AUD 589

AUDITING 1

Audit Regulations

Prepared by:
Yusarina Mat Isa
UiTM Kampus Puncak Alam
 Learning Objectives
• Able to:
 Explain the relevant regulations affecting auditors
 Understand the relevant statutory and regulatory
requirements concerning auditors in Malaysia

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 Companies Act 2016
Companies Act 1965 Companies Act 2016
Section 8: Company auditors and Section 261: Auditor’s statements
liquidators to be approved by Minister Section 263: Company auditors to be approved by Minister charged with
charged with responsibility for finance responsibility for finance
 
Section 9: Company auditors Section 264: Company auditors -----Disqualification!
Section 172: Appointment and Private co. Public Co.
remuneration of auditors Appointme Section 267 – appointment of auditor for private Section 271 – appointment of auditor for public
nt company company
Section 268 – power to registrar to appoint auditor Section 272 – power to registrar to appoint
Section 269 – office for private company auditor
Section 270 – Prevention to re-appoint as an Section 273 – office for public company
auditor Section 279 – appoint auditor by written
Section 279 – appoint auditor by written resolution resolution
Section 280 – appointment of auditor at a meeting Section 280 – appointment of auditor at a
of members meeting of members

Removal Section 276- remove auditor from office Section 276 – remove auditor from office
Section 277 – special notice to remove auditor Section 277 – special notice to remove auditor
Section 278 – notice to registrar to remove auditor Section 278 – notice to registrar to remove
auditor
Resignation Section 281 – resignation of auditor Section 281 – resignation of auditor
Section 282 – notice auditor to registrar Section 282 – notice auditor to registrar
Section 283 – rights to resign for public company
Section 284 – duty to inform upon cessation of
office
Section 285 – attendance of auditor to AGM
Remunerati Section 274 – fixing of auditor’s remuneration Section 274 – fixing of auditor’s remuneration
on    

Section 174: Powers and duties of Section 266: Powers and duties of auditors
auditors as to reports on accounts
Section 261 – Auditor’s Statement

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Auditor’s Statement (Section 261)
• Auditor are required to:
– State whether the company in his opinion kept proper
accounting records and other books during the period
covered by those accounts
– State whether the financial statements have been audited
according to Companies Act 2016
– State whether the auditor’s report is subject to any
qualification or opinion under any applicable auditing
standards
– State whether at the date of the financial statements, the
company appeared to have been able to meet its
liabilities as and when the liabilities fall due
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 Qualification (Section 263)
(1) Any person may apply to the Minister charged with the
responsibility for finance to be approved as a company auditor
 (2) The Minister may, if he is satisfied that the applicant is of good
character and competent to perform the duties of an auditor …, upon
payment of the prescribed fee, approve the applicant as a company
auditor.
 (4) Every approval…including a renewal of approval of a company
auditor shall be in force for a period of two years after the date of issue….
 (5) The Minister may delegate…his powers…to any person, or body of
persons charged with the responsibility for the registration or control
of accountants in Malaysia.
 (7) …, “person” mean a chartered accountant as define under the
Accountants Act 1967 [Act 94].
 

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 Disqualification (Section 264)
(1) A person shall not 
(a) knowingly consent to be appointed as an auditor for any company;
(b) knowingly act as an auditor for any company; and
(c) prepare, for…a company,…report[s]…if 
(i) he is not an approved company auditor;
(ii) he is indebted to the company…in an amount exceeding
twenty-five thousand ringgit;
  (iii) he is 
  (A) or his spouse is an officer of the company;
  (B) a partner, employer or employee of an officer of the company;
  (C) a partner or employee of an employee of an officer of the
company; or
  (D) a shareholder or his spouse is a shareholder of a corporation
whose employee is an officer of the company.
(iv) he is responsible for…the keeping of the register of members or the

register of debenture holders of the company;

