An external hearer is an audit professional, who performs an audit on the fiscal statements of an person, company, organisation, authorities or any legal entity, and who is independent of the entity being. Jayalakshmy et Al. ( 2005 ) explicated that the external hearers are engaged by stockholders to execute impartial and knowing independent examination in order to supply sensible confidence on the truth and equity of the entity ‘s fiscal statements. This is to guarantee that the managers of the entity, as stewards of the stockholders ‘ investing, act in the best involvement of their stockholders.
However, the dependability and professionalism of the external hearers has been called into inquiry after the prostration of several dramatic international corporations, viz. Enron Corporation, WorldCom and Parmalat, shortly after an unqualified audit study been issued ( Lee, T. , Ali, A. and Kandasamy, S. , 2008 ) . Lee et Al. ( 2008 ) besides indicated that the dependability and professionalism of the scrutinizing profession in Malaysia has besides been tarnished and being criticised following the fiscal dirts in some of the elephantine local corporations such as Transmile Group Berhad, Megan Media Holdings Berhad, Southern Bank Berhad and Technology Resources Industries Berhad.
In position of this, Malaysia critically needs to beef up the audit quality and to guarantee the ethical behaviour of the accounting profession in Malaysia in order to level the playing field with planetary fiscal and capital markets ( Izma, N. , 2009 ) . Initiatively, two new criterion scene boards, viz. Audit and Assurance Standards Board ( AASB ) and Ethical Standards Board ( ESB ) , have been launched by the Malaysian Institute of Accountants ( MIA ) on 9th June 2009 to promote the fight and security of the Malayan fiscal and capital markets while escalating MIA ‘s attempt to better audit quality and professional behaviour among Malayan comptrollers. The inquiry is: Would such attempts strengthen the audit quality whilst increasing confidence and cut downing the audit outlook spread?
As mentioned earlier, the quality of audits has been systematically criticized and legion cases where hearers fell abruptly of carry throughing their duties to the society have been documented by the critics ( Umar, A. and Anandarajan, A. , 2004 ) . Umar and Anandarajan ( 2004 ) further suggested that the deficiency of quality in audits is due to the deficiency of the external hearers ‘ independency which is chiefly attributed by the force per unit areas enforced by clients.
Independence is non easy defined but most professional codifications require for both independency of visual aspect every bit good as independency of head ( Houghton, K. and Jubb, C. , 2003 ) . Houghton and Jubb ( 2003 ) explained that independency in visual aspect relates to the turning away of facts and fortunes that are so important that a sensible and informed 3rd party, holding cognition of all relevant information, would moderately reason the unity, objectiveness or professional incredulity had been compromised. Houghton and Jubb ( 2003 ) further explained that independency of head relates to a province of head that permits the proviso of an sentiment without being effected by influences that compromise professional judgement.
Houghton and Jubb ( 2003 ) suggested that proviso of non-audit services such as consultative services may impair the external hearers ‘ independency as self-review menace may happen when the external hearers review their ain work. Houghton and Jubb ( 2003 ) besides suggested that the proviso of non-audit services may make self-interest menace due to the economic bond between the external hearers and their clients, particularly when a big proportion of the audit house ‘s entire fees are generated from a individual confidence client. In the Enron dirt, Enron ‘s external hearers, Arthur Andersen, was succumbed to the force per unit area from the Enron ‘s direction to disregard and to some extent, assist Enron in concealing one million millions in debt from unsuccessful undertakings. Due to the important sum of audience fees generated from Enron, the struggle of involvement was so important that caused Arthur Andersen to unethically applied irresponsible criterions in their audits of Enron ( Healy, P. and Palepu, K. , 2003 ) . Healy and Palepu ( 2003 ) stated that the audit fees and confer withing fees earned by Arthur Andersen from Enron in 2000 was US $ 25 million and US $ 27 million severally, which is tantamount to about 27 % of the entire audit fees income of Arthur Andersen ‘s Houston office. In the wake, Axtman ( 2005 ) excerpted that Enron ‘s investors lost US $ 74 billion in the last four old ages prior to the prostration of the company. Axtman ( 2005 ) suggested that more than 50 per centum of the US $ 74 billion loss was due to fraud. Alongside with that, Arthur Andersen had been barred from scrutinizing public companies and lost the bulk of its clients, ensuing in closing of the house and 85,000 employees lost their occupations.
The independency of the external hearers may besides be impaired by keeping fiscal involvement in the companies that they audited ( Umar, A. and Anandarajan, A. , 2004 ) as this may make self-interest menace. Moore ( 2000 ) highlighted the PriceWaterhouseCoopers ( PWC ) dirt in which the external hearers based in the United States of America or their partners were accused of keeping portions in the companies that they are scrutinizing. As a consequence, the U.S. Stock Exchange Commission ( SEC ) had nullified the PWC ‘s sentiment on fiscal statements of Emcore Corporation ( Emcore ) which caused a dearly-won hold on Emcore ‘s secondary-stock offering and the dismissal of a figure of PWC ‘s spouses, directors and staff ( Moore, P. , 2000 ) .
