auditing revision for exam

7/30/2019 Auditing Revision for Exam

1/22

AUDITING REVISION FOR EXAM

Q22

FALSE!!

A)FIN STMTS ARE NOT APPROVED BY SHAREHOLDERS AT THE AGM. THEY ONLY RECEIVE THE

ACCOUNTS AND CAN ASK THE BOARD OF DIRECTORS ON ANY QUERIES THEY HAVE ON THE

ACCOUNTS.

THE ACCOUNTS ARE THE RESPONSIBILITY OF THE DIRECTORS AND ONLY THEY HAVE AUTHORITY TO

APPROVE THE ACCOUNTS.

B)CEO HAS NO AUTHORITY TO REMOVE THE AUDITOR ONCE THE AUDITOR HAS BEEN PROPERLY

APPOINTED UNDER COMPANIES ACT.

HOWEVER SHAREHOLDERS CAN CALL FOR AN EGM TO VOTE ON THE REMOVAL OF THE AUDITOR.

THE AUDITOR HAS A RIGHT TO BE HEARD AT THE EGM.

Q19- Q ARE NOT REQUIRED TO BE AUDITED.

Q4

MANAGEMENT AUDIT IS A CONSULTANCY TO LOOK INTO WAYS TO IMPROVE EFFICIENCY OF AN

ORGANISATION AND TO PROMOTE BETTER INTERNAL CONTROL AND SAFE GUARD ASSETS OF THE

ORGANISATION.

FIN STMT AUDIT IS AN AUDIT DONE BY A REGISTERED AUDITOR ON A COMPANY.

IT IS REQUIRED UNDER COMPANIES ACT AND MUST BE DONE ONCE A YEAR.

THE AUDITOR IS REQUIRED TO EXPRESS HIS OPINION ON THE TRUE AND FAIRNESS OF THE

FINANCIAL STATEMENTS.

FOREINSIC AUDIT IS AN INVESTIGATION INTO THE COMPANYS FINANCIAL MATTERS USUALLY

PERTAINING TO SOME WRONG DOINGS. SUCH AUDITS ARE TRYING TO COLLECT EVIDENCE SO THAT

THE CULPRIT CAN BE CHARGED IN COURT.

BOTH MANAGEMENT AUDIT AND FINANCIAL STATEMENT AUDITS ARE EQUALLY IMPORTANT AS

THEY COMPLEMENT EACH OTHER TO ENSURE FULL COVERAGE OF THE DIFFERENT AUDIT ISSUES.

AKTA SARBANES OXLEY (SOX)

REFER TO EMAIL- DIAGRAM SUMMARY

IT IS AN LAW PASSED BY US CONGRESS IN US IN 2001/2 AS A RESULT OF CORPORATE SCANDALS

SUCH AS WORLDCOM AND ENRON.

(GIVE BRIEF DESCRIPTION OF THE 2 SCANDALS- both involve creative accounting and even outright

false accounting)


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SOX WAS DRAWN UP AND SPONSORED BY 2 CONGRESSMENSARBANES AND OXLEY (MP?) TO

PLUG LOOP HOLES IN ACCOUNTING STANDARDS AND TO REGULATE AUDITORS.

MANY CEO IN USA SEE IT AS TOO TOUGH AND EXPENSIVE TO COMPLY.

AS RESULT MANY PUBLIC COMPANIES ESPECIALLY THE SMALLER AND PROFITABLE ONES DECIDED

TO GO PRIVATE.

THE SAME IS HAPPENING IN MALAYSIA WHERE WE HAVE REGULATIONS such as CAPITAL MARKET

SERvICES ACT (CMSA) THAT MIRRORS SOX.

NOW WITH THE 2008 SUB PRIME CRISIS(great financial crisis) REGULATORS ARE NOW REVERSING

THEIR STANCE, THEY WANT TO RELAX SOX AND MARK TO MARKET REGULATIONS! TRENDS,

FASHIONS DO CHANGE WITH TIME!

WHAT IS MARK TO MARKET ACCOUNTING?

Mark-to-market accounting regulations are highly controversial and have been blamed for

exacerbating the global financial crisis, but not for causing the credit crunch in the United States.

With some believing the mark-to-market ruling to be the culprit in causing unwarranted damage to

balance sheets of corporates and consequently fuelling the negative sentiments clouding the global

financial markets, others believe the ruling is necessary in providing investors with accurate

information on the true value of a companys financial position at a certain point in time.

Under the mark-to-market ruling, companies have to write down the value of some financial assets

when their market value declines. This means firms must stick to booking their depressed asset atcurrent market value even when the market is dysfunctional.

Many have argued that marking the value of complex, illiquid securities to artificially low market

prices has forced firms to report losses they did not expect to incur and thereby aggravating the

situation.

As such, BNM said under the current environment of unstable financial asset prices, volatile market

movements may affect the values of banking institutions and could be disruptive to their business

activities, which in turn may affect lending.

The measure taken by BNM is therefore a pre-emptive measure aimed to mitigate any effects of

excessive volatility in the financial markets and to ensure that the intermediation process continues

to function smoothly, noted BNM.

As the global financial environment has not improved much despite measures taken by central

banks, governments have amended or are looking to amend the mark-to-market accounting

regulations.

The latest country to jump onto the bandwagon is Japan. On Tuesday, its finance minister

announced that it would be easing the mark-to-market regulations by accepting a recommendationfrom the Accounting Standards Board of Japan to allow companies to calculate asset values

themselves.

Other markets that have relaxed the ruling include the Philippines and European Union members.


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Effective 2005, under BNMs Guidelines on Financial Reporting for Licensed Institutions, banks were

required to classify their investment holdings under three categories held-for-trading, available-

for-sale, and held-to-maturity.

Securities available-for-sale and held-for-trading are valued using mark-to-market while those held-

to-maturity are measured at amortised cost and, therefore, are not affected by swings in the

markets.

Gains or losses incurred for securities held-for-trading will be booked under the profit and lossstatement but the mark-to-market gain or losses for securities available-for-sale, will be booked in

the balance sheet.

Meanwhile, securities held-to-maturity suffer no impact as they are not marked-to-market but may

be impacted if there is impairment in the assets. However, it should be noted that once securities

are parked under held-to-maturity, companies have to hold them to maturity.

Securities held-to-maturity are only one way in. Once they are classified under that category, its

difficult to take them out. So companies have to think really hard before they decide to shift the

securities in there, a banking analyst told The Edge Financial Daily.

BNM noted that in implementing the reclassification policy, banking institutions have to carefully

consider the longer-term impact of any reclassification and be satisfied that such a move is

consistent with their longer-term view on their holdings of such securities.

Before the easing of the mark-to-market ruling, banks were not allowed to switch their financial

assets to another group once the securities are parked in a position.

However, they could do so with the approval of BNM under special circumstances such as in

mergers, which may give the bank an opportunity to conduct a portfolio rebalancing like what

AMMB Holdings Bhd did in June.

For AMMBs first quarter ended June 30, the banks held-for-trading portfolio decreased by RM4.73

billion from the preceding quarter while its available-for-sale portfolio increased by RM3.75 billion.

FOREIGN INVESTMENT/FUNDS WILL ONLY FLOW TO COUNTRIES WHERE THE FINANCIAL SYSTEM

AND CAPITAL MARKET IS TRANSPARENT.

MALAYSIA IS NOW REQUIRES MASSIVE AMOUNT FO FUNDS IE USD444B OVER THE NEXT 10 YRS FOR

THE ETP DEVELOPMENT.

FOR FOREIGN FUNDS TO COME IN THEY HAVE TO HAVE CONFIDENCE IN OUR REGULATORS,

FINANCIAL STATEMENTS, ACCOUNTING STANDARDS AND HONESTY OF MALAYSIAN AUDITORS.

HENCE IF AUDITORS PROVE THEMSLVES TO BE INDEPENDENT, HONEST AND TRANSPARENT, THIS

WILL SEND A STRONG POSITIVE MESSAGE TO OUTSIDE INVESTORS AND ACT AS A MAGNET TO

DRAW IN FOREIGN INVESTMENT TO OUR CAPITAL MARKET.

IF FOREIGN INVESTORS HAVE CONFIDENCE IN MALAYSIA, THE COST OF FUNDING WILL BE LOWER.

BOND YIELDS WILL BE LOWER.


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IMPACT OF SOX

Malaysia normally will follow best practices of usa and uk. So when SOX was legislated in usa,

Malaysia enacted cmsa 2007 which is similar broadly with SOX.

DIRECTORS- HAVE TO SIGN OFF INTERNAL CONTROL AND CORPORATE GOVERNANCE STATEMENTS

IN THE ANNUAL REPORTS/FINANCIAL STATEMENTS FOR PUBLIC LISTED COMPANIES. IF DO NOT

COMPLY OR FALSELY SIGN OFF WHEN STATEMENT IS NOT TRUE- PENJARA/JAIL MAX 10 YRS AND/OR

RM1MILLION FINE.

THIS IS PROVIDED FOR UNDER THE CAPITAL MARKET SERVICES ACT.

HEAVY RESPONSIBILITY AND HEAVY PENALTY EVEN FOR INDEPENDENT DIRECTORS/ NON EXECUTIVE

DIRECTORS WHO ARE SUPPOSE TO BE INTERNAL WATCHDOGS.

BURSA WILL NOW FINE DIRECTORS PERSONALLY RATHER THAN THE COMPANY FOR BREAKING

LISTING RULES.

AUDITORS- under cmsa 2007 -COMPULSORY FOR THEM TO WHISTLE BLOW.

AUDITORS WILL ALSO BE AUDITED BY A PUBLIC ACCOUNTING OVERSIGHT BODY ADMINISTERED BY

SC.

THEY CAN ALSO BE JAILED (if convicted) IF THEY COLLUDE WITH DIRECTORS TO HIDE WRONG

DOINGS. THEY ARE THE GOAL KEEPERS OF ACCOUNTING STANDARDS.

IMPACT ON YOU- UNDER COMPANIES ACT AND CAPITAL MARKET SERVICES ACT, YOU WILL HAVE TO

WHISTLE BLOW IF YOU COME ACROSS WRONG DOING IN THE COMPANY THAT YOU WORK FOR

ESPECIALLY IF IT IS A LISTED COMPANY OR MEMBER OF A LISTED COMPANY.

IMPLICATIONS OF WHISTLE BLOWING ACT- WHILE THERE IS A LAW THAT PROTECTS YOU, IN REALITY

YOU COULD BE SUBJECT TO THREATS AND BODILY HARM. IT WOULD BE SAFER TO MAKE A REPORT

TO SC ON A CONFIDENTIAL BASIS AND REQUESTING THAT YOUR NAME NOT TO BE DISCLOSED.

OTHER WISE YOU CAN REPORT TO THE AUDIT COMMITTEE AND LET THEM TAKE FURTHER ACTION.

MAKE SURE YOU HAVE A WRITTEN RECORD OF THE REPORT.

YOU HAVE TO BE CAREFUL IF YOUR BOSS IS UNUSUALLY NICE TO YOU, OFFER PROMOTIONS AND

TELL YOU TO DO CERTAIN THINGS BY GIVING YOU VERBAL INSTRUCTIONS. IT MAY BE SOMETHING

THAT APPEARS HARMLESS BUT MAY GET YOU INTO HOT SOUP LATER!

RELATED PARTY TRANSACTIONS

- TRANSACTIONS BETWEEN THE COMPANY AND ITS DIRECTORS AND/OR SUBSTANTIAL

SHAREHOLDERS.

Example:

(PARTIES RELATED TO THE DIRECTORS OR SUBSTANTIAL SHAREHOLDERS SUCH AS RELATIVES,

BUSINESS ASSOCIATES, ADVISORS, PARTNERS ARE ALSO CAUGHT UNDER DISCLOSURE

REQUIREMENTS OF RELATED PARTY TRANSACTIONS)


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Further examples of related party transactions that need to be reported in the audited financial

statements:

a) if a shareholder owns 5% or more of the issued share capital of a company (and is not a

director) rents his factory to the company this is considered as a related party transaction that

requires reporting>

b) if THE WIFE/CHILD OF A shareholder owns 5% or more of the issued share capital of a

company (and is not a director) rents his factory to the company this is considered as a related partytransaction that requires reporting>

c) A shareholder who owns 5% or more of the issued share capital is deemed as a substantial

shareholder.

d) If a director or his close relative rent their factory to the company it is considered a related

party transaction

NOTE: A SUBSTANTIAL SHAREHOLDER IS DEFINED AS A SHAREHOLDER WHO HOLDS 5% OR MORE OFTHE PAID UP/ISSUED SHARES OF A COMPANY.

FRS 124 IS AN ACCOUNTING STANDARD SPECIFICALLY FOR REPORTING RELATED PARTY.

A CEO WHO IS NOT A DIRECTOR OF THE COMPANY IS ALSO CAUGHT AS A RELATED PARTY UNDER

FRS 124. if he is a substantial shareholder of the company.

AUDITOR HAVE TO ENSURE THAT ALL RELATED PARTY TRANSACTIONS ARE REPORTED IN THE

FINANCIAL STATEMENTS AND TO STATE WHETHER THE TRANSACTIONS ARE AT ARMS LENGTH AND

THE PRICING IS FAIR AND IS BASED ON MARKET PRICES.

NON DISCLOSURE IS AN OFFENCE.

ADVANTAGE/WHY IS AUDITING REQUIRED?

1)HELP TO DETECT

MISTAKES IN ACCOUNTS

2)HELP TO UNCOVER FRAUD

3)AUDIT CAN SOMETIMES DETECT MISAPPROPRIATION OF FUNDS. THIS RISK OF DISCOVERY BY

AUDITORS CAN DISCOURAGE STAFF/MANAGEMENT/CEO FROM ATTEMPTING CBT (CRIMINAL

BREACH OF TRUST)

CRIMINAL BREACH OF TRUST

4)SHAREHOLDERS ARE OFTEN NOT THE MANAGEMENT. HENCE INDEPENDENT AUDIT WILL BE A

BASIS FOR SHAREHOLDERS TO OBJECTIVELY ASSESS THE PERFORMANCE OF MANAGEMENT.


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5) creditors- the independently audited accounts will give a more reliable basis for the suppliers to

decide on whether to supply goods or services to the company* dont rely on management accounts

as they are usually not audited]

5)INDEPENDENT AUDIT BY HONEST [highly regarded and respected]AUDITORS GIVE CREDIBILITY TO

THE FINANCIAL STATEMENTS

IF MALAYSIAN COMPANIES FINANCIAL STATEMENTS CANNOT BE TRUSTED, FOREIGNERS/INVESTORS

WILL NOT INVEST IN MALAYSIAN CAPITAL MARKET.

THE WORLD CAPITAL MARKET IS VERY BIG AND IS BECOMING INCREASINGLY BORDERLESS. FUNDS

WILL FLOW TO COUNTRIES WHICH HAS RELIABLE/TRUSTED ACCOUNTING STANDARDS AND

AUDITED BY HONEST INDEPENDENT AUDITORS. SINCE MALAYSIA IS NOW IMPLEMENTING ETP IT IS

CRUCIAL THAT MALAYSIA ENSURE THAT ITS FINANCIAL REPORTING REGULATIONS AND

ENFORCEMENT IS UP TO SCRATCH.

If auditors and accounts are world standard then foreign investors will trust Malaysia and foreign

capital will flow in.

6)MANAGEMENT ALSO DERIVES ADVANTAGE FROM AN INDEPENDENT AUDIT AS AUDITORS MAY

DISCOVER WEAKNESSES IN THEIR INTERNAL CONTROL SYSTEMS AND AUDITORS CAN COME UP

WITH RECOMMENDATIONS TO IMPROVE THEIR SYSTEM.

ADVANTAGES OF AUDIT

SHAREHOLDERS ARE SEPARATE FROM MANAGEMENT.

SHAREHOLDERS APPOINT DIRECTORS TO THE BOARD OF DIRECTORS.

THE BOARD IN TURN USUALLY APPOINTS CEO / SENIOR MANAGEMENT.

HENCE SHAREHOLDERS/INVESTORS [potential investors] CANNOT INTRUDE OR HAVE ACCESS INTO

THE BOOKS/ACCOUNTS OF THE COMPANY. THE ONLY WAY THE SHAREHOLDERS CAN EVALUATE

PERFORMANCE OF THE BOARD OF DIRECTORS AND MANAGEMENT IS BY WAY OF FINANCIAL

STATEMENTS PREPARED ONCE A YEAR AS REQUIRED BY COMPANIES ACT.

PLEASE REFER TO LECTURE NOTES FOR MORE POINTS.

Assignment

1)Apa nya perbedzaan Standards&Poor, Moody dan Fitch dengan juruaudit luar?

2)Krisis financial sub prime yang bermula di 2008 adalah lebih serius jika berbanding dengan Enron

skandal dan skandal ponzi Madoff.

Setuju atau tidak? Bincangkan.

3)Siapa yang bersalah dan patut di denda/penjarakan? - juruaudit, bankers, rating agencies, peguam,

kaki tangan Securites Exchange Commission, juruaudit dalam, akauntan, cfo, pengarah, company

secretary?

Bincangkan.

(3000 perkataan)

1)What is the difference between Standards&Poor, Moody and External Auditors?


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2)Sub Prime Financial Crisis that started around 2008 is more serious when compared with Enron

Scandal and Madoff Ponzi scheme scandal. Do you agree or disagree? Discuss and elaborate.

3)Who is wrong and should be fined and/or jailed?- Auditors, Bankers, Rating Agencies, Lawyers, SEC

employees, Internal Auditors, Accountants, CFO, Directors, Company Secretary?

(3000 words)

SOALAN

a) Mengapa pengauditan di perlukan bagi penyata kewangan?

Apa nya faedah pengauditan kepada pemegang syer dan pelabuh pelabuh?

b) Apa perbedzaan Audit Pengurusan dengan Audit Kewangan?

Pada pendapat anda, apa yang lebih penting- Audit Pengurusan atau Audit Kewangan?

a)Refer to notes

b)Management audit or operations audit is a consultancy to improve the efficiency and to safeguard

the assets of a company. This is required by SARBANES OXLEY ACT (SOX)- as result of the enron and

worldcom scandal where external auditors are not effective in detecting operational frauds.

Financial statement audit is conducted once a year as required by companies act where the auditor

has to express an opinion on the true and fairness of the financial statements

Forensic audit is an audit carried out by an investigator/auditor to find evidence of wrong doings. At

such a stage there is likely to be court actions where wrong doers are identified and can be charged

in court. Example in sime darby, a normal operations/internal audit uncover very large cost overrun

in a few projects.

This triggered forensic or investigative audits which lead to the sacking of the ceo by the board ofdirectors.

Both types of audit are important as they complement each other and have different purposes

Certain types of issues involving operations may be missed out by external auditors. Hence it is

important to have both type of audits to cover all areas of the company.

External audit is required by akta syarikat. Internal auditor will usually perform the

operations/management audit- internal auditors can be inhouse or outsourced.(internal audit

function is required under bursa listing rules and the code on corporate governance)

QUESTION

a) Why is auditing required for financial statements?


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What are the advantages of auditing to shareholders and investors?

b) What is the difference between Management Audit and Financial Audit?

In your opinion which is more important?

SOALAN

Apa yang anda fahami dengan terma Pentadbiran Korporat.

Bincangkan apa kandungan di Kod Pentadbiran Korporat Malaysia. Pada pendapat anda, ada kah Kod

ini berkesan/efektif mengelakkan skandal korporat?

Management is about running a Company. Corporate Governance is about the processes being put

in place to ensure that the Company is being run properly for shareholders and all stakeholders.

Another definition: CG is the process and structure used to direct and manage the business and

affairs of the Company towards enhancing business prosperity and corporate accountability with the

ultimate objective of realizing long term shareholder value, whilst taking into account the interests

of other shareholders./stakeholders i.e creditors, government, employees etc

CG is the process by which companies are directed and controlled, with the Board of Directors

holding ultimate responsibility for the governance of their companies.

4 bahagian

a)Bahagian 1- Prinsip2

4 key areas

-Board of Directors

-Directors Remuneration

-Shareholders

-Accountability and AUDIT

b) Bahagian 2- Amalan2 terbaik di dalam tadbir urus korporat. Ada 33 best practices for PLC Public

Listed Companies- Syarikat yang di senaraikan di Bursa Malaysia.