(v) he is an undischarged bankrupt…; or
(vi) he has been convicted or any offence involving fraud or dishonesty
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 Appointment (Section 267-273)
Types of Appointment
Appointed by: Successor/
First To Fill Casual Retired
Auditor Vacancy Auditor New
Auditor
Board of Directors  
(BOD)
Shareholders     
(Ordinary resolution (if the BOD fails
at the AGM) to appoint)

Companies    
Commission of
Malaysia (CCM) (if the company fails to appoint, upon application in writing)

• General Rule – only the shareholders at an annual general meeting (AGM)

can appoint an auditor.
• Appointment by the BOD and CCM are the exception to the general
rule. 7
 Removal (Section 276 - 278)
Shareholders Notice Resolution
(at a General Meeting) (Number of Days) (Majority)
Special notice of Ordinary resolution of
Removal of existing auditor 28 days 50% + 1 majority

Special notice of Special resolution of

Appointment of successor 28 days ¾ majority
auditor

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 Resignation (Section 281-283)
• Notice in writing
• Term of auditor ends after 21 days from the
date of notice.

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 Remuneration (Section 274)
• Appointed by the shareholders
o fixed by ordinary resolution at the General
Meeting.
• Appointed by the BOD
o fixed by BOD; if not so fixed by the company.
• Appointed by CCM
o fixed by CCM or BOD; if not so fixed by the
company.

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 Powers and Rights (Section 266)
• Right of access to accounting and other records.
• Right to inquire information and explanations.
• Right to attach or endorse the auditors’ report on the financial
statements.
• Right to receive all notices and minutes of general meeting.
• Right to attend general meeting.
• Right to speak at general meeting.
• Right to report to CCM.
• Rights upon removal.
o Make representation within 7 days of receiving special notice.
o Request representation be sent by the company to shareholders.
o Read the representation

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 Duties (Section 266)
• Report to the members on
– The financial statements.
– The accounting and other records.
• Report any deficiency, failure or shortcoming
• Express opinion in the report on
– The true and fair view of financial statements.
– The compliance with the approved accounting standards.
– The defect or irregularity in the financial statements, if any.
– The proper keeping of accounting and other records and the registers.
• The information and explanation as required

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MIA By-Laws (Revised 2019)

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 Significance of MIA By-Laws
• All professional bodies impose a code of conduct on
their members.
• This code of ethics provides a set of principles and rules
that offer guidance to members.
• Ethics – set of moral principles, values or acceptable
behaviour
• In Malaysia, MIA issued the MIA By-Laws (on
Professional Ethics, Conduct and Practice)
– Provide standard of conduct in daily professional life
– Important for gaining public confidence in auditors’
services

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

• SECTION 100 - COMPLYING WITH THE CODE

• SECTION 110 - THE FUNDAMENTAL PRINCIPLES
– SUBSECTION 111 – INTEGRITY
– SUBSECTION 112 – OBJECTIVITY
– SUBSECTION 113 – PROFESSIONAL COMPETENCE
AND DUE CARE
– SUBSECTION 114 – CONFIDENTIALITY
– SUBSECTION 115 – PROFESSIONAL BEHAVIOR
• SECTION 120 - THE CONCEPTUAL FRAMEWORK

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 Fundamental Principles

Integrity Objectivity

Professional
Confidentiality Competence and Due
Care

Professional
Behavior

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 110 – FUNDAMENTAL PRINCIPLES

 Professional accountants shall comply with the following fundamental
principles of ethics:

1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behaviour

 Auditor in performing professional services may face many threats to

compliance with the fundamental principles.

