PART A

CHAPTER 1: INTRODUCTION

1.1

Placement Department As for my Industrial Training, I have been placed in audit department in this firm. Basically this department will handle audit, accounting and taxation. Manager will organize our job and must be submitted before the due date. It is to encourage us to work efficiency. In this department, there is only 8 permanent staff which is responsible to perform an auditing. Include one manager to control over the firm on behalf of the partners. All the staff will be organize to overtake the client for audit. They may do the audit in the firm (in house) or may go for the field audit (offices client).

1.2

Training Objectives. The objectives of the training are to learn how to do an audit from the first stage. I learn to identify the records, controls or activities that need investigation and testing based on the scope of the audit. This is fundamental to the audit process because it provides much of the information that the auditor uses for analysis and recommendations. I learn which records and activities are relevant, and also learn how to organize the acquired data for review.

1.3

Issue to be handle For this project, I will make some analysis about audit challenges faced by the auditor in the audit profesion in Malaysia nowadays. I have make a reference about this topic and found several point to support my analysis.

1.4

Types of assignments to be submitted. To complete my project, I have to make a presentation in front of my Academic Supervisor. I explain to her about the topic and the area of my project. I also have to complete my log book for my supervisor review.

CHAPTER 2: ORGANIZATION BACKGROUND History of Establishment WT Ng & Co. is the Member Firms of the Malaysian Institute of Accountants and approved Audit Firms by the Ministry of Finance and Registrar of Companies. WT & Ng Co. was established in January 1996 by the founder, Mr Ng Wee Tiek.

Over the years, the Firms have developed and grown encouragingly with its offices at Kuala Lumpur and Kuantan. The staff strength of the firms have expended rapidly from only 3 staff to the current force of 20 persons.

As a public accounting firm, emphasis is placed in the area of auditing, corporate and individual income tax and corporate consultancy. In addition to the traditional services, the firms are increasingly involved in projects such as system settings, internal audit, computerization and implementation of Enterprise Resource Planning. The firms therefore place special efforts and attention in enhancing and increasing knowledge, skills and expertise in this field.

Vission, Mission & Objective of Organization Vission

We strive to be recognised as a leading Malaysian firm providing world class business advisory services to fulfil all our clients business needs.

Mission We will endeavor to provide a platform for Malaysians to be trained as professional accountants and excel in the business advisory services, providing the highest standards of professional competence and effective business solutions. Objective To become increasingly efficient and competitive. All our staffs are constantly strive towards this objective. Our aim is to achieve a long term relationship with our clients. A relationship that based on trust, respect and understanding of their needs has been successfully incorporated as we provide personalized service on every step of the way for our client without compromising on speed, accuracy and integrity. Core Values People development Training and education are the vital elements in aftaas. Quality of our service is dependent upon our well-trained professionals. Professionalism Integrity and objectivity are given priority in delivering our services.

Clients satisfaction We take pride in providing quality to our clients and ensuring clients expectation are exceeded. Scope of Services AUDITING Currently, the company is an auditor of 400 limited companies, which involved in various industries. The company employing auditing techniques, which are in strict compliance with international auditing standards. Each audit is efficient, cost effective and tailored to the nature of your business. The company audit related services include: Statutory audits Compliance audits and system audits Advise on internal control systems Special purpose audits

TAXATION Doing a business today requires expert tax advice to help to understand the tax implication of any proposed decision. The company tax related services include : Corporate and personal tax

Group tax planning Minimizations and deferment of Malaysian income tax Director and employee remuneration Tax efficient benefits in kind Personal tax planning for senior management Indirect taxes

ACCOUNTING There are few requirements more fundamental to a business than the need to record business transactions and measure results. Adhering to international accounting standards, the company are able to offer accounting services of proven quality to ensure that the business ahead in the extremely competitive commercial environment. The company accounting services include: Record keeping of financial performance Development of book keeping system Preparation of financial and management accounts Development and installation of accounting system Preparation of group consolidation accounts

CONSULTANCY AND CORPORATE ADVISORY

Besides the professional services listed above, the company also provides consultancy and corporate advisory in the following areas: a. b. c. d. e. f. g. h. Share evaluation. Financial feasibility studies. Due diligence audit. Preparing budgets and forecast. Development and installation of internal control procedures and programmes. Internal audit services. Corporate restructuring. Advice on public listing.

COMPANY SECRETARIAL The firm is associated with Biztac Services Sdn Bhd in covering widen services to the customers. The provision of company secretarial, accounting services, incorporation of companies, registration of businesses and trade mark are among the expertise of our secretarial partner. This is a commitment from us to offer completeness range of services to our customers. Biztac Services Sdn Bhd is headed by Ms Chng Gan Wee and Ms Ng Lee See. They are qualified Company Secretaries and with more ten years of working experience in the corporate matters.

CHAPTER 3: ORGANIZATION STRUCTURE 3.1 Organization Chart

Partner NG WEE TEIK & TEH SIN CHAY

Manager YEW LEE KIM

Supervisor Ooi Lee See

Senior Lim Pay San

Senior Lai Yee Von

Senior Joselyn Loh

Senior
9 Hou Wong Kin

Senior Lai Fook Tao

Audit Assisstant Jackie Kan

Audit Assisstant Nur Atiqah Mokhtar

CHAPTER 4: GENERAL OPERATION

The firm generally operates in providing services to client. As mentioned in Chapter 2 , the company provide auditing, accounting, and taxation. But the firm general operation is auditing. For auditing, basically the client will send their financial statement to the firm before we do field audit at their company. Or else, the client will send the financial statement together with the all document related to the audit such as creditor file, bank statement, payment voucher, journal voucher, and invoices file. After all the audit procedures has been taken place by the auditor in charge, an audit report and all the relevant document and file will be given to the manager for further review. If there are some mistake, the report will be back to auditor and she/he have to make some amendment. After that, the report will give it back to the manager before go to the boss.

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Then, after full review by the management, the report will be send to the client together with all the confirmation such as banks confirmation, letter of representation, trade creditor and payable confirmation, tax cover and inventory, and petty cash confirmation to get the directors signature. After all the signing pages back to the firm, the confirmation will be send to the third party such as creditor, payable, and banks. The audit report will be give to the person who has an authority to access it.

CHAPTER 5: ACTIVITY DURING TRAINING

During the training, basically I have a responsible to do statutory audit and perform an audit under and with a supervision of my supervisor and senior auditor. There are several assessment assigned by manager for me to do. Which is ;

(i)

Fully audit by me

- Syarikat Pembinaan Muncul Sdn Bhd After three month from my commencement date in this firm as a trainee, I have been given an assessment fully conducted by me. But it just in house which is mean I have to do an audit in the firm, without going to the company client. The first company I hold is

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Syarikat Pembinaan Muncul Sdn Bhd. I have to follow the procedure to complete the assessment; (a) Prepare statutory audit if there are changes in shares, changes of directors or any resolution by Members or Board of Directors. (b) Calculate time cost, financial ratio review compare with last year ration in gross profit margin, net profit margin, debtor collection period and creditor collection period. (c) Audit for Balance Sheet Item. Such as for a Bank, is to check weather amount in a Balance Sheet are same with amount shown in last month of financial year end in Bank Statement. If not same, I have to check with Bank Reconciliation. For receivable and payables part, I have to check whether there are any payment paid by company or on behalf of the company and paid to company on the financial year. (d) Perform audit Income Statement item select sample for Sales and Purchase. Vouched selected sample with invoice. And vouched any related expenses such as profesional fee, secretarial fee, advertisement, upkeep of motor vehicle, medical expense, insurance, rental, travelling expenses, quit rent and assessment with supporting document (e.g.: invoice, bill, official receipt). I have to find out the purpose of the expenses incurred during the financial year. (e) I have to prepare all the confirmation for bank, trade receivable, trade creditor, letter of representation, and cover of tax to send to the client and get their signature and companys stamp.

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(f) Finally, I have to prepare audit report and send it to supervisor and manager for further review. (ii) Draft working paper . This kind of assessment was given to me before 2 or 3 days going to company client. Usually, when the client send General Ledger, Trial Balance, Profit and Loss, and Balance Sheet list, I have to draft all of the account with reference the last year financial year ended. I just need to transfer all the amount from last year which is consider as closing date or closing balance to be an amount for opening balance for current financial year audit. For Income statement item which is expenses item, I have to select sample and vouching the selected sample with supporting documents at companys client. After finished certain procedure of auditing, I need to do income tax computation in tax system. I have to key in amount of profit before tax to calculate the tax payable for current financial year. Any expenses related to taxation need to key in the details purpose of being incurred. It is to analyzed and verified whether the expenses are allowable or not for the business. For capital allowance, I have to key in the amount of any additional fixed assets according with the class assets. I have to tele the amount shown in Balance Sheet and Income Statement after all the audit work has finalized with amount in working paper. Then, I have to key in any related amount and describe any relevant information incurred in the company for current financial year ended in audit report before submit to the manager for process of reviewing.
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Several companies under my responsible (field audit) are ; (a) Memory Lane Sdn Bhd (b) Winner Food Industries Sdn Bhd ( Sungai Buloh, Selangor ) (c) TC Auto Accessories Sdn Bhd ( Kepong, Kuala Lumpur )

(iii)

Stock Take

I have an opportunity to assist my senior for stock take at SSAM Management Sdn Bhd which is situated at Pekeliling, Kuala Lumpur. I need to calculate stock at the company to compare with the actual amount given by the management.

(iv) -

Handling dormant companys This type of responsibility is quite similar with the normal audit done by me. But, it is easier to handle. Dormant companys basically just set up their business and do not commenced any business during the financial period. Or, there are also dormant companies which is having a small business and their expenses are not too much to compare with the active one.

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For dormant company, I just have to prepare the statutory audit, confirmation letter (for Banks and letter of representation) and several item in Balance Sheet such as Bank or banks reconciliation, accrual or any prepayments and compute taxation for income and business taxation.

Several companies under my responsible are : (a) Reliable Score Sdn Bhd (b) Diligent Network Sdn Bhd (c) Daya Perspektif Sdn Bhd

CHAPTER 6: COMMENT OR RECOMMENDATION

I think the company is the suitable place for the student to do the industrial training. I can learn much from the company. I get the cooperation from the staff and the management during my industrial training there. The entire senior auditor helps me and teaches me how to handle the audit. They know I have a problem while doing audit working and they are willing to teach me again and again until I can cope and understand the nature how to do it. I can see the close relationship among all the staff. They never underestimated me as a trainee. As for me, during 6 months my industrial training, I didnt see any problem related to the company. Unless there are two weakness that may lead to the ineffectiveness of the works. As a
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small firm, the company has a problem about the space in the office. They have a limited staff and they do not have enough space for the file. Filling system of the company are not really satisfaction. Sometime, I have to spend half an hour to find the current file, tax file and permanent file for certain client. But, this problem will be settled down soon. Because the management have bought a new property/office and already organize how to allocate the entire file together with the specific classification.

Second one is attendance for workers or staff, there is no system which is can really control the attendance of workers for example like Punch Card. Some of the workers, even the practical student is not punctually coming in office at 8.30 am, and some staff even the practical student did not coming to office without any strong reasons. However this problem also can be settle soon as my manager will take an initiative to improve the internal control such as punch card system.

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CHAPTER 7: CONCLUSION

This training gives me more not only general knowledge of auditing, but it also gives me an extra knowledge. After the training, I already know how to conduct full set of audit for dormant companys and also know how to handle an audit for active company before give it to senior auditor to finalize it. This training not only giving me a knowledge about an audit, but also about the taxation and company secretarial field. I realized now why it is so important for the business to have a review or audit on their financial statement.

17

I gain extra knowledge to use MYOB and UBS software while key in amount for capital transactions and key in details about the expenses incurred during the financial year for the purpose of accounting. Besides, it gives me an opportunity to communicate with corporate field. I learn how to deal with client in certain problem and solve it by myself. This training achieved the objectives of the industrial training.

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PART B

CHAPTER 1: PROJECT OVERVIEW

1.1 Introduction on Project There is no globally accepted definition for whistle blowing. A commonly accepted definition specifies that whistle blowing is the disclosure by an organizations members of illegal, immoral or illegitimate practices under the control of their employers to persons that may be able to affect action. In Malaysia, a whistleblower provision is found in the Companies Act

19

1965 where auditors are placed under obligation to report to the Registrar breaches of company law. The law however does not provide for any kind of protection for those who blow the whistle.

