Accurate and reliable financial statements are essential to the effective functioning of the capital markets.
To that end, auditors play an important role by executing independent and objective audits of the financial statements that are prepared by management.
The Global Financial Crisis (GFC) however has triggered a fundamental review of the role of audit.
Changes to reporting requirements have been one of the ways audit responded to the GFC, and we’ve seen the audit function grow more complex, with increased regulatory and reporting compliance requirements.
These changes will shape how auditors deal with investors, companies, regulators, Audit Committees (ACs), as well as their role in capital markets.
We aim to play a constructive role in the debates that will shape the future of auditing, financial reporting, regulation and corporate governance.
Here, we share our thoughts on several key topics:
Trust should be a key component of boards' and shareholders' agendas as we move into a more volatile and challenging era because while it is hard to measure, trust is a critical asset in ensuring an organisation's long-term survival and success.
The aftermath of the recent financial crisis has shown both the vital importance of trust and the severe consequences to economic prosperity when it is undermined by perceived untrustworthy behaviour.
In tackling the issue of trust, there is no single one-size-fits-all solution. Each organisation will face its own set of challenges that affect its strategy and vision. These are some key points to note:
We can help organisations build and maintain trust with different stakeholders by providing audits on which markets can build trust in organisations’ finances and processes. We can also provide assurance for information on non-financial assets.
Audit plays an important role in establishing and increasing market confidence in quality of companies’ financial reporting.
There is a need for collaboration and cooperation among the various stakeholders to arrive at solutions that are optimal to the capital market as a whole.
There have been demands for auditor reporting to provide more insight for stakeholders:
We strongly support reforms which:
We also believe that the benefits of these reforms must outweigh the corresponding increase in costs or red tape.
Reforms or changes should maintain or enhance the effectiveness of the relationships and interactions of auditors with those charged with governance (e.g. audit committees) and management.
Now, more than ever, Boards and the finance function need to take a more proactive role and make some changes to business practices in order to comply with regulatory, tax and legislation changes e.g. Basel 3, FATCA and anti-competition laws.
This is even more crucial for us, because Malaysia is an adopter of IFRS, therefore our content and implementation dates follow international norms.
It is important that businesses see accounting as part and parcel of the business risks they need to manage. Like all risks, it needs to be identified, monitored and managed.
Although the role of identification and monitoring clearly rests with the CFO and finance function, the management of such risk however, extends to all parts of the business.
For Boards, they play a role in making sure:
Audit Committees should also be given a bigger role in promoting and ensuring consistency and transparency, which includes:
It is important to build the right talent pool because the finance function also plays the role of: