Page 20 - Inspection Report 2018

auditor independence

The AOB is cognisant of developments on the international front where there have been public concern
whether the provision of non-audit services by audit firms to its audit clients could undermine auditors’
independence, especially when the proportion of fees derived from the offering of non-audit services is high.
Some of the measures taken by other jurisdictions to address these concerns for PIE audit clients were:

• Imposing restrictions on the range of non-audit services that may be provided by an audit firm;
• Imposing a fee cap on permissible non-audit services that may be provided; and
• Mandating audit firms to seek pre-approval from audit committees to provide certain non-audit services.

In Malaysia, the following were observed:

• As at 30 June 2018, the combined fee income of the Major Audit Firms from the audit practice and
non-audit practice involving PIE audit clients amounted to RM420.8 million. As depicted in Chart 2, fees
from statutory audits amounted to 66% while fees from other assurance services and non-audit services
amounted to 34%.

• Chart 2 indicated that the composition of audit fees has decreased from 71% in 2016 to 66% in
2018 while the composition of fee income from other assurance services and non-audit practice have
collectively increased by 7% over the last three years.

All audit firms in Malaysia are required to comply with the relevant provisions under the MIA By-Laws (on
Professional Ethics, Conduct and Practice) with respect to the provision of non-audit services. As part of the
firm level review on AOB-registered audit firms, audit firms’ compliance with these provisions is an area of
focus. In 2018, the AOB did not encounter exceptions relating to this area of review.

In view of the increasing trend in the composition of fees earned by the non-
audit practice of the Major Audit Firms relative to the audit practice over the
years, the AOB will closely monitor the development and evaluate whether

further actions would be required to ensure that auditors’ independence, both
in mind and in appearance, are not compromised.

AUDIT OVERSIGHT BOARD
18 ANNUAL INSPECTION REPORT 2018

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