education to the student in global perspectives. Moreover, it helps us to increase the competency of our future accountancy professions in Malaysia.
AOB should work closely together with all relevant parties such as BNM, CCM, Auditors and Industry groups to ensure the successful implementation of a robust and independent audit oversight framework. So that, whichever industries the students are going to, the skills and knowledge of them will be useful and get consent from those industries.
While implementations of the AOB, students hope that the registration process of firms by the AOB will be transparent and open even to the smaller firms that have the adequate requirements. Therefore, the next generation of accountancy students will have more job opportunities and for those who are doing business in accounting and auditing will have more markets to explore. In Malaysia, over 80% of the total accounting fees lands in the hands of the 10 big firms. The balance 20% is shared among around 1,500 accounting firms. We hope that the Government will try to ensure that all firms of accountants be given equal opportunity.
We also hope that the AOB to be tasked with the right people, with qualified accountants with integrity and who are free from any interest in existing firms. Even though this is not going to be easy but this is an important foundation for the future development and to create awareness among members of the outlook of the "new" auditing profession by covering the registration & enforcement mechanism under the proposed AOB.
Nowadays, there is lots of negative media coverage of the accountancy profession so we are expecting that AOB will effectively to solve the negative media coverage and to reverse the enrolment trends. By increasing our discussion on our professional code of ethic with prospective students and their parents and show them there is much more to the practice of public accounting than just auditing we can begin to reverse the trends.
Overall result that indicate that student exposed to media coverage which had negative impact on public perceptions of the auditing profession were inclined to think that consulting services should be independent of auditing services and firm should be less concerned with making a profit and more concerned with providing service to client and the investing public. This result may provide some insight into the decreasing popularity of accounting as a career choice among young people today. AOB is expected to manage such inequality.
In addition, we hope AOB to emphasize the need of forensic aspect of fraud investigation, the consulting needs and opportunities available with an accounting degree. Prospective students should also be aware of the value of accounting degree in other areas of business and to be educated in better position them under the new operating environment. Thus, an accounting degree is also very useful and valuable in other career paths.
We also expect to better inform potential accounting majors of the true states of the profession and what being an accountant really means. We know that this is the time to change and it is time to reimagine and rebuild these accounting and auditing roles in order to empower them to more constructively shape corporate conduct. It is also time to give more serious thought to the scope of the public obligations of corporate management beyond simple compliance with the law. We have also included some thoughts on institutional shareholders, and the need for ongoing professional education.
The oversight roles in recent years have been a number of high-profile failures of public company boards. Some committee members see these failures as exceptions within a broader pattern of improved board performance over the past decade, while others point to data on misleading financial reporting and excessive executive compensation as evidence, among other things, that these failures arise out of a general culture of board passivity. These factors had affected the confidence of the oversight boards so standard of performance in AOB must be raised.
Moreover, the debate sparked by recent high-profile failures points to the need to clarify the role of boards in public corporations. The primary role of AOB is expected to set and oversee the company's direction, and to appoint, oversee, compensate and, where appropriate, replace management. The board also gives advice and makes several important kinds of decisions, including approving the company's strategy. The board has ultimate legal responsibility for the company, and is the primary "gatekeeper" for ensuring that operating managers act with integrity and competence.
Finally, we also recommend that auditors be brought into the mainstream of corporate governance and suggested possible improvements in the interaction between auditors and audit committees by AOB.