EXTERNAL AUDITORS
• According to Malaysian Approved Standards
on Auditing issued by Malaysian Institute of
Accountants, AI 240 stated that the auditor is
not and cannot be held responsible for the
prevention of fraud and error. The fact that an
annual audit is carried out may, however, act
as a deterrent.
• AI 240 also acknowledged that the
responsibility for the prevention and detection
of fraud and error rests with management
through the implementation and continued
operation of adequate accounting and internal
control systems. Such systems reduce but do
not eliminate the possibility of fraud and error.
• In paragraph 12 AI 240, the standard ascribed
the inherent audit limitation that an audit is
subject to the unavoidable risk that some
material misstatements of the financial
statements will not be detected, even though
the audit is properly planned and performed
in accordance with International Standard of
Auditing (ISAs).
• Companies are required to appoint an external
auditor for the purpose of validating the status of
their financial statements. Section 8 of the
Companies Act 1965 requires a company to appoint
an “approved company auditor”. An approved
auditor is one that has been approved by the
Ministry of Finance to acts as auditor and has the
necessary qualification and satisfies the Minister that
he is of good character and is competent to perform
the duties of an auditor under the Companies Act.
• In order for auditors to fulfill their obligations, section 174 of the
Companies Act gives auditors the following statutory rights:
• The rights of access to the accounting books / records, vouchers and
other records of the company and its subsidiaries
• The entitlement to require from any officer of the company and any
auditor of a related company, such information and explanation as
he desires for the purpose of carrying out his duties
• The entitlement to attend any general meeting of the company and
to speak on any part of the business of the meeting that concerns
him in his capacity as auditor
• The rights to receive all notices of any other communication relating
to any general meeting which a member is entitled to receive.
After completing their auditing on companies’ financial statements,
auditors is required to prepare an Auditors’ Report which must be
attached to the balance sheet and if so required by any member,
the auditors will read out the Auditors’ Report at the AGM.
The Auditors’ Report must state:
• Whether the accounts are in his opinion properly drawn up in
accordance with the provision of the Act so as to give a true and
fair view of the company’s affair;
• Whether the accounting and other records and the registers have
been in his opinion properly kept in accordance with the
provisions of the Act.
• As an auditor, one of the main roles is to express opinion on
the Financial Reports.
Financial reports are vital for shareholders and stakeholders to
evaluate the performance and operation of a company. In
Malaysia, the Companies Act 1965 stipulates that every
company which is incorporated under the Act is required to
have its financial statements audited annually. Section 174(1)
of the Act states that company’s financial statements are
required to be laid before the company in its annual general
meeting. While Section 174(2) of the Act requires an auditor of
a company to report to the members of the company on the
accounts presented at the annual general meeting.
Code of Ethics
• Independence
• Integrity
• Objectivity
• Professional Competence
• Confidentiality
• Professional behaviour
• Technical standards
Red flags
• Investigation by government departments or
payment of fines or penalties
• Payment for unspecified services to consultants,
related parties, employees or government
employees
• Sales commission or agent’s fees that appear
excessive in relation to those ordinarily paid by
the entity or in its industry or to the services
actually received
Red flags
• Purchasing at the price significantly above or
below market value
• Unusual payment in cash
• Unusual transactions with companies
registered in tax havens
• Payments for goods or services made other
than to the country from which the goods or
services originated
Red flags
• Payment without proper documentation
• Existence of an accounting system which fails,
whether by design or by accident, to provide
an adequate audit trail
• Unauthorized transactions or improperly
recorded transactions
• Media comment