The best practices are in 3 KEY AREAS-

Board of Directors/Lembaga Pengarah

ie/contoh

Accountability and Audit

ie

Relationship with Shareholders.

ie


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(This section PART2 identifies a set of guidelines or practices to assist PLCs in designing their

approach to CG)

c) Bahagian 3-is not addressed to PLCs but to investors, especially institutional investors

shareholders such as EPF, and Auditors. These are purely voluntary and serve the function of

enhancing the role of external auditors and shareholders.

d) Bahagian 4- Provides explanatory notes to Part 1 to 3. It also sets out best practices in addition to

the 33 best practices in Part 2 above. Companies do not have to explain the circumstanes justifying

departure from the best practices in this section.

IN MY VIEW CODE OF CG IS A GOOD START TO ENHANCE INVESTORS CONFIDENCE IN MALAYSIAN

LISTED COMPANIES. HOWEVER MANY LISTED COMPANIES SIMPLY USE THE CHECK LIST APPROACH

AND SOMETIMES JUST COPY THE STATEMENT ON CG IN THEIR ANNUAL REPT FROM OTHER PUBLIC

LSTED COMPANIES. (THEY SOMETIMES DECLARE THEY COMPLY WITH THE BEST PRACTICES OF CG

WHEN IN FACT THEY DONT )

HENCE CG IS NOT THAT EFFECTIVE IN THIS SENSE.

BUT THIS WEAKNESS CAN BE OVERCOME IF BURSA MALAYSIA OR SC CARRY OUT MORE AUDITS ON

THE CG STATEMENTS OF PUBLIC LISTED COMPANIES. IF COMPANIES ARE FOUND TO BE MAKING

MISLEADING STATEMENTS ON THEIR CG STATEMENT THE DIRECTORS SHOULD BE CHARGED IN

COURT FOR OFFENCES UNDER THE CAPITAL MARKET SERVICES ACT (CMSA)

QUESTION

What do you understand by the term Corporate Governance?

Discuss the contents in the Malaysian Code on Corporate Governance.In your view, is the Code

effective in preventing Corporate Scandal?

Aob?

The auditor of the auditors.

AOB IS FORMED TO ENSURE THAT AUDITORS ARE DOING THEIR AUDIT WORK IN AN HONEST AND

COMPETENT MANNER.

IT IS FORMED AND PARKED UNDER SC (CAPITAL MARKET SERVICES ACT)

THE AOB WILL EXAMINE THE AUDITED ACCOUNTS OF PUBLIC LISTED COMPANIES TO EVALUATE

WHETHER THE AUDITORS HAVE DONE A PROPER AND HONEST JOB.THIS IS TO PROMOTE THE

CREDIBILITY OF THE MALAYSIAN AUDITORS AND FINANCIAL STATEMENTS.

LEMBAGA Pemantauan Audit (AOB) yang ditubuhkan pada 1 April 2010 lalu akan melakukan

pemeriksaan audit terhadap syarikat senaraian awam bermula separuh kedua tahun ini bagi

meningkatkan lagi kualiti serta tahap kebolehpercayaan penyata kewangan oleh pihak juruaudit atau

akauntan.


10/22

Pengerusi Eksekutifnya, Nik Mohd Hasyudeen Yusoff, berkata pemeriksaan merangkumi dua aspek,

iaitu memastikan firma audit mematuhi elemen kawalan kualiti seperti digariskan dalam Standard

Antarabangsa Kawalan Kualiti (ISQC1) dan semakan semula audit.

SOALAN

Apa-nya Akta Sarbanes Oxley (SOX) di Amerika Syarikat dan implikasi Akta ini kepada Pengarah,

Juruaudit dan anda di Malaysia?

Apa nya implikasi Akta Whistle Blowing di Malaysia kepada anda?

QUESTION

What is Sarbanes Oxley Act (SOX) in the United States and the implications of this Act for

Directors, Auditors and to you in Malaysia?

What are the implications of the Whistle Blowing Act in Malaysia to you?

IMPACT TO MALAYSIAN DIRECTORS- IN ORDER TO COMPLY WITH INTERNATIONAL BEST PRACTICES,

MALAYSIA IMPLEMENTED CMSA- CAPITAL MARKET SERVICES ACT.

THIS ACT REQUIRES DIRECTORS TO ACT HONESTY, WITH NO CONFLICT OF INTEREST AND TO ENSURE

THAT INTERNAL CONTROL SYSTEMS ARE IN PLACE. PROVIDES FOR JAIL TERM IF CHARGED FOR

OFFENSES UNDER CMSA AND FOUND GUILTY.

ON TOP OF CRIMINAL ACTION, SC CAN ALSO TAKE CIVIL ACTION AGAINST DIRECTORS FOR ALLEGED

WRONG DOINGS.

(SO DIRECTORS ARE NOW VERY MINDFUL THAT THEIR EMPLOYEES CAN WHISTLE BLOW ON THEM

ON ANY WRONG DOINGS. THIS WILL FORCE THEM TO DO THINGS LEGALLY BECAUSE THE RISK OF

GETTING CAUGHT IS NOW MUCH HIGHER)

MALAYSIAN AUDITORS- HEAVY PENALTIES WITH JAIL TERM IF FOUND TO BE NOT HONEST IN THEIR

AUDITS.

SUBJECT TO CHECKS/AUDITS BY AOB.

COMPULSORY FOR THEM TO WHISTLEBLOW IF AUDITOR COME ACROSS WRONG DOINGS.

ANDA!!!!! ALL COVERED UNDER CMSA (WHICH IS BROADLY BASED ON SOX). BE CAREFUL.

WHISTLE BLOWING PROVISIONS WHERE YOU MUST REPORT WRONG DOINGS TO THE AUTHORITIES

IF THERE ARE BREACHES OF LISTING RULES, COMPANIES ACT, CMSA, MONEY LAUNDERING. OTHER

MATTERS THAT HAVE A MAJOR IMPACT ON THE FINANCIAL POSITION OF A LISTED COMPANY AND

ITS SUBSIDIARIES.

Sarbanes-Oxley (SOX) Overview

What is the Sarbanes Oxley Act?

US law passed 2002 to strengthen Corporate governance and restore investor confidence.

Sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley.


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Passed in response to a number of major corporate and accounting scandals involving

prominent companies SUCH AS ENRON in the United States.

11 sections ranging from additional Corporate Board responsibilities to criminal penalties.

What does Sarbanes Oxley Address?

Sarbanes Oxley Act Establishes new standards for Corporate Boards and Audit Committees

Sarbanes Oxley Act Establishes new accountability standards and criminal penalties for

Corporate Management

Sarbanes Oxley Act Establishes new independence standards for External Auditors

Sarbanes Oxley Act Establishes a Public Company Accounting Oversight Board (PCAOB)

under the Security and Exchange Commission (SEC) to oversee public accounting firms and issue

accounting standards

SOALAN

Apa kandungan biasa di surat pentadbiran ( management letter) dari Juruaudit Luar kepada

Pengarah Pengarah Sharikat X Bhd? Bila surat ini di keluarkan?

In the course of an audit the auditor may came across internal control weaknesses. The auditor will

then issue a management letter to the Board of Directors and Audit Committee concerning the

weaknesses detected and his recommendations for improvement.

