(A) General

As the regulatory body for the accountancy profession in Malaysia, the Institute is responsible to ensure that the credibility of the profession is preserved and public interest is upheld. The Institute, through its enforcement mechanism, uses the statutory powers accorded under the Accountants Act 1967 to investigate, prosecute and impose sanctions in an effort to further raise the standard of professional conduct of members.

Within the Institute, the Surveillance and Enforcement Division is instrumental in discharging the Institute’s obligation to regulate the accountancy profession. Specifically, the Division conducts Practice Review, Financial Statements Review, Continuing Professional Education Compliance Audit, Investigation and Disciplinary proceedings. Collectively, these units are responsible for executing the necessary initiatives in order to achieve our objectives of exemplary performance and good governance.

The objective of Practice Review is to carry out surveillance activities on audit firms registered with the Institute to ensure that audit practitioners adhere to international auditing standards, legal and regulatory requirements when they perform their audit work.

The objective of Financial Statements Review is to monitor the quality of financial statements and reports that are prepared by or are the responsibility of members of MIA, for the purpose of determining compliance with statutory and other requirements, approved accounting standards and approved auditing standards in Malaysia.

The Investigation Committee (IC) of the Institute is a statutory committee established under Section 19(a) of the Accountants Act 1967 (Act) to investigate complaints against members and where justified to refer these complaints to the Disciplinary Committee (DC). Each complaint is investigated and assessed objectively in line with natural justice.

The IC, in its course of investigation, accords the parties involved in the investigation the opportunity to be heard. These interviews which are also conducted prior to the IC sittings by the Investigation Officers (IOs) provide an avenue for the parties involved to render their explanations and representations and for the IC and IOs to clarify matters pertaining to the complaint.

At DC mentions and hearings, the IC renders clarification and presents the case to the DC who then deliberates the case to determine whether the charge against the member is established. The member is given the right to defend by himself or through a Legal Counsel.

  1. Offering public practice services without practising certificate;
  2. Offering audit/taxation through company without valid license;
  3. Working in partnership with non-member;
  4. Not having the majority/ controlling interest of the company;
  5. Not registering the company offering public practice services with MIA;
  6. Practise/ advertise public practice services without being:
    1. MIA member; or
    2. having a practising certificate; or
    3. having a valid license
  7. Soliciting in audit assistance without having the requisite qualification.

(B) Practice Review

B.1 Practice Review - General

The MIA is a regulatory body for the accountancy profession in Malaysia. This role is mandated by Section 6 of the Accountants Act 1967 which states the functions of the Institute. In upholding this mandate, the Practice Review Committee of the Institute is specifically tasked to carry out surveillance activities on audit firms registered with the Institute to ensure that audit practitioners adhere to international auditing standards, legal and regulatory requirements when they perform their audit work.

It is appropriate to add that MIA is required to set up a quality assurance programme in Malaysia to comply with its membership obligations of International Federation of Accountants (IFAC).

  1. To confirm members’ obligation to maintain, apply and observe the standards promulgated by the Institute;
  2. To undertake the regulatory role as provided under the Accountants Act 1967, as well as to align with some of the latest international developments; and
  3. To enhance the confidence of the business community in our members’ standard of professional work
Firm level Inspections Engagement Inspections
Practice Review inspects the audit firm’s system of quality control (firm-level inspections) to ensure that they are in compliance with the requirements of ISQC 1. Practice Review’s approach in performing inspections of individual engagements comprises detailed engagement inspections of audit firms to assess whether the audit work is conducted in compliance with relevant professional standards.

For practical reasons, not all partners of an audit firm that have been selected for practice review will be reviewed individually with regards to the current audit engagement files.

The Practice Review programme does not set new standards. Rather, the standards that the members in Public Practice is expected to observe are those that is already prescribed by Institute pursuant to the Accountants Act, 1967, and those prescribed by other regulatory bodies in Malaysia.

Under MIA By-Laws Section 550.6, Quality Assurance and Practice Review: "All members in public practice through their firms are required to submit and undergo the Institute’s Practice Review programme as established pursuant to the Council’s Statement on Practice Review in Appendix VI to these By-Laws.”

The PRP will be conducted with reasonable frequency in respect of audit firms which are primarily selected in accordance with a risk-based approach.

An audit firm will be notified in writing about an impending practice review and will be informed of the assigned reviewer. An initial review date will be proposed by the reviewer for the review to be carried out. The actual review date will be arranged by mutual consent such that the review will be held within four (4) months of notification. Extension beyond four (4) months will be at the sole discretion of the reviewer.

