What is the problem?

I got to meet accounting students in my various capacities in the accounting profession over the years. I like to engage them as they would be the future accountants and leaders for the country. The key reason behind these engagements is to provide them with the insights of the real world that they will face and what they need to do while they are at universities.

One of the topics which I normally cover with them is about problem solving. Off course professionals are hired to help organizations to solve problems and how effective they are able to do this would determine their value to the industry. Different from the university environment where students are given problems and they are required to provide their views and solutions, in the real world the first challenge is to identify what is the problem in the first place. In most cases, what is perceived to be the problem is only the symptom and further work need to be done to identify the real issue.

Problem solving or problem identification require strong analytical thinking. The issue need to be framed based the available facts and further analysis may be required. If we start this process using the wrong question, the answer may not resolve the real problem. What I notice here is that asking question is not something that many people are comfortable with.

When we ask question, we are probing status quo. Many people perceive status quo based on their knowledge, experience, availability of information and even their values. When people are asked questions, they need to provide explanations. While this sounds easy, not many people including those occupying high positions could do this with comfort. Why? Some may just assume that status quo is such and such but may not have a clue whether that is true or not. What more when the "truth" means they have to admit their weaknesses and incompetencies. Thus, culturally, we may not like people asking penetrating questions even when we know they honestly want to solve our problems.

So, we need to encourage students to be brave in asking questions. Instead of blindly doing so, they need to learn to link the facts that they have and the issues on hand. Some may face pushback but in most cases, push backs means they are on the right track as people will not be behaving as such if those questions do not matter. Off course some may need more time to pick up this skills but the more they try, they more they would master the art of asking question. Perhaps, this is the reason why doctors ask us many personal questions before they decide how to deal with our sickness. 

The next challenge for the students is to figure out the meaning of facts which they obtained from the answers gathered. There are many ways to do this including using mind map as a tool. The idea is to spot trends or patterns which could provide the clues to the answers. 

Some people use a different approach is solving problem. Once the problems are understood, they would list down the options and work backwards to gather data or facts to support those options. This process would enable them to eliminate weaker options and could save a lot of time as well.

I hope the lectures are not complaining when their students ask tough and challenging questions. We, people working in the real world, face these sort of challenge on a daily basis. Identifying unknown problems and working on solutions which may not be in any textbook certainly demand for handwork and perseverance. In any case, our value in the eyes of our stakeholders is based on how relevance we are to them. If we create more problem than value, don't be surprised if they will look elsewhere for their solutions.

A ‘bloody’ path to better audits

OPTIMISTICALLY CAUTIOUS
By ERROL OH

COMBINE the idiom “heads will roll” with the phrase “blood in the streets”, and you'll get the gory yet powerful notion of “heads rolling in the streets”.

Audit Oversight Board (AOB) executive chairman Nik Hasyudeen Yusoffused this twice in a media briefing on the board's Annual Report 2011,which was released on Wednesday.

He was referring to the general feeling that there ought to be hefty penalties whenever auditors are found guilty of sub-standard work, particularly when this relates to the financial statements of listed companies.

Indeed, we tend to develop this bloodlust each time a listed company reports financial irregularities. Inevitably, the focus of the flurry of questions will swivel to the company's auditors. If the auditors were doing a good job, how could there be fraud and mismanagement? Where's the warning from the auditors?

And if it were the auditors that had raised the alarm by qualifying the audit opinion on the company's accounts, there would still be room for criticism. How come the auditors didn't detect the hanky-panky earlier on? Sure, they have qualified the latest financial statements, but what about those for the previous years?

In other words, auditors are in the line of fire when listed companies are found to have cooked their books. And by extension, so is the AOB.

Like it or not, the business of auditing companies is measured by failure rather than by success.

Nik Hasyudeen conceded: “Unfortunately for auditors, they are just like pilots. They have to take the planes to the skies and land safely every time. And our job is just like that of the Department of Civil Aviation to make sure that all the planes take off and land safely. People will only remember us when there's a plane crash. But they forget about all the hard work that has been done to create a safe environment for flights.”

Unlike in aviation mishaps, people don't die when a company has financial irregularities. But people can lose their investments in the securities of the company. Creditors may not be able to collect what the company owes them, and employees may end up jobless.

As such, it's not at all unreasonable for stakeholders to expect the AOB to begin imposing sanctions on errant auditors.