Other than the two chief issues mentioned above, Bakar et Al. ( 2005 ) identified that the independency of the external hearers may besides be influenced by the size of the audit house as it is by and large perceived that the larger audit houses are more immune to the the force per unit areas enforced by clients, therefore could be more independency in supplying better quality audits. Bakar et Al. ( 2005 ) besides suggested that degree of competition in the audit services market, which may ensue in low-balling, is another major issue that could impair the independency of the external hearers. Haron et Al. ( 2006 ) suggested that it is critical for the external hearers to standardise the sum of audit fees charged to the clients as a step to forestall the clients from shopping about for the external hearers that are willing to accept the battle for lower fees which in the long tally could be damaging to the scrutinizing profession. However, the inquiry is: Even with the standard audit fees schedule in topographic point, are all the external hearers conforming to it?
Besides deficiency of the external hearers ‘ independency, audit outlook spread is another major job faced by the external hearers in today ‘s concern environment. Audit outlook spread is by and large defined as the difference of the populace ‘s outlook from an audit and nonsubjective acceptable to the external hearer. ( Lee, T. , Ali, A. and Kandasamy, S. , 2008 ) . Lee et Al. ( 2008 ) further stated that audit outlook spread is critical to the external hearers as the unrealized populace ‘s outlooks will significantly impact the credibleness, gaining power and the repute of the external hearers.
In Malaysia, the issue on audit outlook spread is being extensively discussed even though the former President of Malaysia Institute of Accountants ( MIA ) had highlighted the populace ‘s misconception on external hearers ‘ range of work every bit good as their functions ( Lee, T. , Ali, A. and Kandasamy, S. , 2008 ) . Contrary to the populace ‘s outlook, the external hearers ‘ range of work does non include the readying of the entity ‘s fiscal statements. The readying of fiscal statements is the duty of the entity ‘s Directors and the fiscal statements have to be prepared in conformity with the appropriate accounting criterions while the external hearers ‘ duty is to size up the fiscal statements in order to show their sentiment on the truth and equity of the entity ‘s fiscal statements ( Lee, T. , Ali, A. and Kandasamy, S. , 2008 ) . Lee et Al. ( 2008 ) further claimed that the audit outlook spread is unfavorable to the populace and investors every bit good to the wealth creative activity procedure and the political stableness which is dependent on the assurance in the procedures of answerability.
Although researches revealed that instruction could cut down the audit outlook spread as educated users tend to understand the state of affairs and to put lesser duties on the external hearers, Lee et Al. ( 2008 ) suggested that instruction may non be able to decide the audit outlook spread issue due to the fact that it is rather impossible to educate the mass populace as the non all of them have of all time receive any third instruction. Even if they do, they may non understand to scope of audit or merely non interested in understanding the audit outlook spread issue.
Lee et Al. ( 2008 ) had besides rescinded the empirical surveies that suggested that expanded audit study is effectual in cut downing an audit outlook spread by supplying a better apprehension on the functions and range of plants of the external hearers due to the fact that external hearers are non obliged to disclosed on certain issues in the audit study. The external hearers may besides non hold the competence to supply the axpanded audit study. At the same clip, Lee et Al. ( 2008 ) explained that although the external hearers may be able to run into the audit outlook of the populace by spread outing their duties, the extra cost should be carefully measured against the benefits from prosecuting the extra services, particularly when the extra services is non required by the legislative act. On the other manus, Sweeney ( 1997 ) argued that the expanded audit study simply seek to educate the populace on what the audit map presently entails but may non alter the nature of the audits ( Hassink et al. , 2009 ) .
Expectation spread of 2nd component is standard spread, hearer are non needed duties on their professional regulations nevertheless public involvement are moderately expect from hearer. In point of manager, their no concern stuff frauds when to describing it appears on supervisory board ( Hassink et al. , 2009 ) . In scrutinizing criterion, hearer required inform internal hearer, if client refuses provide stuff fraud detected during a statutory audit ( Hassink et al. , 2009 ) . Currently professional regulations, hearer should take act to vacate if client cull provide redress stuff fraud or direction fraud detected by hearer.