The letter should be issued as soon as practicable before the auditor sign off the auditors report for

the financial statements.

QUESTION

What are the usual contents in the management letter from the external auditor to the Directors of

X Bhd? When is this letter normally issue?

IN THE COURSE OF AN AUDIT, THE AUDITOR MAY COME ACROSS INTERNAL CONTROL WEAKNESSES.

AS SUCH, THE AUDITOR WILL ISSUE A MANAGEMENT LETTER TO BOARD OF DIRECTORS/AUDIT

COMMITTEE TO REPORT ON THE WEAKNESSES AND RECOMMENDATIONS FOR IMPROVEMENT.

THIS LETTER SHOULD BE ISSUED AS SOON AS PRACTICABLE BEFORE THE AUDITOR ISSUE HIS AUDIT

REPORT PERTAINING TO THE TRUE AND FAIRNESS OF THE FINANCIAL STATEMENTS

SOALAN

Asset Tetap ada lah aset yang perlukan kawalan yang ketat. Apa nya teknik ujian audit yang anda

boleh gunakan sebagai Juruaudit Luar untuk menguditkan aset-aset tersebut di atas?

QUESTION

Fixed Asset requires tight control. What audit procedures and techniques can you use as an External

Auditor to audit the above asset.


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SOALAN

Apa nya Kawalan Dalam?

Bagaimanakah cara juruaudit menilai sistem kawalan dalaman sebuah Syarikat?

Kawalan Dalam yang ketat boleh mengelakkan semua ketipuan di sebuah Syarikat - Setuju atau

tidak setuju? Bincangkan.

QUESTION

What is internal control?

How can an auditor assess the internal control system of a company?

Tight internal control can prevent all fraud from occurring in a Company. Do you agree or

disagree? Discuss.

How to assess the internal control of a Company- First the Auditor has to understand the business.

Drill down on the Business Model of the Company

Design and complete Questionaire, Checklist, flowchart, walk through test, interview employees,

interview top managememt, review previous working papers if any, if possible talk to the internal

auditor and external parties such as CREDITORSs, bankers, suppliers, customers, sub contractors ETC

Internal Control Defined- Definasi Kawalan Dalam

Internal control is a process designed to provide reasonable assurance regarding the

achievement of objectives in the following categories:

Effectiveness and efficiency of operations, Safeguard Assets

Reliability of financial reporting

Compliance with applicable laws and regulations

COSO- according to COSO (INTERNATIONAL BEST PRACTICE ON RISK MANAGEMENT)

Internal Control Process- Proses Kawalan Dalam

Internal control consists of five interrelated components as follows:

Control (or Operating) environment ie ethical/competent staff, back ground check on new

employees, SOP Manuals, ISO, approved budgets, KPI, official whistle blowing policy.

Risk assessment- Pengurusan Risiko-should be formalised

Control activities i.e monthly reconciliation, limits of authority, 2 cheques signatories, segregation

of duties review of budgets versus actual, variance reports

Information and communication


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Monitoring i.e Board papers, monthly budget versus actual results on monthly/cumulative basis,

monthly Risk Management Meetings to track risk issues identified, the monitoring process must be

ongoing a control issue that was resolved earlier can happen again if not monitored on a regular

basis.

All five internal control components must be present to conclude that internal control is effective.

B) CMSA-CAPITAL MARKETS SERVICES ACT, AKTA SYARIKAT AMENDED 2007

Several key points should be made about this definition:

1. People at every level of an organization affect internal control. Internal control is,

to some degree, everyone's responsibility. Within the University Malaya

administrative employees at the department-level are primarily responsible for

internal control in their departments.

2. Effective internal control helps an organization achieve its operations, financial

reporting, and compliance objectives. Effective internal control is a built-in part of

the management process (i.e., plan, organize, direct, and control). Internal control

keeps an organization on course toward its objectives and the achievement of its

mission, and minimizes surprises along the way. Internal control promotes

effectiveness and efficiency of operations, reduces the risk of asset loss, and helps to

ensure compliance with laws and regulations. Internal control also ensures the

reliability of financial reporting (i.e., all transactions are recorded and that all recorded

transactions are real, properly valued, recorded on a timely basis, properly classified,

and correctly summarized and posted).

1)AKTA SYARIKAT/COMPANIES ACT

2)CAPITAL MARKET SERVICES ACT

BUT

3. Internal control can provide only reasonable (MUNASABAH) assurance - not absolute assurance -

regarding the achievement of an organization's objectives. Effective internal control

helps an organization achieve its objectives; it does not ensure success. There are

several reasons why internal control cannot provide absolute assurance that objectives

will be achieved: cost/benefit realities, collusion among employees, and external

events beyond an organization's control.


14/22

The following diagram captures the internal control process and illustrates the ongoing nature of

the process:

Control Environment

The control environment is the control consciousness of an organization; it is

PENGARAH ADA 3 JENIS-

1)PENGARAH BEBAS (TIDAK EXECUTIF).

2)PENGARAH TIDAK BEBAS BUKAN EXECUTIF

3)PENGARAH EXECUTIF

JIKA KEN ADA LAH PENGARAH NON EXECUTIVE BEBAS DIA BOLEH DI LANTIK MENJADI MEMBER

AUDIT COMMITTEE. (DAN JUGA AS AUDIT COMMITTEE CHAIRMAN)

JIKA KEN ADA LAH PENGARAH NON EXECUTIVE- TIDAK BEBAS, DIA HANYA BOLEH DI LANTIK SEBAGAI

ORDINARY/BIASA AUDIT COMMITTEE MEMBER JIKA AUDIT COMMITTEE SUDAH ADA 51%

PENGARAH BEBAS.

(AS NON INDEPENDENT DIRECTOR, KEN CANNOT BE APPOINTED AS AUDIT COMMITTEE CHAIRMAN)

IN THE CASE OF MADOFF HE IS INDEPENDENT DIRECTOR.

UNDER THE CG 2007, HE CAN BE APPOINTED AS AUDIT COMMITTEE CHAIRMAN.

HOWEVER UNDER THE NEW CG2012, IF AN INDEPENDENT DIRECTOR WHO HAS BEEN ON THE

BOARD FOR 9 YEARS OR MORE, HE MAY BE DISQUALIFIED AS AN INDEPENDENT DIRECTOR.MADOFF

MUST BE ASSESSED BY THE NOMINATION COMMITTEE OF THE COMPANY AS TO HIS

INDEPENDENCE.AND IF FOUND SUITABLE BY THE COMMITTEE, MADOFF WILL BE SUBJECT TO

VOTING BY SHAREHOLDERS AS TO WHETHER HE QUALIFIES AS AN INDEPENDENT DIRECTOR.

IF HE IS REJECTED BY SHAREHOLDERS AS TO HIS REAPPOINTMENT AS INDEPENDENT DIRECTOR THEN

MADOFF CANNOT BE APPOINTED AS THE AUDIT COMMITTEE CHAIRMAN.

