TOPIC 1 Statutory & Professional

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AUD 610TOPIC 1Statutory and Professional Responsibilities and MIA By-Law (on Professional Conduct and Ethics)TOPICS TO DISCUSS:PART 1Statutory and Professional Responsibilities

DefinitionQualified person approved by the MOF to act as auditor, is of good character and competent to perform the duties of an auditor under the Companies Act4Sec. 172 Appointment

Power of directors to appoint auditor before 1st general meeting, if not, members are entitled to do it in general meeting.

(2) Company shall appoint auditor at each AGM. Term of office starts from appointment and present AGM till, conclusion of next AGM. Company must at every AGM appoint and reappoint auditor.

(3) Power to directors to appoint to fill casual vacancy (termination of auditor practice, auditor cease operation) exception to resignation or removal of auditor

(10) If a company does not appoint an auditor, CCM on the application in writing of any member of the company will make the appointment

Sec. 172 Removal

(4) Removal is to be done at general meeting of which, special notice of ordinary resolution to remove auditor has been issued

(5) On receipt of special notice by company:- They must send a copy of special notice to present auditor and CCMAuditor may within 7 days of receiving special notice make representation in writing to company, request representation be sent by company to all members entitle to receive notice of general meeting

(6) The auditor may request that the representation be read out at the general meeting

Sec. 172 Removal (cont)

(7) - Special resolution is needed to appoint new auditor, replace the remove at the same AGM - If to appoint at the adjourned meeting, we can do so but through ordinary resolution and adjourned AGM need to be done not earlier than 20 days and, not later than 30 days from AGM date of removal auditor

(8) Company shall inform in writing regarding removal of auditor to the CCM. If the company did not appoint the auditor, CCM shall do so.

Sec. 172 Resignation

(14) Auditor may resign: - If he is not the sole auditor of company - At general meeting of company

(15) If an auditor desires to resign, he shall give notice of resignation to directors of the company. The directors, shall call for EGM for the purpose of appointing new auditor and the resignation will only be effective on the appointment of new auditorDuties : Sec. 174 (1-3) (cont)

(3) Also an auditor need to form an opinion on the followings: Whether he has obtained all the information required Whether proper accounting and other records include registers have been properly kept Whether the procedures and methods used by a holding company or subsidiary in consolidation amount were appropriatePower or Rights of Auditors : Sec. 174 (4-9) To access at all times books and records Right to information and explanation as he considers necessary in performing his duties To attend general meeting, to receive all notices relating to general meeting which concern the auditor Right to make written representation when company dismiss him as auditor To attach auditors report to annual report, to be read in general meeting

Sec. 172 (16) Remuneration

The fees and expenses of an auditor of a company:

If auditor is appointed at general meeting the fees shall be fixed by the company at general meeting

If auditor is appointed by directors or by CCM the auditors remuneration then, shall be fixed by the directors or CCM respectively

PART 2MIA By-Law (on Professional Conduct and Ethics)MIA By-Law (on Professional Conduct and Ethics)MIA By-Law (on Professional Conduct and Ethics) (cont)PART A Applicable to all membersA-1 Fundamental PrinciplesAs a professional man, a member must at all times perform his work professionally.

In accepting job, a member shall always act integrity, objectivity, impartially and free from any influence which might cause conflict with the requirement (Independence)

Should carry out his work properly, competence and in accordance with professional standards expected on him (Due Care & Competent)

Should not undertake the work that he is not competent to perform

Should conduct with courtesy and responsible towards person who engages him and also to the public

Should also perform the job to maintain good name of Institute (MIA) as well as other members

A-2 Integrity & ObjectivityPART A Applicable to all members Straightforward, honest, sincere, fair dealing and truthfulness by all members

Principle of objectivity: fair, honest and free from conflict of interest

A member shall be and appear to be free of any interest which cause problem to his objectivity

Regardless of service and capacity, all members shall protect the integrity and maintain objectivity in their judgement (For example: pressure, other services to be engaged, etc)

No member shall make false and misleading reportPART A Applicable to all members Strive continually to improve his professional services, keep his technical knowledge up to date, enhance professional competence

Member shall not undertake professional work which he is not competent to perform unless the member obtain such advice and assistant as will enable him to carry out the work completely

Comply with Continuing Professional Education (CPE) requirement, standards and guidelines issued by MIA council

Due care includes consideration of completeness of working paper, sufficiency of audit evidence, appropriateness of audit reportA-3 Professional Competence & Due CarePART A Applicable to all members To treat clients information as confidential cannot use or appear to use that information for his personal advantage or third party advantage. Example: Members dealing in the shares of the company using information obtained during his engagement