In point of outlook spread, can be differences in some country which are direction public presentation, due attention, fraud, traveling concern and independency ( Haniffa. R and Hudaib M. , 2007, p.181 ) . From public users expect hearer provide them an confidence on the consistence of the audited fiscal study and detected fraudulence. In state of Saudi, Saudi Organization for Certified Public Accountants ( SOCPA ) is in the babyhood phase and non much impact at all. And that clip, SOCPA is soundless on affair of fraud. During that clip, SOCPA accounting processs is weak and judicial proceeding costs are much lower ( Haniffa. R and Hudaib M. , 2007, p.183 ) . Harmonizing Al-Sehali & A ; Spear ( 2004 ) , no any house were sued before, even in instance of corporate failure. Info was collected outlook spread to be with mention to fraud ( Haniffa. R and Hudaib M. , 2007, p.183 ) . On other manus, cut downing outlook spread with hearer about duty for describing fraud and discover.
Accounting services difference in few type revenue enhancement and clerking they develop from audit battle and hearer were familiarity client ‘s accounting processs ( Haniffa. R and Hudaib M. , 2007, p.184 ) . Audit house provides non-audit and audit services such administrative service, enhance hearer economic involvement, occur struggle of involvement and intimidating hearer independency. From the sentiment by hearer, this will do public presentation of accessory services may give vary on it. The research revealed that, SOCPA to increase demand for hearer, where hearer keeping a grade, CPA or Chartered Accountant certification can allow a licence. At that clip, Saudi national was deficiency of experient and skilled. In 1992 SOCPA, licence regulations are faintly rigorous, auditor compulsory completion SOCPA measure uping trial or keeping a university grade in accounting ( Haniffa. R and Hudaib M. , 2007, p.184 ) . Hence, slack licensing policy in the yesteryear produced a difference in the type of hearer involved in Saudi. This licensing policy has an consequence on perceptual experiences of audit public presentation.
Therefore, legal and political construction is concern by audit and it can restrict ability provide info to public involvement. While, scrutinizing profession is non allowed to put up its ain class in SOCPA, this may see implementing by civil orders and exerting control ( Haniffa. R and Hudaib M. , 2007, p.184 ) .
Similarly, professional organic structures play an of import function of reappraisal scrutinizing in specified like legal dictum and to contract down the audit outlook spread. If auditor no discover job of current issue, it might damage repute of professional organic structures. Professional organic structures should see hearer duty when detection and found coverage fraud be extremely demanded by organisation and convey in ordinance and regulations to forestall it can cut down outlook spread every bit good. If professional organic structures no execute this action, public involvement will losing assurance in audit profession. The outlook spread must work together with administration, professionalism and scrutinize criterion to alarm society about hearer functions.
Although the restriction by hearer comes into position, their occupation is to look into every uncertainty of fraud or regardless of dealing by organisation. Furthermore, spreads mean hearer have to take extra preparation to heighten consciousness on their bing audit work or prospective discuss internal audience ( Hassink et al. , 2009 ) . Besides, hearer may portion with experience to junior hearer to derive cognition and increase effectivity to forestall fraud and sensing.
Professional organic structures such as ACCA are playing their functions by giving in signifier of instruction to the external hearers. External hearers are required to participle CPM demand in order to derive their cognition those ordinances. This consequence expected hearer can competent exercising on statutory audit and place the hazard of fraud, construct up cognition and bettering ethical standing of hearer. As MIA think that hearer can travel though other manner to derive cognition and challenge of professional quality control codification it called Continuing Professional Education ( CPE ) . This Program develops a high professional criterion and promotes better sharing information between all industries. In this plan, professional hearer or comptroller should finish 120 recognition hours to larning CPE class within three old ages. Meanwhile, CPE hours can difference in portion 60 hours is verifiable and structured another 60 hours is nature of pattern. This plan was requirement by jurisprudence ( on Professional Conduct and Ethics ) , therefore CPE are flexible to all professional hearer, institute allows member select classs which are convenience to member every bit long as member successful completed CPE demand. In instance, non-MIA member participant CPE recognition how they record maintaining CPE recognition hours? For non-MIA member a duty to enter down CPE recognition hr and maintaining a transcript of CPE recognition hours should upload the relevant information to MIA web portal. However, non-MIA member besides required to proof grounds of attending CPE recognition hours. Similarly, CPE intent demands are uninterrupted lifelong larning even member are unemployed or retired. Member must carry through CPE demand and CPE will enter abreast member profession when member taking a place advisory or directorship.
Looking at the major issues faced by the external hearers in today ‘s concern environment, the MIA ‘s attempt of establishing the two new criterions scene boards, i.e. the Audit Assurance Standard Board ( AASB ) and the Ethics Standards Board ( ESB ) on 9th June 2009 has been applauded to be a good enterprise of the MIA. Izma ( 2009 ) explained that the execution of the two criterions is aimed at advancing and back uping high quality audit criterions in order to keep the public assurance of our capital market, particularly during the bad economic times. The execution of the two boards, which function as independent criterion puting organic structures under the backing of the MIA Council, clearly demonstrated MIA ‘s attempt in run intoing the stakeholders ‘ increasing strict outlooks of the quality of the plants done by the external hearers every bit good as to advance the ethical behaviour among the accounting profession, particularly the external hearers ( Izma, N. , 2009 ) .