The board has already flexed its regulatory muscles when registering auditors, allowing several auditors to be registered for only six months instead of the standard 12 months, issuing warning letters, and attaching additional registration conditions.

In addition, inspection of audit firms is a big part of what the AOB does, and it has asked the firms to come up with remediation plans to address deficiencies uncovered during the inspections. Nik Hasyudeen said the follow-up to these plans was the main thrust of the board's work.

Another threat that the AOB brandishes is the possibility of it publishing inspection reports if the firms fail to take the relevant remedial measures.

Yet, there's nothing like a sanction to show that the board means business. Among the sanctions that the AOB can impose are fines and the removal of an audit licence and/or registration.

Nik Hasyudeen assured that the board would not hesitate to use sanctions when necessary. He explained that it had yet to do so in its brief history the AOB began operations in April 2010 because it could not act retroactively. That is, if an offence occurred before the statutory provisions that support the establishment and operations of the AOB came into force, the board can't penalise the auditors.

But presumably, in the two years after the AOB had been set up, there have been breaches that may lead to sanctions. Nik Hasyudeen refused to confirm this. He would only say that any sanction by the board would have to come at the end of a due process and such a sanction would be made public.

Let's hope this happens soon, because we can tell from findings of the AOB's inspections so far that the audit firms, including the six largest in the country, are far from flawless when it comes to ensuring audit quality.

The AOB or anybody else, for that matter cannot guarantee that every company audit will be perfectly conducted. However, the board can provide some comfort that when the auditors are not up to mark, heads will in fact roll, figuratively speaking, of course.

Executive editor Errol Oh believes in the deterrent power of sanctions, especially among auditors, who rely heavily on their reputation. However, no matter how many heads roll, there will always be black sheep.

AOB Annual Report 2011

AOB tells audit firms to think twice before accepting more jobs

KUALA LUMPUR: Audit firms, many of which face problems in the form of talent shortage and work overload, should think twice before accepting more audit jobs, says the Audit Oversight Board (AOB).

The industry watchdog reminded audit firms about this in its 2011 annual report released yesterday.

"We would like to reiterate the need for audit firms to reconsider their capability in respect of time and resources before accepting further audit engagements," it said.

The AOB noted that while some audit firms have tried to spread the workload of their partners, statistics gathered during its inspection of these firms last year revealed insufficient time charged by partners.
It was observed that the supervisory function was not effective.

The concentration of audits with similar financial year-end added to the concern about the workload of partners, the AOB said.

Audit firms last year continued to voice concern about the relatively low audit fees in Malaysia, although generally, the AOB observed marginal increments in the fee level.

"The increase, however, may not be sufficient to cover the general rise in salary costs due to greater competition for talent in Malaysia," it noted.

In 2011, the AOB - set up in April 2010 by the Securities Commission (SC) to oversee the auditors of public-listed companies (PLC) - conducted inspections on 17 audit firms which audit over 98 per cent of the market capitalisation of PLCs, or 86 per cent of the total number of PLCs.

It noted that audit firms are responding to the findings of inspections by implementing remediation plans to improve the overall quality of their audit work.

"While the auditing framework remains strong and all international standards are adopted, the findings from the AOB oversight activities suggest that more efforts are required to enhance audit quality," its executive chairman Nik Hasyudeen Yusoff said in a statement issued by the SC.

This year, the AOB's audit inspection will continue to be on audit work of high-risk areas, which include fair value, the evaluation of going concern, revenue recognition, segmental reporting and compliance with ethical standards.

It said emphasis will be placed on key areas of judgment and the application of professional scepticism.

Effective 2012, Malaysia officially joined over 100 countries in adopting the International Financial Reporting Standards as the reporting standard for PLCs.

Read more: AOB tells audit firms to think twice before accepting more jobs http://www.btimes.com.my/Current_News/BTIMES/articles/aobb/Article/#ixzz1tA3WXl5h

AOB: Firms remediation plans key

By ERROL OH
errol@thestar.com.my

KUALA LUMPUR: Having completed two annual cycles of registering and inspecting auditors, the Audit Oversight Board (AOB) is now concentrating on ensuring that the firms come up with concrete plans to address deficiencies observed during the inspections, and that these plans are executed properly.

Auditors that fail to do so may be penalised by the publication of the AOB's inspection reports, thus exposing the firms' weaknesses and failure to comply with auditing standards.