Confidential information of the client shall not be disclosed except:- Consent to do so obtained from client There is legal right or duty to disclose Provisions of written law (non-compliance, criminal act) (However, please read explanatory notes carefully)

Important here: Because member might have conflict of interest between his loyalty to his employer, client, profession and public. Please read explanatory notes (MIA By-Law)A-5 Confidentiality PART A Applicable to all membersA-8 Act Discreditable to the ProfessionUnprofessional conduct include gross carelessness, negligence, incapacity in performing his duties and conduct of an accountant, include:-

Retention of client records after demand is made Make false and misleading entries in the financial statementsAssisting his client to evade taxCommit fraud and negligenceActing that can threaten his integrity, objectivity and independenceBeing declared bankrupt, etcPART BApplicable to all members in Public Practice (NF AND AF)B-1 Professional IndependencePROFESSIONAL INDEPENDENCE Definition: 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 Definition: Taking unbiased viewpoint in audit report, audit tests and evaluation of results

Two criteria to be independence: Independence in fact able to maintain unbiased attitude throughout audit Independence in appearance interpretation of users of financial statement of the auditors independence

(CONT)

Under this By-Law, the council of MIA has laid down again the qualification as auditor of the company in addition to the other legal provisions. A person cannot become an auditor of the company (among other are):- If he is not an approved company auditor If he is indebted to the client for more than RM 2,500 Etc, as discussed above

A member cannot accept appointment as auditors if he is also being appointed for providing NON-AUDIT services or vice-versa, if the appointment can impair his independence

PART BApplicable to all members in Public Practice (NF AND AF)B-1 Professional IndependencePART BApplicable to all members in Public Practice (NF AND AF)B-1 Professional Independence(CONT)

Threat to independenceSelf interest threat Undue dependence on total fees, financial interest, concern about losing client Loan or guarantees Give or guaranteeing loan to client or accepting or indebted to clientProvision of other services tax, accounting services, secretarial services, etc

Was within preceding period of 12 months being an officer or employee of company or a partner, employer, employee of an officer of the company

Blood relationship with client

Receipt of hospitality: Gifts, favor or hospitality that go beyond normal courtesy should not be given or received as it may influence actions or decisions

PART BApplicable to all members in Public Practice (NF AND AF)B-1 Professional Independence(CONT) LITIGATION (Definition) Court action taken due to inexistence of confidence between auditor and client and so, it is better for auditor to resign

Measures to take to improve independence (among others):- Audit Committee : Companies listed on Bursa Malaysia are required to form audit committee so that audit will remain independence because the selection and scope of auditors work will be determined by audit committee

Peer reviews : Or auditing the auditors. Just recently carried out by MIA where another auditor would review the working papers and also produces of the firm with a view to improve the quality of work

Rotation of the appointment of auditor : Once an audit firm audit the client for so long, familiarity with client staff would exists and therefore lack of independence. It has been suggested that a rotation of auditors would overcome the problem.

PART BApplicable to all members in Public Practice (NF AND AF)B-2Method of Practice This By-Law prohibits a member from using a trade name or a fictitious name to practice Member shall practice as a chartered accountant or licensed accountant:- In his own nameIn his partners name In the name of existing firm

Any branch of the firm should be under the management and control of a member of the Institute Member can only report on the financial statement which examined by his staff or a member in public practice And many more (refer to By-Law)PART BApplicable to all members in Public Practice (NF AND AF)B-3Advertising, Publicity and Solicitation (APS) Advertising (Definition) The communication to the public of facts about a professional account with a view of procuring professional business

Publicity (Definition) Communication to the public of facts about a professional accountant

Advertising and publicity use of various media such as magazines and radio to communicate favourable information about the goods and services of the firmPART BApplicable to all members in Public Practice (NF AND AF)B-3Advertising, Publicity and Solicitation (APS)(CONT)APS in general is not permitted under MIA By-Law, however, this does not include the followings:-

Member can issue circulars to person whom he has already been established a professional connection Member is allowed to publish the firm name and address for purposes such as advertisement for job vacancies or to announce change of address Advertise for seminars or conferences for the publics. Publication of audit report, announce admission or retirement from practice of a partner and may send greeting cards confined with the message of his greeting, his name and address of the firms Member can print their business card but ensure that the business card or firm stationery or name plate foes not include a claim that he is a specialist in any particular aspect of public practice