Izma ( 2009 ) further explained that in order to function the public involvement in a better mode, MIA had set the AASB ‘s chief aim as to beef up the accounting profession in Malaysia. MIA intends to leverage the AASB to be one of the outstanding criterions puting boards within Malaysia and the part with the purpose to place and decide the issues faced by the accounting profession, particularly the external hearers at the earlier phase or even before the issue arises ( Izma, N. , 2009 ) . Izma ( 2009 ) suggested that AASB could run into this nonsubjective by puting criterions that suit the features of Malayan capital market every bit good as developing and disseminating of the relevant counsel for scrutinizing and confidence services. At the same clip, AASB besides aims to advance the development of international convergence of criterions in pursuit to farther integrate Malayan market internationally. As MIA is promoting the external hearers to follow with the auditing criterions which are based on the ISAs, AASB will therefore abide by the International Standards of Auditing ( ISAs ) in mensurating and supervising conformity ( Izma, N. , 2009 ) . AASB is besides expected to play its function in sing and acceptance of any revised or new ISAs and dictums issued by the International Auditing and Assurance Standards Board ( IAASB ) every bit good as reviewing and noticing on the advisory paperss and exposure bill of exchanges issued by IAASB ( Izma, N. , 2009 ) .
Izma ( 2009 ) explained that MIA will besides depend on AASB to see the appropriate pattern ushers on issues that are non covered by the presently available scrutinizing criterions to be applied by the external hearers in executing their audits. Izma ( 2009 ) stated that it is besides portion of the AASB ‘s aims to reexamine and see any other developments and issues in other legal powers which are related to the auditing patterns in Malaysia. Izma ( 2009 ) besides stated that AASB is besides anticipated to play its function in educating the populace to hold a better apprehension on the functions and duties of external hearers and the suppliers of confidence services, which would at least cut down or decide the audit outlook spread issue. Last but non least, the AASB is supposed to talk out on public involvement issues where the profession ‘s expertness is most relevant ( Izma, N. , 2009 ) .
When establishing the AASB, MIA had besides spelled out the duties of the AASB. The ASSB is required to develop and subject to the Audit Oversight Board ( AOB ) an one-year program that specifies AASB ‘s schemes way, precedences and docket, including a study on how undertakings were selected and precedences set. AASB is besides responsible to implement an effectual working procedure for all undertakings and committee undertaking forces, consultative groups or other groups, as appropriate, to assistance in the development of scrutinizing and confidence criterions, guidelines or any other stuffs every bit good as pass oning with the stakeholders and seeking for input on a timely footing. Besides reding AOB and MIA on the adequateness of human and fiscal resources to carry through the AASB ‘s aim, AASB is besides required to urge and patronize audit and confidence research which may be relevant to the Malayan environment.
On the other manus, Izma ( 2009 ) stated that the chief aim of the ESB is to advance attachment to the high quality professional and ethical criterions. ESB has a function in elating the audit quality by rectifying and heightening the professional and ethical behaviour of the external hearers. The ESB purposes to implant a strong ethical value system among the external hearers to keep the force per unit areas enforced by their clients. With this, the issue on the independency of the external hearers could be resolved. Izma ( 2009 ) besides stated that the ethic criterions to be issued by the ESB will be in converge with the IFAC criterions in line with the MIA ‘s attempt to incorporate Malaysia with the planetary market.
ESB ‘s chief aim is to function the public involvement by publishing professional and ethical criterions which maximize the unity of the accounting profession by puting out the highest rules of professional and ethical criterions. On top of that, ESB aims to advance attachment to high quality professional convergence of criterions every bit good as to reexamine and notice the exposure bill of exchanges issued by IFAC ‘s International Ethics Standards Board for Accountants. ESB is anticipated to develop and publish counsel or elucidation to help with the execution of the MIA ‘s By-Laws and to back up the attempts of the MIA in advancing greater consciousness and apprehension of the MIA ‘s By-Laws. Last, the ESB is supposed to talk out on public involvement issues where the professionalism and ethical behavior of comptrollers is required and relevant.
It is the duties of the ESB to develop and subject to the MIA Council an one-year program that specifies ESB ‘s strategic way, precedences and docket, including a study on how undertakings were selected and precedences set. Similar to the AASB, ESB is besides responsible to implement an effectual working procedure for all undertakings and committee undertaking forces, consultative groups or other groups, as appropriate to help in the development of moralss criterions, guidelines or other stuffs every bit good as pass oning with the stakeholders and seeking for input on a timely footing. Besides reding MIA on the adequateness of human and fiscal resources to carry through the ESB ‘s nonsubjective, ESB is besides required to urge and patronize audit and confidence research which may be relevant to the Malayan environment.