(MADOFF CANNOT BE APPOINTED AS THE EXTERNAL AUDITOR BECAUSE HE ALREADY A DIRECTOROF THE COMPANY. THE EXTERNAL AUDITOR MUST BE INDEPENDENT OF THE COMPANY)

SOALAN

Apanya perbedzaan Juruaudit Dalam, Juruaudit Luar dan Lembaga Jawatan Kuasa Audit?

Apa fungsi Juruaudit di pasaran modal?

Namakan 4 Jenis Juruaudit dan fungsi-fungi nya.

INTERNAL AUDITORS


15/22

Internal Auditors (if in-house internal audit function) are employees of the Company (if they are not

outsourced), paid a salary and the head of internal audit usually report directly to the audit

committee. Internal Auditor performs operational/management audits, liaise with external auditors

to perform financial statement audit (if required) and sometimes forensic/investigative audit if fraud

is detected within the company. Internal audit function is required by Bursa Listing rule for all Public

Listed Companies.

IF THE INTERNAL AUDIT FUNCTION IS OUTSOURCED TO AN OUTSIDE CONSULTANT OR AUDITING

FIRM, THEN THE OUTSOURCED INTERNAL AUDIT FUNCTION WILL BE PAID A FEE TO BE APPROVED BY

THE AUDIT COMMITTEE. THE OUTSOURCED INTERNAL AUDITOR WILL REPORT DIRECTLY TO THE

AUDIT COMMITTEE. (THE TOTAL FEES PAID FOR THE INTERNAL AUDIT FUNCTION FOR A FINANCIAL

YEAR MUST BE DISCLOSED IN THE ANNUAL REPORT. .

External Auditors perform financial statement audits are not employees of the Company. They are

appointed by shareholders at AGM and report directly to shareholders as required by Companies

Act. They are paid a fee which must be approved by shareholders at the AGM. Their appointment is

by Company Act where they must express an opinion on the true and fairness of the financial

statement of the company at least once a year. Auditors must be independent of the company that

they audit

Audit Committee of a company is form as a sub committee from the members of the Board of

Directors. All audit committee members must be non executive directors OF WHICH THE MAJORITY

MUST BE INDEPENDENT DIRECTORS, They are the internal watch dogs of the company and have to

whistle blow wrong doings to the authorities such as Securities Commission. The Chairman of the AC

must be an independent director and majority of AC must be independent non executive directors.

At least one member of the AC must be a qualified accountant. The AC members are paid a fee

which must be approved by shareholders at the AGM.

OTHER TYPES OF AUDITORS---Internal auditor, External Auditors, Tax auditors, Forensic Auditor,Statutory auditors, Management Auditors etc

If a country has international accounting standards that are accepted world wide, investors will have

confidence in the capital market of that country.

If auditors are truly independent and professional this will increase further the credibility of the

countrys financial reporting standards and in turn attract foreign investment into the countrys

capital market.

IF LEE IS NOW NON INDEPENDENT NON EXECUTIVE DIRECTOR

A)STILL CANNOT BE APPOINTED AS THE EXTERNAL AUDITOR. HE IS A CONNECTED PERSON WITH THE

COMPANY. THE EXTERNAL AUDITOR MUST BE INDEPENDENT FROM THE COMPANY

B)YES HE CAN BE APPOINTED AS A MEMBER OF THE AUDIT COMMITTEE. HOWEVER HE CANNOT BE

APPOINTED AS THE CHAIRMAN OF THE AUDIT COMMITTEE.

(THE CHAIRMAN OF THE AUDIT COMMITTEE MUST BE AN INDEPENDENT DIRECTOR.ALSO MORE

THAN 50% OR MAJORITY OF THE AUDIT COMMITTEE MUST CONSIST OF INDEPENDENT DIRECTORS.

AT LEAST ONE MEMBER OF THE AC MUST BE A QUALIFIED ACCOUNTANT)

QUESTION

What are the differences between Internal Auditors, External Auditors and Audit Committee?

What is the function of Auditors in the Capital Market?


16/22

Name 4 types of Auditors and their respective functions.

AUDIT COMMITTEE IS A SUB COMMITTEE FORM FROM THE BOARD OF DIRECTORS.

(THE CHAIRMAN OF THE AUDIT COMMITTEE MUST BE AN INDEPENDENT DIRECTOR.ALSO MORE

THAN 50% OR MAJORITY OF THE AUDIT COMMITTEE MUST CONSIST OF INDEPENDENT DIRECTORS.

AT LEAST ONE MEMBER OF THE AC MUST BE A QUALIFIED ACCOUNTANT)

AUDIT COMMITTEE MEMBERS ARE PAID A FEE THAT MUST BE APPROVED BY SHAREHOLDERS AT THE

ANNUAL GENERAL MEETING.

THE AC IS THE INTERNAL WATCH DOG OF THE COMPANY. THEY ARE REQUIRED BY CMSA/BURSA

LISTING RULES TO WHISTLE BLOW ANY WRONG DOINGS TO SECURITIES COMMISSION.

SINCE THEY ARE NOT INVOLVED IN OPERATIONS THEY NEED INTERNAL AUDITORS TO REPORT

DIRECTLY TO THEM. IN OTHER WORDS INTERNAL AUDITORS ARE THE ACs ears and eyes. IF

COMPANY DOES NOT HAVE IN HOUSE INTERNAL AUDITORS THEY ARE REQUIRED BY CG BEST

PRACTICES TO OUTSOURCE THE INTERNAL AUDIT FUNCTION. (WHICH SHOULD ALSO REPORT

DIRECTLY TO THE AC)

SOALAN

American Institute of Certified Public Accountants (AICPA), menyenaraikan pengguna lapuran

juruaudit sebagai pemilik, pemiutang, pembekal, bakal pemilik, pengurusan, kakitangan, pelanggan,

penasihat dan juruanalisis kewangan, pasaran saham, badan-badan pendaftar dan pengawal,

persatuan perdagangan dan persatuan sekerja.

Daripada penelitian senarai tersebut didapati bahawa sebahagian besar daripada pengguna lapuran

juruaudit terdiri daripada pihak ketiga.

Apa liability Juruaudit kepada Pihak Ketiga?

JAWAPAN:

If an auditor is negligent, he can be sued in court by third parties such as creditors, bankers,

suppliers, bond holders who are not shareholders for civil damages.

If grossly negligent, he can be charged in court by authorities such as Securities Commission for

criminal negligence.

Recently, an auditor was even charged for abetting with the CEO in presenting misleading

information.

However, if an auditor exercise due care and professional judgement, follow international auditing

standards AND ALSO ISQC1 INTERNATIONAL STANDARD ON QUALITY CONTROL ON AUDITING-and

keep proper working papers he cannot be sued. Auditors are not expected to detect every fraud as

Management can design frauds that are difficult to detect even by experienced auditors.

