Download - Ethics Class Group 5 Auditors and Audits
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CSGB6102 ETHICS AND CORPORATE GOVERNANCE
20TH OCTOBER 2008
ETHICS AND CORPORATE GOVERNANCE
GROUP PRESENTATION
NORHAYATI M LUI CGA 080021
JAYAKUMAR SALLIAH CGA 070127
MOHD ZIA CGA 070040
AZMAN IBRAHIM CGA 060021
JOEHARY SULAIMAN CGA 040189
AUDITORS AND AUDITS
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PRESENTATION OUTLINE
ROLE OF AUDITING AND AUDITORS IN CORPORATE GOVERNANCE
AUDIT AND AUDITOR
MALAYSIAN CODE OF CORPORATE GOVERNANCE
CORPORATE GOVERNANCE PRACTICES
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS (IFAC Code)
THE LEGAL ENVIRONMENT
CASE REFERENCES
FUTURE OF AUDIT
CONCLUSION
OPEN THE FLOOR FOR OTHER OPINION
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ROLE OF AUDITING AND AUDITORS IN
CORPORATE GOVERNANCE
Understanding Corporate Governance
Corporate governance is the set of processes, customs, policies, laws and
institutions affecting the way a corporation is directed, administered or controlled. It
includes the relationships among the many stakeholders involved and the goals forwhich the corporation is governed
The principal stakeholders are the shareholders, management and the board of
directors, along with other stakeholders like employees, suppliers, customers,
banks and other lenders, regulators, and the community at large
Key elements of good corporate governance principles include honesty, trust andintegrity, openness, performance orientation, responsibility and accountability,
mutual respect, and commitment to the organization.
ZIA
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STAKEHOLDERS OF CORPORATE GOVERNENCE
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An effective Audit Committee is a vital component of an effectivecorporate governance system
The Audit Committee and the Auditors need to maintain an ongoing
dialogue independent of management and the the Board of
Directors
Audit Committee members must have Financial Compitence,miminum a financial background
Major Audit Committee roles include:
Include mainly non-executive directors
Enterprises Risk Management (ERM)
Approve the appointment of the Auditors
Establish the audit fees
Critical accounting judgments
ROLE OF AUDIT COMMITTEE
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Audit:
Audit is an expert opinion on the fairness with which financial
statements present, in all material respects, a companys financial
position, results of operations, and cash flows in conformity of GAAP
Auditor:
Auditor is a certified person/firm that performs the auditing activity
The auditor does not have direct corporate governance responsibility
but rather provides a check on the information aspects of the
governance system
Auditors primary role is to check whether the financial information
given to investors is reliable, thus contributing in decision making,
accountability, and monitoring of the system
AUDIT AND AUDITOR
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Internal auditing is an activity involved in advising organizations regarding
how to better achieve their objectives. Internal auditing involves the utilization
of a systematic methodology for analyzing business processes or
organizational problems and recommending solutions.
Professionals called internal auditors are employed by organizations to
perform the internal auditing activity.
The scope of internal auditing may involve internal control topics such as the
efficacy of operations, the reliability of financial reporting, investigating fraud,
safeguarding assets, and compliance with laws and regulations.
INTERNAL AUDIT AND AUDITOR
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Enterprise Risk Management (ERM) is one of the major activities of
Internal Auditing System
According to the Institute of Internal Auditors:
ERM is a structured, consistent and continuous process across the wholeorganization for identifying, assessing, deciding on responses to and reporting
on opportunities and threats that affect the achievements of its objectives.
ERM is a complex process requiring an appropriate corporate culture and
creativity stemmed of a variety of experiences
It recognizes interdependencies among corporate, financial, andenvironmental factors
Strives to determine and implement an optimal strategy to achieve the
primary objectives i.e. optimize the value of the firm
INTERNAL AUDITORS AND ENTERPRISR RISK
MANAGEMENT (ERM)
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Key roles of Internal Auditing regarding ERM are:
To provide independent and objective assurance for Board oneffectiveness of ERM
Identify/assess/manage key risks
Internal controls
Assurance regarding, and evaluation of, the risk managementprocess
Risk reporting, evaluation, management
INTERNAL AUDITORS AND ENTERPRISR RISK
MANAGEMENT (ERM)
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The primary role of external auditing is to provide a judgment on whether
an entitys financial statements are free of misstatements
Where, this judgment or opinion is given by audit professionals, called
external auditors, who are independent of the entity being audited
Users of the entities' financial information, such as investors, government
agencies, and the general public, rely on the external auditors reports
The independence of external auditors is crucial to a correct and thorough
appraisal of an entity's financial controls and statements
Any relationship between the external auditors and the entity must bedisclosed in the external auditor's reports
EXTERNAL AUDIT AND AUDITOR
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Internal Auditors:
Internal auditors primary responsibilities include appraising an entity's
risk management strategy and practices, management control
frameworks and governance processes, but they do not express an
opinion on the entity's financial statements
External Auditors: The primary role of external auditors is to express an opinion on
whether an entity's financial statements are free of material
misstatements
Moreover, they must also investigate any material issues raised by
inquiries from professional or regulatory authorities
INTERNAL VS EXTERNAL AUDITORS
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What isWhat is
Corporate Governance?Corporate Governance?
Corporate Governance is the process and structureused to direct and manage the business and affairs of
the company towards enhancing business prosperityand corporate accountability with the ultimate
objective of realising long-term shareholder value,whilst talking into account the interest of other
stakeholders.