 Therefore, auditor should be able to identify threats, apply safeguards to

eliminate the threats or reduce to acceptable level to make sure the auditor
comply with fundamental principles. 17
 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 111 – INTEGRITY

The principle of integrity imposes an obligation on all professional
accountants to be straightforward and honest in all professional and
business relationships.
Integrity also implies fair dealing and truthfulness.
 A professional accountant shall not knowingly be associated with
reports, returns, communications or other information where the
professional accountant believes that the information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information furnished recklessly; or
(c) Omits or obscures information required to be included where such
omission or obscurity would be misleading.
When a professional accountant becomes aware that the accountant has
been associated with such information, the accountant shall take steps to
be disassociated from that information. 18
 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 112 – OBJECTIVITY

 The principle of objectivity imposes an obligation on all professional
accountants not to compromise their professional or business judgment
because of bias, conflict of interest or the undue influence of others.
 A professional accountant may be exposed to situations that may impair
objectivity. It is impracticable to define and prescribe all such situations.
A professional accountant shall not perform a professional service if a
circumstance or relationship biases or unduly influences the
accountant’s professional judgment with respect to that service.

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 113 – PROFESSIONAL COMPETENCE AND DUE CARE

 A professional accountant shall comply with the principle of professional
competence and due care, which requires an accountant to:
(a) Attain and maintain professional knowledge and skill at the level
required to ensure that a client or employing organization receives
competent professional service, based on current technical and
professional standards and relevant legislation; and
(b) Act diligently and in accordance with applicable technical and
professional standards.
– Serving clients and employing organizations with professional
competence requires the exercise of sound judgment in applying
professional knowledge and skill when undertaking professional
activities.

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 113 – PROFESSIONAL COMPETENCE AND DUE CARE

(Cont.)
• Maintaining professional competence requires a continuing awareness and an
understanding of relevant technical, professional and business developments.
Continuing professional development enables a professional accountant to
develop and maintain the capabilities to perform competently within the
professional environment.
• Diligence encompasses the responsibility to act in accordance with the
requirements of an assignment, carefully, thoroughly and on a timely basis.
• In complying with the principle of professional competence and due care, a
professional accountant shall take reasonable steps to ensure that those working
in a professional capacity under the accountant’s authority have appropriate
training and supervision.
• Where appropriate, a professional accountant shall make clients, the employing
organization, or other users of the accountant’s professional services or
activities, aware of the limitations inherent in the services or activities.
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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 114 – CONFIDENTIALITY

The principle of confidentiality imposes an obligation on all professional
accountants to refrain from:
(a) Disclosing outside the firm or employing organization confidential
information acquired as a result of professional and business
relationships without proper and specific authority or unless there is
a legal or professional right or duty to disclose; and
(b) Using confidential information acquired as a result of professional
and business relationships to their personal advantage or the
advantage of third parties.
 A professional accountant shall maintain confidentiality even in a social
environment, being alert to the possibility of inadvertent disclosure,
particularly to a close or immediate family member.
A professional accountant shall maintain confidentiality of information
disclosed by a prospective client or employer.
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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 114 – CONFIDENTIALITY (cont.)

• A professional accountant shall comply with the principle of
confidentiality, which requires an accountant to respect the
confidentiality of information acquired as a result of professional and
business relationships. An accountant shall:
(a) Be alert to the possibility of inadvertent disclosure, including in a
social environment, and particularly to a close business associate or an
immediate or a close family member;
(b) Maintain confidentiality of information within the firm or
employing organization;
(c) Maintain confidentiality of information disclosed by a
prospective client or employing organization;
(d) Not disclose confidential information acquired as a result of
professional and business relationships outside the firm or employing
organization without proper and specific authority, unless there is a
legal or professional duty or right to disclose; 23
 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 114 – CONFIDENTIALITY (cont.)

(e) Not use confidential information acquired as a result of
professional and business relationships for the personal advantage of
the accountant or for the advantage of a third party;
(f) Not use or disclose any confidential information, either acquired
or received as a result of a professional or business relationship, after
that relationship has ended; and
(g) Take reasonable steps to ensure that personnel under the
accountant’s control, and individuals from whom advice and assistance
are obtained, respect the accountant’s duty of confidentiality.

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 114 – CONFIDENTIALITY (cont.)