QUESTION

American Institute of Certified Public Accountants (AICPA), listed shareholders, creditors, suppliers,

previous owners, management, employees, customers, advisers, financial journalists, regulatory

bodies, trade associations and trade unions as users of audited financial statements / audit report.

From the above listing, it is obvious that a large proportion of users of the audited financial

statements / audit report are from third parties.


17/22

What are the liabilities of auditors to third parties?

SOALAN

Anda ada lah berminat menjadi sebagai Juruaudit Luar. Siapa yang layak menjadi Juruaudit Luar di

Malaysia?

Must be a MIA member or MICPA member

Must have at least 2yrs working experience with a public accounting firm

Must be a Malaysian resident, good character with no criminal record

Must not be an UNDISCHARGED bankrupt

Must attend and pass an interview with the ministry of finance (MOF)

After passing interview to obtain an audit license from the MOF.- as per section 8 of Companies Act.

AUDITORS FOR LISTED COMPANIES MUST BE REGISTERED WITH THE AOB.

4 BIG ONES

ERNST AND YOUNG

PRICEWATERHOUSE

KPMG

DELOITTE TOUCHE

\2ND TIER COMING UP

BDO BINDER

HORWATH

QUESTION

You are interested to become an external auditor. Who is qualified to become an external auditor in

Malaysia?

WHY NOT GIVE MIA RIGHT TO SET ACCOUNTING STANDARD?

ANS: IF STUDENTS ARE ASKED TO SET THEIR OWN EXAM QUESTIONS THEY WOULD SET EASY

QUESTIONS OR QUESTIONS THAT THEY CAN ANSWER WELL AND NOT NECESSARILY THE BEST

QUESTIONS.

SIMILARLY WITH MIA- ACCOUNTANTS WILL SET EASY STANDARDS TO FOLLOW RATHER THAN THE

APPROPRIATE STANDARDS TO ENSURE TRANSPARENT AND GOOD QUALITY FINANCIAL REPORTING.

SOALAN

Apa maksud urusniaga dengan parti berkaitan?

Apa tanggung jawab Juruaudit Luar dengan urusniaga dengan parti berkaitan?.


18/22

Related Party Transaction refer to transaction between the company and its substantial

shareholders(who own 5%or more of the issued share capital of the company), CEO, Directors and

parties associated with them[EXAMPLE THEIR CLOSE FAMILY MEMBERS].

Under MASB/ifrs and Bursa Listing rules all such transactions must be promptly disclosed and also

that all such transactions are at arms length and pricing is fair to minority shareholders. (under the

terms of reference of the audit committee, the AC must ensure that related party transactions are

fair and at arms length).

The auditor must ensure that all related party transactions must be fully disclosed in the financial

statements. AND THAT THE PRICING IS FAIR OR NOT.

QUESTION

What is the meaning of related party transaction?

What are the responsibilities of external auditors in relation to related party transactions?

SOALAN

Apa nya Malaysian Accounting Standards Board( MASB ) ? Bincangkan fungsi pertubahan ini.

Mengapa Malaysian Iinstitute of Accountants atau Pertubuhan Akauntan tidak di benar

menubuhkan accounting standard ?

Refer to notes earlier

MIA not allowed to set accounting standard as they are the practitioners. They have an interest to

set easier standards for themselves.

MASB will set standatds, SC will do enforecement on compliance with accounting standards.

QUESTION

What is the Malaysian Accounting Standards Board(MASB)? Discuss the functions of this

Organisation.

Why is MIA not allowed to set accounting standards?

SOALAN

Puan Miriam menjadi ahli Institute Akauntan Malaysia semenjak 2000.

Di tahun 2008, dia menjadi Pengarah Executive bagi Syarikat X Bhd sebuah syarikat yang di

seneraikan in Bursa Saham Kuala Lumpur (Bursa Malaysia). Boleh Puan Miriam di lantikkan

menjadi Juruaudit Luar bagi Syarikat ini ?

Boleh Puan Miriam di lantikkan menjadi ahli di Lembaga Jawatan Kuasa Audit Syarikat X Bhd?

QUESTION.

Puan Miriam is a member of the Malaysian Institute of Accountants since 2000.

In the year 200B she became the Executive Director for X Bhd a Bursa Malaysia listed company. Can

Puan Miriam be appointed as the external auditor to this Company?

Can Puan Miriam be elected as a member of the Companys Audit Committee?


19/22

ANSWER

Tidak boleh di lantik menjadi sebagai juru audit luar. Puan Miriam is already the executive director of

the company and is an interested party and connected person with the company. There will be

conflict of interest.

Also she will not be seen to be independent. Auditors must be independent of the Company that

they audit and cannot even owe money to the Company or have other business dealings with the

Company.

Tidak boleh di lantik menjadi AC member kerana dia ada lah executive director syarikat.

B)MADOFF CANNOT BE APPOINTED AS AN INTERNAL AUDITOR AS HE IS AN INDEPENDENT

DIRECTOR. HE IS NOT SUPPOSE TO BECOME AN EMPLOYEE OF THE COMPANY>

AS A NON EXECUTIVE DIRECTOR HE CAN BE APPOINTED AS AN AC MEMBER.

Bursa Malaysia rule state that majority of AC members must be independent directors(pengarah

bebas) and all AC members must be non executive directors.

The Chairman of the AC must be an independent director and at least one of the AC member must

be a qualified accountant.

SOALAN

Yang dari mana Juruaudit dapat panduan untuk pekerjaan nya?

Akta Syarikat dan Akta Syarikat Amendment Act 2007, Akta Pasaran Modal dan Perkidmatan

2007(CMSA) , Pertubuhan Akauntan, SC Suruhan Jaya Sekuriti, Akta Money Laundering, MASB-

Lembaga Piawaian Perakaunan Malaysia, Bank Negara, Kod Urus Pentadbiran Korporat Malaysia

2007/2012. , AOB , INTERNATIONAL AUDITING STANDARDS. ISQC1

QUESTION

Where do auditors refer to and rely upon for guidance for their audit work?

Companies Act, Companies Amendment Act 2007, Capital Market and Services Act 2007, MIA, SC,

Money Laundering Act, Malaysian Accounting Standards Board, BANK NEGARA, MALAYSIAN CODE

ON CORPORATE GOVERNANCE, INTERNATIONAL AUDITING STANDARDS.

SOALAN

Pada pendapat anda, adalah Securities Exchange Commission (SEC) di Amerika Syarikat

berkesan/efektif sebagai polis Pasaran Modal di Amerika Syarikat? Suruhan Jaya Sekurities (SC)

yang berfungsi sebagai polis Pasaran Modal di Malaysia ada lah lebih berkesan jika di bandingkan

dengan SEC di Amerika Syarikat- setuju atau tidak dan mengapa?

SC IS THE CORPORATE POLICEMAN OF THE MALAYSIAN CAPITAL MARKET.

THEIR MISSION IS TO PROMOTE AND MAINTAIN FAIR, EFFICIENT, SECURE AND TRANSPARENT

SECURITIES AND FUTURES MARKETS.. TO FACILITATE THE ORDERLY DEVELOPMENT OF AN

INNOVATIVE AND COMPETITIVE CAPITAL MARKET.