1.2 Problem Statement Issues that gave rise to the need for enhanced whistle blowing provisions in the law in the context of auditors were raised in the High Level Finance Committees Report on Corporate Governance in 1993. The report included the recommendation to enhance the whistle blowing provision in the Companies Act 1965 to extend the auditors report to include any serious offences in addition to breaches of the Companies Act 1965. The Finance Committee also recommended that the subjective element as required under the whistle blowing law in the Companies Act 1965 be removed and the auditors be required to base their decision on their professional opinion. The introduction of the enhanced whistle blowing provisions seeks to assist in curbing corporate abuses and promoting better corporate governance in public-listed companies. 1.3 Barriers to a successful whistle blowing program A lack of trust in the internal system Unwillingness of employees to be "snitches" Misguided union solidarity Belief that management is not held to the same standard Fear of retaliation Fear of alienation from peers

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1.4 Objective of the Project The objective of whistle blowing is to encourage employees to bring ethical and legal violations they are aware of to an internal authority so that action can be taken immediately to resolve the problem. Second is to minimize the organization's exposure to the damage that can occur when employees circumvent internal mechanisms and third is to let employees know the organization is serious about adherence to codes of conduct.

CHAPTER 2: LITERATURE REVIEW

In general, most of audit firms in Malaysia providing the same services such as tax consultancy, management consultancy, and financial consultancy. It may lead to the problem of lowballing. I will discuss more about lowballing in chapter 4. Another challenges come out in the current issues is about bad expectation from the public about the audit profesion. Theyve learn from the past financial crisis. Financial scandals

21

have always been one of the major reasons for change in the company law (Lee,2002) 1The financial scandals prove to show that the auditor have fallen below the expected standards. If a company were to fail within certain months after being audited, the auditors are blamed for conducting an inferior audit.(Dopuch,1988)2

CHAPTER 3: METHODOLOGY

3.1 Research Method. To do this project, I have made some analysis and researches through the some journal which I learned during my classes and also from Internet.

Lee, A 2002 Law Economic Theory and Corporate Governance, The origins of Legislation on Company Directors conflict interest. 1862-1948 2 Dopuch, N 1988 Implications of Tort Rules of The Accountants liability for the Accounting Model Journal of Accounting, Auditing and Finance , Vol 3. No 3 p 245. 22

CHAPTER 4: FINDINGS

4.1: INTRODUCTION 4.1.1: Auditing Practicing In Malaysia. To be an auditor a member must be in possession of an audit license granted by the Accountant General's Office pursuant to the Companies Act 1965. The requirements for applying audit license are as follows:1. Applicants must possess three (3) years of continuous relevant and sufficient audit experience; and 2. Applicants must have attended the Public Practice Programme organized by the Institute prior to the submission of the application. For applicants who possess the relevant audit experience but are no longer in the audit field, at the point of submission, he/she must :1. Possess three (3) years of continuous audit experience in the time period of four (4) years before submission of the application; and 2. Have attended the Public Practice Programme organised by the Institute. The three (3) years of continuous experience as mentioned above must be post membership of the Institute. The existing requirements to apply for the audit license whereby applicants must be

23

Members of the Institute registered as a ''Chartered Accountant'' and applicants must hold valid practicing certificate as a ''Chartered Accountant'' still remains.3

4.1.2: Nature The objective of an audit is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. The auditors opinion adds credibility to the financial statements: It is no guarantee of future viability not of managements efficiency or effectiveness. The purpose of external auditing is to gives confidence in the integrity of corporate reporting for the benefit of stakeholders and society as a whole, by providing an external and objective view on the reports given by management. The recent accounting scandals in Malaysia not only adversely eroded trusted from shareholders and stakeholders in the companies, but also affected the integrity of the capital market, the regulators and the auditing profesion4

http://www.mia.org.my/new/members_practising_introduction.asp Abdul Wahab Jaafar Sidek (Minority Shareholder Watchdog Group), The Star, 19 July 2008. 24

4.2: CHALLENGES

Overall, it was found that there are several problem faced by Malaysians auditor. It will become a challenge for auditing profesion. The several issues consist of:

(i)