In its Annual Report 2011 released yesterday, the board said it had conducted inspections of 17 audit firms last year, compared with six in 2010. The listed companies audited by these firms accounted for 98% of the total market capitalisation of the companies on Bursa Malaysia.

Nik Hasyudeen: ‘Inspection is just to identify the issues.’

As at the end of last year, 75 firms have registered with the AOB, which began operations in April 2010.

Following an inspection by AOB, an auditor is required to come up with remedial measures and timelines to boost audit quality. This proposed remediation plan is taken into account when the board finalises its inspection report on the firm.

AOB executive chairman Nik Hasyudeen Yusoff described the follow-up to the remediation plans as the main thrust of the board's work.

He pointed out that the AOB wanted to avoid the experience of the audit regulatory bodies in some developed countries, where there appeared to be little headway in improving audit quality.

“Do we want to keep on reporting the same problems year after year or do we do something different? That's why we have decided that our focus should be on the remediation plans. We cannot be doing the same things and end up with the same results,” he said in a media briefing to coincide with the release of the annual report.

“Inspection is just to identify the issues, but what matters to us is what the firms do with the findings. Of course, if they cross the line too far, we will take action against them. But more important is to get the firm to figure out the root causes of the deficiencies and to tell us what they are going to do about these.”

He added that the firms were also expected to indicate how they would measure the effectiveness of their remediation plans.

By the end of last year, the board had issued 16 final inspection reports, while six more were pending finalisation. It also approved 13 remediation plans, which focused on the strengthening of governance structure, improvement of methodology and the rebalancing of partners' portfolio and workload. These are now in various stages of implementation.

Nik Hasyudeen said it was too early to assess the effectiveness of the remediation measures because the process began in the middle of last year and many of the measures needed time to have an impact.

Examples of such measures are the introduction of new partnership agreements that specify the importance of audit quality, and performance evaluation systems for partners and staff that clearly link audit quality and remuneration.

However, he said the AOB would not dictate the measures that the firms needed to adopt, saying the board was “not in the business of running firms”.

He warned that the board would publish the inspection report if a firm failed to take the relevant remedial measures. “That's quite a powerful disincentive. If that report goes out, it will be very bad for the firm,” he said.

Busan - a pictorial diary

Busan is the second largest city in South Korea and is situated in the West coast, facing Japan.  It was the host of the 2002 Asian Games and the 2005 APEC Summit. It is a popular destination for holidays, especially during summer given the proximity of this city to the sea.

Among the popular spot in Busan is the Haeundae Beach which is flanked by rows of hotels. Even in spring the beach is vibrant with activities.

Fishing appears to be popular amongst the people of Busan. Fresh seafood is readily available and offered in varieties of styles.

A boat trip along the coast would provide the opportunity for visitors to appreciate the city from a different perspective. A number of little islands along the coast add to the beauty of the city. Friendly seagulls will accompany you during the trip.

Dongbaek Park is a nice walking path with flower and greeneries. The APEC Building is also situated at this park.

There are a number of highlands around Busan. Trekking those highlands would provide visitors with a more wholesome view of the city.

While communication could be a challenge for non-Korean speakers, the warmth of the people of Busan will make you feel welcomed.

Killing time

I need to kill another 2 hours before my next flight. This journey started just before midnight yesterday and I may be another 4 hours away from my destination. Life is funny, yesterday was crazy and every moment matters. Now, time seems to travel at a very slow pace to the point that I need to kill time. I hope writing here would be worth while instead of wondering around the airport alone.

What is time actually? Is it about the number of times the earth circulating the sun? Or it is simply an indicator that we are slowly but surely consuming whatever balance that we have of our life? It would be interesting for us to reflect which segment matters to us, the past or the future. I can complaint about those who live their present live and totally forgot about even tomorrow. The perspectives from which time is viewed could shape the behaviour and conduct of a person. Some may use the good deeds of others in the past to justify whatever entitlements they believe they must have at the present, create a mess out of that in such a way that causes the futures of many others to be affected. Sounds familiar? 

We also have people who behave without any concern for the future. Many of these people just think about themselves and could not be bothered about others. The danger is when they collectively make critical decision resulting in a massive irresponsible decisions. Selfish people could be bought easily. Those days their price was only a piece of Batik. Now, at least, it is worth RM 500. They forgot to divide that by 4 or five to realise how cheap they are in selling their souls.  