WHAT SC DO (SC IS THE CORPORATE POLICEMAN)

Established on 1 March 1993 under the Securities Commission Act 1993, the SC is a self-funding

statutory body with investigative and enforcement powers. It reports to the Minister of Finance and

its accounts are tabled in Parliament annually. The SC's many regulatory functions include:


20/22

Supervising exchanges, clearing houses and central depositories;

Registering authority for prospectuses of corporations other than unlisted recreational

clubs;

Approving authority for corporate bond issues;

Regulating all matters relating to securities and futures contracts;

Regulating the take-over and mergers of companies

Regulating all matters relating to unit trust schemes;

Licensing and supervising all licensed persons;

Encouraging self-regulation; and

Ensuring proper conduct of market institutions and licensed persons.

Underpinning all these functions is the SC's ultimate responsibility of protecting the investor. Apart

from discharging its regulatory functions, the SC is also obliged by statute to encourage and promotethe development of the securities and futures markets in Malaysia.

BANK NEGARA IS THE REGULATOR FOR BANKS.

BANK NEGARA ALSO IMPLEMENT MONETARY POLICY TO ENSURE THAT INFLATION IS KEPT IN CHECK.

IT ALSO MAINTAINS FOREIGN EXCHANGE TO ENSURE THAT THE COUNTRY HAS ENOUGH FUNDS. IT

IS ALSO INTERVENES IN THE FOREX MARKET TO ENSURE THAT THE RINGGIT DOES NOT FLUCTUATE

WILDLY.

QUESTION

In your opinion, is the Securities Exchange Commission (SEC) effective as the regulator or

policeman of the Capital Market of United States? Malaysias Securities Commission is more

effective when compared with United Statess SEC- agree or disagree and why?

No. Bottleneck- sec staff have to obtain approval from the 5 commissioners before they can proceed

with investigations. With approx 750000 cases a year, this system is not effective. They need to

change the structure to give freedom to sec staff to proceed with investigation.

SEC lack the resources, not enough experienced staff.

CONFLICT OF INTEREST-

An example to show that SEC is missing in action is the Madoff case where a whistle blower

submitted evidence to SEC but the case was not followed up and was not even submitted to the

commissioners. This ponzi case was allowed to happen for more than 10 years.

SEC Leadership was also too complacent.

Capital markets became too complicated for SEC Staff to understand. The general conclusion is that

SEC is sleeping on the job as well as under resourced with not enough trained and experienced staff.

SC is controlled by Politicians to a certain extent. Malaysian has got good laws and regulations but

enforcement track record is poor. SC seem to have selective enforcement where action were not

taken in certain high profile cases such as PROTON, MAS etc.


21/22

Recent improvements is that SC can now prosecute cases with out referring to the Attorney General.

As compared to SEC, SC is better resourced as the Capital Market in Malaysia is relatively smaller as

compared with USA.

As at 2008, it appear that SC is relatively more effective than SEC given that Malaysian Markets are

smaller and easier to regulate.

WHAT IS CORPORATE GOVERNANCE?

MANAGEMENT IS ABOUT RUNNING A COMPANY.

CG IS ABOUT ENSURING THAT A COMPANY IS RUN PROPERLY FOR ALL STAKE HOLDERS. CG IS ABOUT

PUTTING IN PLACE PROPER PROCEDURES AND PROCESSES TO ENSURE THAT IT (THE COMPANY OR

ORGANIZATION) IS RUN PROPERLY.

MALAYSIAN CODE 2007 ON CG HAS 4 PARTS

PART 1

IS ABOUT BROAD PRINCIPLES- 4 BROAD PRINCIPLES- refer to notesboard of directors, directors

remuneration, shareholders, accountability/audit

PART 2

SPECIFIC BEST PRACTICES- 33 BEST PRACTICES THAT A LISTED COMPANY SHOULD COMPLY WITH. IF

A COMPANY DOES NOT COMPLY WITH ANY OF THE 33 BEST PRACTICES, IT SHOULD BE DISCLOSED IN

THE LISTED COMPANYS ANNUAL REPORT AND STEPS TO BE TAKEN TO ADDRESS THE WEAKNESS.

-see notes/refer notes or pintaras annual rept

SOME EXAMPLES OF THE BEST PRACTICES ARE=????

1)TRAINING FOR DIRECTORS

2)1/3 OF DIRECTORS MUST BE INDEPENDENT DIRECTORS

3)AT LEAST ONE MEMBER OF THE AC MUST BE A QUALIFIED ACCOUNTANT

4)MUST HAVE INTERNAL AUDIT FUNCTION

5)remuneration committee

6)nomination committee

7head of internal audit function must report directly to audit committee

8)all directors must have access to the company secretary

9)AGM Board must interact and communicate with shareholders, having a web site

10)the role of ceo and chairman should be separated

11)there must be board balance- a mix of different type of experts, even now there is requirement

to have more women on the board.

12)all related party transactions must be disclosed and the audit committee must ensure that the

pricing is fair and at arms length.


22/22

13)the channel of communication of external auditor should be through the audit committee

14)the chairman of the board should ensure that the board of directors receive quality information

(information pack)

15)directors should have access to advise ie even external consultants at the expense of the

company.

PART 3

NOT ADDRESS TO THE COMPANY. RATHER IT IS ADDRESSED TO INSTITUTIONAL INVESTORS,

MINORITY SHAREHOLDERS AND AUDITORS. THIS PART ENCOURAGES INVESTOR TO TAKE AN ACTIVE

PART IN QUESTIONING DIRECTORS AND MANAGEMENT AT AGM.

(Minority Shareolders Watchdog Group IS A GOOD EXAMPLE OF COMPLIANCE WITH PART 3 OF THE

CODE)

PART 4

FURTHER EXPLANATORY NOTES TO THE ABOVE AND ALSO PRESCRIBE FURTHER BEST PRACTICES

THAT ARE NOT COMPULSOR

CG 2012- 8 PRINCIPLES FOLOWED BY RECOMMENDATIONS

IS CG EFFECTIVE?????

MOST COMPANIES SEEM TO CUT AND PASTE THE CG STATEMENT FROM EACH ANOTHER.

HOW DO WE KNOW IT IS TRUE?

MANY CASES SUCH AS PROTON, SIME DARBY, KENMARK ETC SAY THEY COMPLY BUT IN ACTUAL

FACT THEY DID NOT COMPLY WITH SOME PROVISIONS OF THE CG.

(I think mccg is reasonably effective but still have some weakness in terms of enfoRcement)

SO IN MY VIEW SPECIAL AUDITS ON CG STATEMENT SHOULD BE CONDUCTED BY BURSA AND/OR SC.

DIRECTORS SHOULD BE FINED OR PROSECUTED IF FOUND TO HAVE MADE FALSE/MISLEADING

DISCLOSURES.

CSR CORPORATE SOCIAL RESPONSIBLITY

auditing revision for exam

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