Low perceived value of the audit function. For the small audit clients of the auditing is viewed as a waste of money and resources. From the theoretical perspective, the need of an audit function can be explained by the agency theory, which donates that a due to a separation of ownership and control, the principal (owner) will monitor the activities of management through audit function. In Malaysia, an audit is mandatory for all companies despite their size and ownership structure. According to Section 169(1), Section 174(1) and Section 174(2) said that every single company in Malaysia needs to have its financial statements duly audited by an independent auditor.5 Notwithstanding the compulsory audit requirement, many auditors have pointed out that the actual contribution of auditing towards its intended purposes is somehow limited. This is because a vast majority of the companies in Malaysia are private companies as opposed to public companies. For which in most private companies, the

Companies Act 1965. 25

director and shareholder are the same person. For some situation, it gives an answer why audit clients found an audit function as a non-value adding activity and perceive it to be a costly process. However, the more prominent value of auditing for private companies is merely adding credibility to the financial statements for the purpose of tax submission to the Inland Board Revenue (IRB) and that of loan applications to the financial institutions.

Final Analysis. Audit function has a more significant role for public companies since it serves the purpose of reporting to their existing shareholders and attracting future investment. Some auditors on the opinion agree that usefulness of auditing may be applicable to a limited group such as bankers, institutional investors and regulatory bodies such as the IRB and Bank Negara. Actually, most of large section of the Malaysian public does not rely on the audited financial statements for the decision making. Over the years, it can be witnessed that the practice of auditing has gained little perceived recognition from a large section of the Malaysian public.

(ii)

Evaluation of auditors performance. Another challenges faced by the auditing practice in Malaysia is an unfair judgment and unfair evaluation towards audit performance. Public do not have the necessary knowledge and ability to evaluate the quality of an audit leading to a
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situation of failing to differentiate between the quality of one audit versus one another.

In May 2007, Transmile shares saw a massive sell down following the company's announcement on 7 May 2007 concerning the reliability of its unaudited consolidated results for the financial year ended 31 December 2006, resulting from the Company's auditors not able to satisfy themselves on the fairness or validity of certain transactions. Consequently, the company commissioned a special audit relating to the matter. The Securities Commission had charged three former executives of Transmile Bhd, including its founder, with giving misleading financial statements.6 Public learn from the past experience. An example of the case of Transmile Air Services occurred in 2007, the public see the entire mistake come from an auditing. They claimed that the auditor have failed to perform their work diligently whenever a corporate financial scandal hits the news. Another case for the example of the failure of an auditing is regarding with Bumiputera Commerce- Holding Bhd (BCHB), BCHB is planning to bring a legal action against Deloitte Kassim Chan over audit work on the then Southern Bank Bhd (SBB) (Audit on southern bank properly conducted Deloitte,2007). This is because there has been inappropriate accounting treatment on 2005 accounts. They were inappropriately valuing certain derivative financial instruments, not written down in
6

http://en.wikipedia.org/wiki/Transmile_Air_Services 27

full the collateral value and wrongly writing back specific provision made on certain foreclosed properties relating to non-performing loans aged seven years and above and non-expensing of certain cost incurred. Furthermore, the net assets were overstated by RM160 million.7

Final analysis The hindsight evaluation of the auditing is deemed to be unfair as the perceived quality of the auditor has been judge using the benefit of knowledge after the event has taken place to argue that auditors are not performing adequately. From the past experience also bring high level of criticism against the auditor given the significant amount of negative publicity they receive. There are many other reasons which may lead to the emergence of such a corporate mismanagement, bad strategic management, and poor oversight by the board of director and maybe fraud by senior management. Actually, in fact, there is just small audit failure to compare to the number of audit cases conducted over the year.

Ass. Prof Loganathan, The Role of Auditors In The Context of Corporate Governance, p. 6 28

(iii)

Competition for human capital One of the important assets and sourcing in auditing practicing is human capital. Human capital is the most important and essential asset and sourcing for real talent is posing to be great challenge for the auditing industry. Unlike other industries where technological advancement may help to reduce human capital needed, the auditing industry is similar to other service-based industries, which tend to be labor intensive. Therefore, people are always important for the success of an audit firm. In the recent years, globalization has gained widespread impact on the financial sector in Malaysia. Now a days, local audit firm face a tough time in recruiting qualified auditing personnel as they are paid much better in countries like Singapore, China and the Middle East. Qualified audit personnel are paid double in Singapore and four to five times in China and the Middle East. Fresh accounting graduates claims that auditing is a less attractive profesion due to its long working hours and less lucrative remuneration. The shortage of auditing staff has caused an unhealthy competition among audit firms in Malaysia particularly for young graduates.

