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The Changing Role Of External Auditor

1490 words - 6 pages

The foundation of the audit system where it is starting being govern by the law can be traced in Companies Act 196 and Accountants Acts 1967. In Companies Act 1965, it requires companies to have the accounting records to be audited and in true and fair view. Independence of the auditors also being underline in the Act, where any relationship between the independent auditor and the companies must be disclose, to prevent any conflict in interest when auditing the accounting records. The external auditors were given the power to obtain information and inspect the accounting records of the companies because of the nature of their duties. As stated in Companies Act 1965 section 174 (2)(a), the ...view middle of the document...

Then, Section 174(8) also highlighted that auditor is protected by law where before this, any unfavorable report from the auditor might break the relationship between the external auditors and the companies. Although MIA make a huge effort in the regulatory field during the post NEP era, in addition with the implementation of auditors’ ROC reporting duties, yet there are the response was still below under expectation. It was said that emphasizes in transparency of the conduct did not fit the day Malaysia’s environment.
In 1988, the audit firm Hanafiah, Raslan and Mohamad (HRM) appeared to be the only “local accounting firm” to audit the public enterprises and other government entities under the support of Tun Razak because mostly of the accounting practices in the country was dominated by the foreigners. MIA Code of Ethics committee also mentioned that they put more concern on the auditing of the public listed companied rather than the family companies. After that during the Asian Financial Crisis in late 1990s, existence of auditing in Malaysia seen to be neglected followed by the downfall of the influence of the government. Prior to the economic crisis, auditing in Malaysia was in uncertain and unsatisfactory state.
After the downfalls of Enron Corporation and Worldcom’s by account manipulation, the world began to put concern on the roles of external auditors. This contributed to the establishment of Sarbanes-Oxley Act 2002, it is mainly functions to tighten the accounting control and regulate the rules of internal and external auditors. Now, external auditors played an important roles and added responsibilities to detect and report fraud.
Jayalakshmy (2005) presented that auditors duties in detection and prevention of the audit fraud was lack of independence, reliability, integrity, and credibility. Hence, the new roles of auditors have been identified as to increase assurance of the financial reports, to present the true and fair view, to detect and prevent fraud. Besides that, the Section 404 in Sarbanes-Oxley Act also highlighted that a public listed company must hire the external auditors to evaluate their accounting procedure and the financial statements prepared. The Act also separates the internal and external auditors’ roles/ duties. Before the Act, the company might engage with the external auditors to perform internal audit for the company.
Public companies must have audit committee to review and monitor the integrity of the company financial reporting as issue by the Sarbanes-Oxley Act. This is to increase the reliability of the financial reporting of the company and concern on the true and fair presentation on the financial statements. The audit committee also have the responsible to overview both the internal and external auditors. The external auditors have the duties to communicate with the audit committee or any other relevant management team of the company once they found out the evidence of any fraudulent...

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