Nevertheless, the following are circumstances where professional accountants are or
might be required to disclose confidential information or when such disclosure might be
appropriate:
(a) Disclosure is required by law, for example:
(i) Production of documents or other provision of evidence in the course of legal
proceedings; or
(ii) Disclosure to the appropriate public authorities of infringements of the law
that came to light;
(b) Disclosure is permitted by law and is authorized by the client or the employing
organization; and
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of a professional body;
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal
proceedings; or
(iv) To comply with technical and professional standards, including ethics
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requirements.
 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 115 – PROFESSIONAL BEHAVIOUR

• A professional accountant shall comply with the principle of
professional behaviour, which requires an accountant to comply with
relevant laws and regulations and avoid any conduct that the
accountant knows or should know might discredit the profession.
• A professional accountant shall not knowingly engage in any business,
occupation or activity that impairs or might impair the integrity,
objectivity or good reputation of the profession, and as a result would
be incompatible with the fundamental principles.
• Conduct that might discredit the profession includes conduct that a
reasonable and informed third party would be likely to conclude
adversely affects the good reputation of the profession.

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 115 – PROFESSIONAL BEHAVIOUR (cont.)

• When undertaking marketing or promotional activities, a professional
accountant shall not bring the profession into disrepute. A professional
accountant shall be honest and truthful and shall not make:
– (a) Exaggerated claims for the services offered by, or the
qualifications or experience of, the accountant; or
– (b) Disparaging references or unsubstantiated comparisons to the
work of others.
• If a professional accountant is in doubt about whether a form of
advertising or marketing is appropriate, the accountant is encouraged
to consult with the relevant professional body.

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 120 – THE CONCEPTUAL FRAMEWORK

• The conceptual framework specifies an approach for a professional
accountant to:
(a) Identify threats to compliance with the fundamental principles;
(b) Evaluate the threats identified; and
(c) Address the threats by eliminating or reducing them to an
acceptable level.

• Types of Threats:
a) Self-interest threat – the threat that a financial or other interest
will inappropriately influence a professional accountant’s judgment
or behavior;

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 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 120 – THE CONCEPTUAL FRAMEWORK (cont.)

(b) Self-review threat – the threat that a professional accountant will not
appropriately evaluate the results of a previous judgment made; or an activity
performed by the accountant, or by another individual within the accountant’s
firm or employing organization, on which the accountant will rely when forming
a judgment as part of performing a current activity;

(c) Advocacy threat – the threat that a professional accountant will promote a
client’s or employing organization’s position to the point that the accountant’s
objectivity is compromised;

(d) Familiarity threat – the threat that due to a long or close relationship with a
client, or employing organization, a professional accountant will be too
sympathetic to their interests or too accepting of their work; and

(e) Intimidation threat – the threat that a professional accountant will be

deterred from acting objectively because of actual or perceived pressures, 29
including attempts to exercise undue influence over the accountant.
 PART A: PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK

SECTION 120 – THE CONCEPTUAL FRAMEWORK (cont.)

• Professional accountants shall address the threats by eliminating them
or reducing them to an acceptable level by:
(a) Eliminating the circumstances, including interests or relationships,
that are creating the threats;
(b) Applying safeguards, where available and capable of being
applied, to reduce the threats to an acceptable level; or
(c) Declining or ending the specific professional activity.

• Safeguards are actions, individually or in combination, that the

professional accountant takes that effectively reduce threats to
compliance with the fundamental principles to an acceptable level.

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 Threats and Safeguards
• Threats could compromise (the mind) and perceived to compromised (the
appearance) compliance with fundamental principles of ethics. Threats will
inappropriately influence the judgment or behavior.
• If the auditor determines that the threats to compliance with the
fundamental principles are not at an acceptable level, the auditor shall
determine whether appropriate safeguards are available and can be
applied to eliminate or reduce the treats to an acceptable level.