PART BApplicable to all members in Public Practice (NF AND AF)B-5Loan To and From Clients No member in the public practice nor his firm shall make a loan to a client, or guarantee a clients borrowing or accept a loan from a client or have borrowings guaranteed by a client or be indebted to a clients at any time in a sum exceeding RM 2,500PART BApplicable to all members in Public Practice (NF AND AF)B-6Fees and Commission Fees should be fair reflection on value of work performed for client considering : Skill and knowledge required Level of training and experience of persons involved Time spent Degree of responsibility, urgency of the work

No member shall mislead his client by charging unrealistically low fee resulting compromised (jeopardize) professional standards/ quality (lower than RM 500 is considered unrealistically low)PART BApplicable to all members in Public Practice (NF AND AF)B-6Fees and Commission A member may charge charitable bodies, non-profit organisation low fees or provide free service provided such service not being used as inducement to secure professional appointments or engagement for other corporations

In determining fees, members must also take into consideration schedule provided by MIA

A member shall not pay commission to obtain a client nor shall he accept commission for referral to a client where such payment would impair the objectivity, integrity or independence(CONT)The service of an auditor with special skill may be hired by a client based on the recommendation or referral of the auditor currently providing service to the client

If the member receives an assignment through referral from another member, the member should not undertake any other professional services for the same client without informing the referring member. He should not do anything to impair the position of the referring members in continuing to provide his service to client in order to retain cordial relationship among the professional members (Jangan rampas client)PART BApplicable to all members in Public Practice (NF AND AF)B-7ReferralsPART BApplicable to all members in Public Practice (NF AND AF)B-8Changes in Professional AppointmentsProposed auditor DO A member who is asked to accept nomination as auditor is required to communicate with the existing auditor (with the permission from the prospective client), for the purposes: To obtain information about client To know the professional reasons for such changes before proposed auditor accept the appointment

If the client does not granted the permission, the proposed auditor shall decline the appointment

Existing auditor DO The existing auditor, on receipt of a communication, to reply that the existing auditor should get permission from the client

PART BApplicable to all members in Public Practice (NF AND AF)B-8Changes in Professional Appointments(CONT)Existing auditor DO If permission granted: Existing auditor should reply in writing whether there is any reason why the new auditor should not accept appointment If permission not granted: Existing auditor should report the fact to the proposed auditor

Proposed auditor DO If the proposed auditor unable to obtain satisfactory reply from existing auditor within reasonable time, he should follow up by A.R RegisterAnd if still no reply after a few attempt, further letter need to be send to existing auditor stating he assume that there is no professional reasons why he should not accept appointment

(CONT)

Existing auditor DO

The existing auditor may decline reappointment and cease to provide audit service to client if that particular client has not paid the audit fees for two consecutive years by notify the client and MIA

No other member (new auditor) can accept the appointment unless the outstanding fees being paid to previous auditor

PART BApplicable to all members in Public Practice (NF AND AF)B-8Changes in Professional AppointmentsPART BApplicable to all members in Public Practice (NF AND AF)B-9Incapacity or Death of a Sole Practitioner A member is a sole practitioner and shall enter into an arrangement with another member to enable his practice to continue with minimum disruption in the event of death or incapacity, in either of the following ways:-

By entering into an agreement with another member By satisfying the Council that other adequate provision has been made

Every member in public practice shall ensure that his firm carries and maintains a policy of professional indemnity insurance

Minimum coverage RM 100,000

PART BApplicable to all members in Public Practice (NF AND AF)B-10Professional Indemnity InsuranceEvery member in public practice shall:-Ensure that his firm complies with all relevant professional standards for the purposes of assurance as to the quality of the public practice services provided

Subject to the Institutes Practice Review Programme as established by the Council with the objectives to ensure that all members maintain, observe and apply all relevant professional standards so as to ensure everyone in practice are competent, ethical and exercise due professional care in their work

The Practice Review Programme be conducted over a cycle of not more than five (5) years in respect of member firms which are selected at random

PESANAN PENAJA: YOUR PROBLEM TO ANSWER QUESTIONS RELATING TO THIS TOPIC ALMOST SETTLE IF YOU READ AND UNDERSTAND MIA BY-LAWSPART BApplicable to all members in Public Practice (NF AND AF)B-11Quality Assurance and Practice ReviewAREAS OF CONTROVERSY (THE PRINCIPAL COMPLAINTS)AREAS OF CONTROVERSY (THE PRINCIPAL COMPLAINTS) (CONT)AREAS OF CONTROVERSY (THE PRINCIPAL COMPLAINTS) (CONT)CONCLUSIONTHE END