-Malaysian definition as per Finance Committee on Corporate Governance(Report on Corporate Governance, February 1999)
JAYA
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Good governance is not simply aboutcorporate excellence. It is the key toeconomic and social transformation. Thecorporation of today are no longer sheer
economic entities. These are engines ofeconomic and social transformation.
--Dr Madhav MehraDr Madhav MehraPresident of World Council For Corporate GovernancePresident of World Council For Corporate Governance
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Malaysian Code onMalaysian Code onCorporate GovernanceCorporate Governance
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15
Directors DirectorsRemuneration Shareholders Accountability& Audit
The Board
Board Balance
Supply ofInformation
Appointments to theBoard
Re-election
Level & Make Up ofRemuneration
Procedure
Disclosure
Dialogue betweencompanies &
investors
Annual GeneralMeeting
Financial Reporting
Internal Control
Relationships withAuditors
Principles of Corporate Governance
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ShareholderVoting
Dialogue betweenCompanies &
Investors
Evaluation ofCorporate
Governance
ExternalAuditors
Principles & Best Practices For CG
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The Board ofDirectors
Shareholders
Accountability & AuditPrincipal responsibilities of theBoard
Constituting an effective board
Size of non-executive participation
Board structures & procedures
Relationship of the board tomanagement
The audit committee
The relationshipbetween the board &
shareholders
Best Practices in Corporate Governance
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Role of the Board
- To focus on guidance and strategic oversight while managementrun the company business
- Increasing shareholder value for the long term- To ensure company is running effectively in accordance with theboards basic fiduciary oversight requirement
The specifics of the boards role will vary with size, stage and strategy of
the company and talents and personalities of the CEO and the board
CORPORATE GOVERNANCE PRACTICES
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Code of Ethics for Professional Accountants
(IFAC Code)
IFAC Code includes changes in three important aspects: The code establishes five fundamental principles of professional
ethics which all professional accountants must comply. Fivefundamental principles are a) Integrity, b) Objectivity, c) Professionalcompetence and due care, d) Confidentiality e) ProfessionalBehavior.
The conceptual framework approach is now extended to all thefundamental ethical principles. Professional accountants, whether inpublic practice, in business or employment are required to apply theconceptual framework approach to ethic.
The revised code now has the authority of an international standard.As an international benchmark, it requires that national ethicalstandards developed by IFAC member body must be based on theIFAC Code. They are not allowed to apply less stringent standardsthan those stated in the IFAC Code unless certain rules areprohibited by their local laws and regulations.
AZMAN
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1) Liability to clients-Breach of Contract
2) Liability to clients and third parties-Negligence
a) The auditor owed a duty of care to the plaintiff to confirm
to a required standard of care.b) There is failure to act in accordance with that duty of care
c) There is a causal relationship or connection betweenauditors negligence and the plaintiff damage
d) The plaintiff suffered actual loss or damage.
3) Duty to report breach of laws
THE LEGAL ENVIRONMENT
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AUDIT AND AUDITORS
Case References YATI
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CORPORATE SCANDALS
Infamous US cases: Enron, WorldCom, Tyco, etc.
Malaysia : Transmile, Oilcorp, Megan Media, etc
Earnings management
Asset
Misappropriation
Insider Trading
Asset
Embezzlement Financial
Statement
Manipulation
Accounting Fraud
Where are the auditors???
What are they doing??
Money laundering
Creative AccountingConspiracy
Accounting
Irregularities
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Oilcorp Saga, 2008http://oilcorp.com.my/
Oilcorp Berhad incorporated on 12July 2001- listed on
main board on 5 August 2003.
An investment holding company, main activities: oil &gas, hotel & property, marine related activities, etc
Issue: Oilcorp vs. BTMH (auditors):
Management of Oilcorp bid to remove BTMH and to
replace with Horwarth (May 2007 ~)
BTMH
OILCORP
HORWARTH
CASES:MALAYSIAN CORPORATIONS
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The objective and techniques of auditors have changedduring the four hundred years of recognizable existenceof auditors
The lack of understanding of the auditors role amongthe public may have harmful implications to the auditprofession as the public may not be able to recognizethe contribution of auditors to society.
FUTURE OF AUDIT JOE
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Fall of Enron-The Sarbanes-Oxley Act was
implemented.
The Public Company Accounting Oversight
Board The collapse of HIH Insurance-Ramsay Report
Practice Review Programme and Public
Oversight Board (PCAOB) (Malaysia)
FUTURE OF AUDIT
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Audit has gone from the backwater from an inspectionfocused, box-ticking environment and is now on amassive journey to meet new challenges.
Auditor needs to focus on how they can take audit
function forward and add value to the business. Auditor needs to consider what their function should look
like, alongside the regulatory agenda, and how they caninfluence that agenda.
Auditor cant afford to become the old inspection groupsof20 years ago. They need to hire from a pool that cando analysis.
THE ROLE OF AUDITORS IN THE FUTURE
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Good corporate governance is not simply about the avoidance
of financial shocks nor should the emphasis be on the negative
impact of poor corporate governance.
Good corporate governance is not simply about fairness in theallocation of a limited pie but rather about the enlargement of
that pie, the adoption of solid and correct business strategies,
and the effective management of the firm.
SUMMARY AND CONCLUSION
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An auditor can improve and analyze the books, but in
the end, the key is for management to practice good
governance. The Edge Malaysia, 4 February 2008
THANK YOU