S S A F I
Self- Interest Self- Review Advocacy Familiarity Intimidation
Threat Threat Threat Threat Threat

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 Threats and Safeguards (cont.)
Threats Example
Self-interest threat - The threat that a financial or other interest • Threats due to financial interest
will inappropriately influence the professional accountant – Shareholder; Loan from
judgment or behavior. client.
• Threats due to other interest –
Guarantees from client/ director.

Self-review threat - The threat that a professional accountant will • Threats due to auditing own
not appropriately evaluate the results of a previous judgment work (i.e. non-audit services)
made or service performed by the professional accountant, or by - Preparing of financial
another individual within the professional accountant’s firm, on statements.
which the accountant will rely when forming a judgment as part of - Tax consultant
providing a current service.
Advocacy threat - The threat that a professional accountant will • dealing in, or being a promoter of,
promote a client’s position to the point that the professional shares or other securities in an
accountant’s objectivity is compromised. audit client 
Familiarity threat - The threat that due to a long or close • Spouse working in client co
relationship with a client, a professional accountant will be too • Serving the same client for
sympathetic to their interests or too accepting of their work. considerably long time
Intimidation threat - The threat that a professional accountant will • Hold back audit fee
be deterred from acting objectively because of actual or perceived • by giving physical threats to
pressures, including attempts to exercise undue influence over the auditor’s family members,
professional accountant. relatives or loved ones

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 Threats and Safeguards (cont.)
Safeguards

Safeguards created by Safeguards in the work environment

The profession,
The legislation, or
Firm-Wide Engagement-Specific Client’s
The regulation.
Safeguards Safeguards Systems and Procedures

Examples of Safeguards:

Firm-wide safeguards • Using different partners and engagement teams with separate
reporting lines for the provision of non-assurance services to an
assurance client.
• Policies and procedures to monitor and, if necessary, manage the
reliance on revenue received from a single client.
Engagement-specific safeguards • Disclosing to those charged with governance of the client the nature of
services provided and extent of fees charged.
• Rotating senior assurance team personnel.
Safeguards within the client’s • The client requires persons other than management to approve the
systems and procedures appointment of a firm to perform an engagement.
• The client has competent employees with experience and seniority to
make managerial decisions.

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 Professional Independence
• Professional independence: Attitude of mind characterized by integrity
and objective approach to professional work. Auditor should be and be
seen to be free from any conflict of interest.
• Independence in audit means taking unbiased viewpoint in audit
report, audit tests and evaluation of results.
• Increased reliability of audit report used by the users to make decisions.

• Two criteria for auditor to be and be seen as independence:

– Independence of mind
• able to maintain unbiased attitude throughout audit
• The state of mind that permits the expression of a conclusion without being affected by
influences that compromise professional judgment, thereby allowing an individual to act
with integrity, and exercise objectivity and professional skepticism.
– Independence in appearance
• interpretation of users of financial statement of the auditors’ independence.
• The avoidance of facts and circumstances that are so significant that a reasonable and
informed third party would be likely to conclude, weighing all the specific facts and
circumstances that a firm’s, or a member of the audit assurance team’s, integrity,
objectivity or professional skepticism has been compromised.

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 Audit Oversight Board
• The Audit Oversight Board (“AOB”) is established under Part IIIA
of the Securities Commission Act Malaysia 1993 (“SCMA”)
which came into force on 1 April 2010 to promote and develop
an effective audit oversight framework and to promote
confidence in the quality and reliability of audited financial
statements in Malaysia.
• Auditing the auditors who audit PIEs.
• Why establish the AOB?
o A strong corporate governance framework requires monitoring the
necessary assurance on the rigour (meticulousness) of the audit process
and the quality and reliability of audited financial statements.
o Provides independent audit oversight over PIEs and to ensure our
regulatory framework for auditors is on par with international standards.
o Refer https://www.sc.com.my/aob
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End of Topic 2