The basis of practice review is based on the risk approach and consequently, the selection of audit firm for practice review is determined by a number of risk factors which are embedded in the profile of the practitioner and his audit firm as well as risks arising from other sources such as external parties who may have been afflicted and as a result suffered loss or damages through reliance on the work of auditors.

However, the Practice Review Committee may also, at its sole discretion, review any of the audit firms which are referred by other regulatory bodies in Malaysia. All audit firms selected will be assigned a code for the purpose of preserving the confidentiality of the identities of the audit firms.

Section 550.7 of the MIA By-Laws provides that inspections shall be conducted by the Institute through its Practice Review Committee.

Yes. The professional standards and auditing and assurance standards apply to all engagements, regardless of the size of the entity; a tiered system exempting compliance does not exist.

The Summary of Practice Review Process:

No fees shall be charged to the audit firms practice review visits effective from July 2017. However, all incidental charges and expenses incurred in relation to the review shall be charged to the firm reviewed.

Under MIA By-laws, any person who is reasonably believed by a reviewer to have in his/her possession or under his/her control any record or other document which contains or is likely to contain information relevant to the practice review shall:

  1. provide access to all books, accounts, working paper or other related documents;
  2. furnish copies of or extracts from such books, accounts, working papers or other related documents; and
  3. provide information by oral interview, in writing or in any other manner as may be determined or required by the reviewer.

MIA will issue one of four outcomes following your review:

The current maximum fine for failure of practice review is RM5,000.

To ensure auditors in Malaysia continue to hold themselves to high audit quality standards, MIA proposes to increase the level of fines/penalties on audit firms that fail the Practice Review Programme from the existing RM5,000 to RM50,000 to stamp out weak practices in the audit market.

Summary of Proposed Sanctions/Fines due to failure of Practice Review:
Type of Rating by the PRC Proposed Revised Sanctions/Fines
Type 3 (RAP not drawn up/ Failure of implementation of approved RAP)
  • Regulatory Penalty (Fines) – Maximum of RM50,000
  • No support given by MIA for renewal of audit license
  • Suspension of Membership (6 months – maximum of 3 years)
Type 4 (Unsatisfactory)
  • Regulatory Penalty (Fines) – Maximum of RM50,000
  • No support given by MIA for renewal of audit license
  • Suspension of Membership (6 months – maximum of 3 years)
  • Referral to other relevant Regulatory Authorities (e.g. SSM, AOB, Accountant General, Bank Negara Malaysia (BNM) and Inland Revenue Board (IRB))

The Practice Review and CPE audit cover different areas of compliance. While a reviewer will ask to sight your CPE record as part of the Practice Review, this is to determine that you indeed have a contemporaneous record, and that the minimum 20 hours has been recorded in each completed year of the triennium to date.

The MIA Practice Reviewers are not CPE auditors and cannot assess the validity of any CPE recorded. Therefore, completing a Practice Review will not meet the requirements to exempt you from a CPD audit.

There are a number of resources available for you with some additional information on better practice and what to expect from your review.

The Section B250 and Appendix VI of the MIA By-Laws have provided the full range of information about Practice Review. The By-Laws is available to be downloaded from MIA website at HERE.

MIA’s Practice Review Team provide information for members about the common findings of Practice Review and sample case studies related to audit engagement inspection, which is available to be downloaded from MIA website at HERE.

MIA’s electronic Accountants Today circulated in website every two months, contains articles on public practice and Practice Review. This is the main source of continued communication with our members, in relation to changes in professional standards, results of Practice Reviews and so on. The members will be receiving link to download the publications via email. The electronic Accountants Today is accessible from MIA website at HERE.

Our reviewers are trained and required to focus on the compliance requirement of the Practice Review. Reviewers have been exposed to a large number of practitioners and undoubtedly have knowledge that is pertinent to your own situation. Reviewers do offer “better practice” recommendations during the review process which are documented in their review report. The audit firm will be allowed the opportunity to make its representations throughout the review process, therefore, please raise your concern to the attention of your reviewer at the earliest opportunity. It is expected that the closing meeting between the reviewer and the firm will provide an appropriate channel for the communication of views concerning the findings and recommendations.

Many members undergoing a recent review provide feedback that the review process has added value to their practice.

B.2 Practice Review – Standards compliance

Yes, smaller firms can apply ISQC 1 on a proportionate basis relative to the nature and size of a firm. An understanding of the design and intent of ISQC 1 will help smaller firms to apply ISQC 1 in a relevant and cost-effective way.