Maybe we should be more concern of what is left for us to do with our lives. What are we going to do next, tomorrow and beyond. What are the objectives that we want to achieve? Who we have in mind when we decide what we want? Ourselves, our flesh and blood, our society or the world at large? Many will feel that they are too small to be ambitious or to desire something which will benefit beyond themselves. The issue with this sort of thinking is they will let things to be as they are and have no desire to initiate or exert their will to make changes for the better. They will sit by the side and accept anything as fated. I would like to encourage each and every of us to be more proud of ourselves and have the belief that we could make a difference. Please make sure every action that we are going to make from now on to benefit the broader society, beyond ourselves. 

There more we give, even a little, the more we would get in terms of satisfaction. If each and every of us persistently care and act in the best interest of our society, we are using time in a very unselfish way and hopefully gives more meaning to our lives. So, think of how you all would use the remaining time that we have in the best possible ways.

What A Relief

By now most of us, especially those living in this part of the world, would feel relief that the Tsunami warnings were lifted and the worse is over, for now. The report that an earthquake measuring around 8.6 which occurred near Aceh and the subsequent warning about the possible Tsunami had caused anxiety not only around the affected areas but globally as well. The faces of people in Aceh which were shown on TV reflected the magnitude of concern over the whole episode.

What could we learn from what happened yesterday?

Well, in case we have forgotten, disasters such as earthquake could occur anytime, especially in countries which are situated on the Ring of Fire. When such event occur, the risk of devastation could be very high, as what happened in Japan last year. The question before us is how would such events affect us. This is more important for governments and businesses as natural disasters could affect business activities and require governments' intervention and quick response from businesses.

Depending on where we are, natural disasters could be assessed to be a risk which would have high impact. Whether the probability of occurring is high or otherwise depends on the types and nature of such disasters. I would say that the probability for floods to cause problems to Malaysia is higher compared to earthquakes. However, given the interconnectedness of business, this nexus need to be evaluated with more detail by businesses.

How do we sense when these events could occur? Well, weather related events could be anticipated by understanding the weather patterns. What about earthquake? 

About a month ago, a colleague of mine told me about the behavior of a colony of ants which live in his garden. The ants were behaving strangely lately although he taught this could be attributed to the rain which fell in his neighborhood. Well, could such behavior meant that the ants sensed the impending earthquake? Given their small size, even small seismic movement would be huge for them. So, do we now need to keep ants at our offices as a predictor of earthquake?

Respect

This simple term has a very significant meaning. Sometimes it could be confused with something else. When somebody who occupies a high position, the confusion could be deeper. When people smile at him or her, is it because of the chair he or she occupies or the smile is genuine from their hearts due to respect?

We could google the meaning of respect but most of the description revolves around a positive feeling towards a person due to the person's actual quality. Positive feelings could be demonstrated by a simple smile or more fanatic actions. This is where the problem lies, those actions could be manufactured. The more the power a person has, there could be more tendencies where people around him, especially those who could benefit from him or her, to fake respect.

In certain circumstances, a leader for example, don't mind if people around him fake their actions as if they respect him honestly. In situations where popularity matters, such misleading conducts would be helpful. What more when the leader himself is a weak person but, instead of working on elements that will make him or her strong, the leader focuses on managing people's perception instead. If the leader is in control of unlimited resources, these resources could be disposed to create a resemblance of artificial respect to convince continued support towards him or her.

Unfortunately, while the more liberal information regime provides more opportunity for the mass to be educated and informed, it also provides many platform to manufacture fake respect. A combination of offering goodies and heavy usage of propaganda could be an effective respect faking tools. This is even more useful in a society that is less sceptical, especially when power distance is strong.

I strongly believe respect is an important element in leadership. It has to be based on real performance, build on honesty and integrity as the critical foundation. In a challenging environment, these qualities would differentiate the real from the fake. More importantly, they could influence the performance and outcomes of the conducts and decisions of a leader.

So, exercise scepticism before we offer somebody our respect.

A Very Simple Message

We love to complaint. However, when we are expected to stand up and be counted many people will chicken out for reasons only known to them. What more in dealing with issues which will collectively affect us all as citizens.

Voting is important and the message in this short video is simple but loud and clear.