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Final analysis Audit firm are supposed to be training providers for trainee or fresh graduates to gain the necessary knowledge and experience. However, the switching of jobs rapidly by new accountants will certainly jeopardies their learning process.

(iv)

Audit fees versus audit quality Audit services for public companies in Malaysia have been dominated by the four international audit firms (Big 4) which is KPMG, Deloitte KassimChan, PriceWaterhouseCoopers and Ernst & Young. Naturally, the reason for public

companies to engage a Big 4 is to provide stronger assurance to their stakeholders over the trustworthiness of their financial statements. Apart from the issue of Big 4 vs non Big 4 is regard to audit quality, the issue of low audit fees has been a major concern of the auditing profesion in Malaysia for many years. The issue of low audit fees resulting from lowballing has been a major concern of the auditing profesion in Malaysia for many years. Lowballing is the lossleading practice in which auditors compete for clients by reducing their fees for statutory audits. Lower audit fees are then compensated by the auditor carrying out more lucrative non-audit work (e.g. consultancy and tax advice). Audits may even be
30

offered for free. Such predatory pricing may undercut an incumbent auditor to secure an appointment into which higher price consultancy services may be sold.8 There is a risk of incompetence if the non-audit work does not materialize and the lowballing firm comes under pressure to cut corners or resort to irregular practices (e.g. the falsification of audit working papers) in order to keep within budget. However, a lack of audit quality may only be discovered if the situation arises that the company collapses and the auditors are charged with negligence.

If, rather than comprise the quality of the audit, an audit firm substantially increases audit fees, a fee dispute could arise. In this case the client might refuse to pay the higher fee. It could be difficult then for the firm to take the matter to arbitration if the client was misled.

Even though the Malaysian Institute of Accounting (MIA) has provide guidelines for audit pricing in Malaysia, such guidelines has not been adopted by most of the audit firms. As a result, audit fees in Malaysia have be considered by some auditors to be quite low when comparison across the countries in the region. Some opinion stated that, a price war among audit firms will give bad impact and negative implications on audit quality. Auditors are likely to reduce audit procedures to ensure necessary profit margin.

Final analysis
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http://www.managementaccountant.in/2007/05/lowballing.html 31

To overcome this problem, audit firm should have an agreement for the standardize of audit fee. To eliminated lowballing, auditors were required to act exclusively as auditors.

CHAPTER 5: CONCLUSION

The regulatory and legislative authorities have implemented a number of reforms include amending related legislation and enforcing a higher degree of regulation. With the implementation of the practice review by the MIA, the audit profesion may now be considered to be highly regulated.

Actually, the stronger regulation may not only solution in promoting better audit practice in Malaysia. Stressing on a higher moral value in audit lessons and training could be the accompanying path worthy of involvement of various interested parties. Finally, educating society on the nature and purpose of an audit may actually help the public to recognize the value of auditing and the contributions of the auditors.

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BIBILIORGRAPY

i.

Lee, A 2002 Law Economic Theory and Corporate Governance, The origins of Legislation on Company Directors conflict interest. 1862-1948.

ii.

Dopuch, N 1988 Implications of Tort Rules of The Accountants liability for the Accounting Model Journal of Accounting, Auditing and Finance , Vol 3. No 3 p 245.

iii.

http://www.mia.org.my/new/members_practising_introduction.asp Abdul Wahab Jaafar Sidek (Minority Shareholder Watchdog Group), The Star, 19 July 2008.

iv.

v. vi.

Companies Act 1965 http://en.wikipedia.org/wiki/Transmile_Air_Services

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vii.

Ass. Prof Loganathan, The Role of Auditors In The Context of Corporate Governance, p. 6

viii.

http://www.managementaccountant.in/2007/05/lowballing.html

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