By Jenny Chua and Brian Wong
Addressing the challenges posed by the external environment is core to solving the issue of work stress in the audit profession.
At a recent talent roundtable with HR leaders from 16 major accounting firms on 15 November 2018, participants said that the other players in the financial reporting ecosystem, namely preparers (the audit clients) and regulators need to coordinate and work together with the audit profession to collectively raise the quality of financial reporting – which will help alleviate audit stress and pressures on auditors.
Improve Preparer Quality
“In order to raise the standards of financial reporting, we need to start from the source – the preparers of financial statements,” said Brian Wong, the immediate past chair of the MIA Public Practice Committee (PPC), moderating the roundtable.
Auditors have to deal with relatively heavy workloads due to the pressure of deadlines, as most companies have common financial year ends. High auditor workloads are also related to the clients’ financial reporting capabilities.
Therefore, company directors need to improve the quality of their accounting and financial reporting function to raise the quality of their financial reports and ease the burden on auditors. To improve the quality of prepares, a quality control standard for preparers is proposed to establish the baseline quality requirements for accounting and financial reporting.
Pay Audit Fees That Reflect the True Value of an Audit
Undercutting is a reality in the highly competitive audit market. “Fierce competition among audit firms results in price-cutting pressures. Audit clients invariably get away with producing sub-standard work in the preparation of financial statements, resulting in auditors having to pick up the slack,” said Wong.
To solve the undercutting issue, MIA has initiated an effort to amend the Accountants Act to empower MIA with the power to set the standard for fees as a regulator to ensure that adequate resources are employed in the performance of an audit. MIA was also advised to continue to advocating the value of audit to stakeholders to reduce audit fee pressures.
Increased Regulatory Scrutiny of Preparers
“Regulators are focused on the quality of the auditor’s work but unfortunately do not exercise the same rigour on the environment of the preparers and their quality standards. Whilst it is mandatory for auditors to comply with international standard on quality (ISQC1), there is no such similar requirement and quality control standard for preparers,” said Wong.
“This ultimately costs auditors’ time and effort, and significantly impacts on their productivity and effectiveness. The imbalance in the financial reporting ecosystem places great pressure on auditors to continue with their role in the ecosystem,” he added.
Uphold Auditor Ethics
From the perspective of the MIA, auditors too need to raise professional ethics to the highest level. Auditors must be aware of their role in an audit of financial statements. Preparing financial statements is the duty of the preparers. However, if assistance is needed, it can be carried out by another registered accounting firm,” said Wong.
Conclusion
There is a need to improve quality control within the preparers’ environments and for firms to increase audit fees commensurate with effort and risk to ensure the continued integrity of financial reporting. Establishing better balance in the ecosystem will reduce unfair pressures to the profession, including the risk of losing quality talent.
“A more holistic approach in managing quality in the financial reporting ecosystem will improve the integrity and quality of financial reporting in Malaysia and is expected to result in better accountability and transparency for the benefit of all stakeholders, i.e. shareholders, creditors, customers, the tax authorities and the capital market as a whole. Nevertheless, it requires the coordinated efforts of the firms, professional bodies, the business community and the regulators,” concluded Wong.
Brian Wong is the immediate past Chairman of the MIA Public Practice Committee and Jenny Chua is the Head of MIA Small and Practices Department, Professional Practices and Technical Division.