Among other important features, there are a number of concepts embedded in ISQC 1 that are useful to achieving proportionate application, including that:

Also, ISQC 1, paragraph A75 explains that smaller firms may use more informal methods in the documentation of their systems of quality control such as manual notes, checklists and forms.

In order to help with implementation of ISQC 1, the IFAC Small and Medium Practices (SMP) Committee has developed a non-authoritative Guide to Quality Control for Small- and Medium-Sized Practices.

SMPs are encouraged to invest in suitable technologies to enhance their effectiveness and efficiency, such as audit software that can automate routine processes, improve accuracy and reduce workloads. Currently there is an array of practice management software and audit software in the market to choose from.

The Practice Reviewer would place emphasis on both areas equally, for instance, review on how the tone from the top is enforced in the firm, to consider the firm’s effort with regards to the training for upgrading the competency of the staff, as well as the documentation of evidences that support the audit opinion.

The IAASB has included special considerations in the audit of small entities in the body of certain ISAs. This guidance is a supplement to, and not a substitute for the guidance contained in the relevant ISA and takes account of the special considerations relevant to the audit of small entities. This indicates that requirements in the auditing standards can be “scaled down” in order to be more proportionate for smaller audits as some ISAs may only apply to larger entity audits.

Also, International Federation of Accountants (IFAC) with support from its Small and Medium Practices Committee, has establish a “Guide to Using ISAs in the Audits of Small- and Medium-Sized Entities” to assist practitioners to develop a deeper understanding of an audit conducted in compliance with ISAs through explanation and illustrative examples. The materials can be downloaded through links as below:

Volume 1: IFAC Guide to Using ISAs Vol I 4th edition
Volume 2: IFAC Guide to Using ISAs Vol II 4th edition

IFAC has published an article “Communicating Value and Quality with Price”, highlighted when entering into fee discussions it is important to focus on value and meeting the needs of the client, not on price.

There are three key factors for firms to effectively manage fee pressure:

  1. client relationship
  2. quality and expertise provided
  3. utilizing technology - Faster Delivery of Services, Better Cost Management Further elaboration can find through the link as below:

Further, IFAC also provided five tips that can help SMPs cope with the pressure while preserving the quality of the professional services they render:

B.3 Practice Review – Common Findings FAQs

When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable (ISA 501).

If unable to attend the physical inventory count on the date planned due to unforeseen circumstances, the auditor should take or observe some physical counts on an alternative date. Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor should consider whether alternative procedures provide sufficient appropriate audit evidence of existence and condition to conclude that the auditor need not make reference to a scope limitation.

If that attendance at physical inventory counting is impracticable due to lack of manpower and difficulty in arranging for the inventories count as it is located far from the audit firm’s office, this is not sufficient to support a decision by the auditor that attendance is impracticable. The matter of difficulty, time or cost involved is not itself a valid basis for the auditor to omit audit procedures for which there is no alternative or to be satisfied with audit evidence that is less than persuasive.

Here are examples of audit procedures done that can be performed by the auditor:

  1. The “Going Concern checklist” should be concluded to comply with the modified audit opinion issued subsequently;
  2. To obtain a letter of financial support from the shareholder/directors and ensure proper filing of such document; and
  3. Review of subsequent events up to the auditor’s report date to assess whether the entity will be able to continue as a going concern.

The following explains the steps an auditor should follow in assessing going concern:

(C) Financial Statements Review

C.1 Financial Statements Review - General FAQs

FSRC, a committee established by the Council, monitors the quality of financial statements that are prepared by or are the responsibility of members of the Institute for the purpose of determining compliance with statutory and other requirements, approved accounting standards and approved auditing standards and practices.

In addition to random reviews, the Committee is also responsible for reviewing the interim financial information and financial statements referred to the Committee by the Investigation Committee of the Institute and/or regulatory bodies such as the Securities Commission, Bursa Malaysia, Suruhanjaya Syarikat Malaysia, Bank Negara, etc.

Besides that, the FSRC, if required, will also pursue a review on matters of public interest reported in the financial press and/or in press releases issued by regulators/other relevant parties. Issues may relate to financial reporting of companies or conduct of the auditors.

Through circular to members or feature articles in the Institute’s magazine.

Members of the Institute can also download the common findings through Institute website link as below:

Common Findings by FSRC

Yes, the Committee imposes a penalty tariff. Categories of the penalty differentiate the severity of the non-compliances. Members of the Institute can view the penalty tariff through Institute website link as below:

Penalty Tariff

The FSRC issues formal written correspondences to the member and deliberates the replies received. This process is repeated until the degree of non-compliance and a corresponding penalty tariff is determined.