Evaluating Audit Oversight Board’s Regulatory Impact: Analysis of Sanctions Imposed on Malaysian Audit Firms
Abstract
This study analyzes the 12-year trend of cases involving auditor wrongdoing as disclosed on the Audit Oversight Board (AOB) Malaysia's website from 2012 to 2023. Utilizing content analysis, the research examines the nature, frequency, and severity of penalties or sanctions imposed on audit firms for various offenses. Findings indicate a dynamic pattern of regulatory actions, reflecting Malaysia's evolving landscape of audit quality and regulatory oversight. It was revealed that a total of 56 breaches of the Securities Commission Act 1993 involving 30 audit firms were reported and disclosed by the Audit Oversight Board over the period from 2012 to 2023. The findings revealed that most misconduct cases relate to the failure of audit firms to comply with the requirements of International Auditing Standards, International Standard on Quality Control and Malaysian Institute of Accountant By-Laws. There has been a notable decrease in cases involving auditors over the past six years. This could also indicate the dedication of the AOB to monitoring auditors' conduct to prevent their involvement in malpractice. This study contributes to the understanding of audit regulation effectiveness and the behavioral patterns of auditors in response to regulatory scrutiny.
Downloads
References
Audit Oversight Board. Retrieved from http://www.sc.com.my.
Chiu, S. C., Chien, C. C., & Lin, H. C. (2017). Audit quality following the public company accounting oversight board’s operation. Corporate Governance: The International Journal of Business in Society, 17(5), 927-946. https://doi.org/10.1108/CG-02-2017-0026 DOI: https://doi.org/10.1108/CG-02-2017-0026
Feng, Z., Li, L. Z., Wong, H. Y., & Wong, J. (2023). Regulatory intervention and audit quality: New evidence from audit firm suspension. Meditari Accountancy Research, 31(5), 1165-1189. https://doi.org/10.1108/MEDAR-07-2021-1372 DOI: https://doi.org/10.1108/MEDAR-07-2021-1372
Ghattas, P., Soobaroyen, T., Uddin, S., & Marnet, O. (2024). Auditing the auditors: A performative “spectacle” of public oversight. Accounting, Auditing & Accountability Journal, 37(3), 764-789. https://doi.org/10.1108/AAAJ-08-2022-5957 DOI: https://doi.org/10.1108/AAAJ-08-2022-5957
Guo, J., Kinory, E., & Zhou, Y. (2021). Examining PCAOB disciplinary orders on small audit firms: Evidence from 2005 to 2018. International Journal of Auditing, 25(1), 103-116. DOI: https://doi.org/10.1111/ijau.12208
Hay, D., Rainsbury, E., & Van Dyk, D. (2023). The effect of audit inspections on audit fees. Pacific Accounting Review, 35(5), 701-726. https://doi.org/10.1108/PAR-02-2023-0017 DOI: https://doi.org/10.1108/PAR-02-2023-0017
Hussin, W., Bamahros, H. M., & Shukeri, S. N. (2016). An analysis of the engagement partner busyness in Malaysia pre- and post-establishment of the Audit Oversight Board. International Journal on Information, 19(10B), 4761-4766.
Ismail, H., & Mustapha, M. (2015). Auditing the auditors: The Audit Oversight Board and regulating audit quality in Malaysia. Journal of US-China Public Administration, 12(3), 188-197. https://dx.doi.org/10.17265/1548-6583/2015.03.002 DOI: https://doi.org/10.17265/1548-6583/2015.03.002
Ismail, H., & Theng, U. C. (2015). Auditing the auditors: Has the establishment of the audit oversight board affected audit quality? International Journal of Economics and Financial Issues, 5(Special Issues), 360-365.
Lamoreaux, P. T., Mowchan, M., & Zhang, W. (2023). Does Public Company Accounting Oversight Board regulatory enforcement deter low-quality audits? The Accounting Review, 98(3), 335-366. https://doi.org/10.2308/TAR-2020-0658 DOI: https://doi.org/10.2308/TAR-2020-0658
Lamoreaux, P. T. (2016). Does PCAOB inspection access improve audit quality? An examination of foreign firms listed in the United States. Journal of Accounting and Economics, 61(2-3), 313-337. https://doi.org/10.1016/j.jacceco.2016.02.001 DOI: https://doi.org/10.1016/j.jacceco.2016.02.001
Malaysian Institute of Accountants (MIA). (2023, December 16). International standards on quality control. https://mia.org.my/regulatory-public-interest/standards/
Mustapha, M., & Foong, S. H. (2015). Implications of the Audit Oversight Board: External auditors’ perspective. Journal of Modern Accounting and Auditing, 11(9), 462-471. https://dx.doi.org/10.31580/JMI.V7I1.39 DOI: https://doi.org/10.31580/jmi.v7i1.39
Mustapha, M., & Kong, L. Y. (2021). An independent audit oversight system in a developing country. Studies of Applied Economics, 39(4). http://dx.doi.org/10.25115/eea.v39i4.4573 DOI: https://doi.org/10.25115/eea.v39i4.4573
Public Company Audit Oversight Board (PCAOB). Retrieved from http://pcaobus.org. 9 December 2023.
Rönkkö, J., Lilja, M., & Oulasvirta, L. (2023). Voluntary adoption of the international standards on auditing (ISA) in local government audits—empirical evidence from Finland. Public Money & Management, 43(3), 277-284. https://doi.org/10.1080/09540962.2022.2131290 DOI: https://doi.org/10.1080/09540962.2022.2131290
Soepriyanto, G., & Zudana, A. E. (2020). PCAOB sanction and client stock market reactions: Evidence from the case of Ernst and Young Indonesia. Pertanika Journal of Social Sciences and Humanities, 28, 167-179.
The Asian Corporate Governance Association (ACGA). (2023). A new order: Biggest ranking reshuffle in 20 years. Retrieved from https://www.acga-asia.org/news-detail.php?id=347
The Securities Commission Act 1993. (2023, December 10). https://www.sc.com.my/regulation/acts/securities-commission-malaysia-act-1993
The United States Securities and Exchange Commission. Retrieved from https://www.sec.gov/news/speech/gensler-aicpa-20210524. 9 December 2023.
Ye, M., & Simunic, D. A. (2024). The impact of PCAOB-type regulations on auditors under different legal systems. Journal of Accounting, Auditing & Finance, 39(2), 364-387. https://doi.org/10.1177/0148558X221078432 DOI: https://doi.org/10.1177/0148558X221078432
Zainal, Z., Saad, N., & Arrifin, Z. Z. (2022). Exploring audit quality at the Inland Revenue Board Malaysia. Global Business and Management Research: An International Journal, 14(2), 1-10. DOI: https://doi.org/10.32890/gbmr2022.14.2.5
Copyright (c) 2024 NOR AISHAH MOHD ALI, ZALEHA MAHAT, RAHAYU MOHD SEHAT, SITI HAWA SHUID, NORHANIZAH JOHARI
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
