Living as a Global Citizen

I would like to believe I am a global citizen. No, I have not renounced my Malaysian citizenship, I am still very much a Kelantanese Malaysian. Notwithstanding that, I had been to many places on this globe, for official duties and for pleasure. I have countless friends all over the world with different beliefs, culture and world views  Given where we are in terms of technology, I could still interact with them as if there is no boundary between us.

I suppose many other people on this planet share the same situation as mine. Our circle of influence goes beyond people who we can meet face to face in a single location. Many of us are connected to many people around the world for many reasons, business, blood lines, friendships, official duties, common interests and many other reasons. Some even have people on social media whom they have not ever met in person but are rather close to each other.

Hence, being global means one must have the ability to connect with diverse people in many parts of the world and able to appreciate our common interests and respect our differences. Sounds very simple, right? Yes, if one if willing to suspend judgment and able to articulate his viewpoints without insisting others to agree with him. People who want to win all the time and all they way may find it difficult to live with differing views, especially those positioned at the top end of societies where power distance is wide. In this sort of societies, truth comes only in one way, from the top.

One of the important skills in dealing with people with diverse views, culture and practices is the understanding of how the differences arise. For example, there are societies where religion is considered a private matter whereas for some other societies, their lives are anchored on and around religions. If this foundation is not appreciated, differing views may not be easily managed. Such fundamental differences could also happen within a society as well. This arises from the diversity of worldview due to education, culture and experiences. Those who go to international schools in Malaysia may think and act differently from those who are schooled at our national schools. This is a fact that we have to accept.

To make things worse, there are people who benefit when others disagree with each others. Politicians tends to take this approach to win votes although they may be claiming they are doing the opposite. Sometimes, we cannot put the blame on politicians alone as they tend to dance to the gallery. Who are they dancing to? You and me. If we are unable to live with differences, this would be amplified by politicians who want to get our support at all cost.

So, in this holiday season when we are spending time with our loved ones, family members and friends, we should take the opportunity to reflect on our openness to diversity. As the world becomes more interconnected, we have to deal more with people will all kinds of characters and beliefs. we need to be more global in our thinking.

Happy holidays and enjoy the break.

Risk and Audit in the Age of Vulnerability

We are in the VUCA world

If we accept that profit is the reward for risk taking, all companies have to deal with risks in creating value for their customers, investors, and other stakeholders. This means that picking and choosing risks which correspond to the risk appetites set by boards, who are ultimately responsible for the governance of enterprises, should be an activity which boards and senior management must be familiar and comfortable with.

The strategic options chosen by enterprises shape their risk profiles, which would also be influenced by their chosen markets and operating environment. In the past few years, VUCA, which stands for Vulnerability, Uncertainty, Complexity and Ambiguity, has become synonymous with the state of the global business environment. Geopolitical events, natural disasters, market collapses and disruptions brought by technological advancements have made the world less certain and predictable, and thereby lifting the overall risk barometer.

Regulators have responded to this new environment by issuing tighter regulations which has led to compliance risks becoming key risks for companies, particularly for financial institutions and market intermediaries. Populist movements in America, Europe and many other countries against established political philosophies have also reshaped many governments and global policies. The election of President Trump in 2016, for example, has resulted in policy reversals by the United States in areas such as climate change and global trade which have in one way or another affected the strategies of many global businesses which developed strategies based on pre-Trump policies.

Risk management and effective audit becoming more important

The increased level of uncertainties means that boards and management have to continuously understand the shifting business landscape, assess and manage risks effectively and capture opportunities faster before their competitors do. 

Such expectations have created demand for companies to enhance their risk management and audit functions in order for them to continue to create and capture value in the VUCA environment while remain as sustainable enterprises on the long run. Why?

It is important that the risk management function of an enterprise is not only able to detect emerging risks but can work with management to find ways where those risks could be mitigated within the risk-appetite of the board and the enterprise could proceed to venture into opportunities within that market segment. This may require some controls to be put in place to address the identified risks but those controls should not result in unnecessary costs or in setting up of non-value-adding processes which could slow down decision making and time to market.

The audit function, another layer of defence mechanism in modern enterprise management, focuses on the assessment of effectiveness of the whole risk-taking and risk management processes and whether controls are working as planned. The assessments made by internal auditors would help audit and other relevant committees to perform their roles effectively. Internal auditors are now even expected to be able to add value at the strategic level by framing their views beyond the pass or fail approach. If internal auditors are able to meet this expectation, discussions in audit committee meetings would be more valuable.

While external auditing would normally focus on the auditors’ opinion on whether the financial statements are true and fair, external auditors are a great source of information and insights to audit committees and even the full board. They should be able to share their observations on the state of play of industries, emerging risks, best practices and above all, on the quality of management in dealing with matters which the auditors deem to be critical. Make the most out of private sessions with external auditors by asking them difficult questions and observing their responses. Even their silence could give you an idea of what they have in their minds.

This is the reason why audit committees must develop robust criteria for selecting external auditors. Who are the engagement partners, their background, their involvement in the whole audit, the audit team and their credentials and the value which the audit firm could bring to your enterprises beyond their opinion on your financial statements. In considering fees for the auditor, please bear in mind the consequences of a bad audit to your enterprise and yourself as a director.

What will make things work?

It is critical to have people in risk management and audit who have competencies and experience to deal with VUCA. While risks or failures of control would be more visible at the tactical and operational levels, strategic failures would be more catastrophic to enterprises. They should understand strategic issues and be able to connect them to emerging trends and form views on their impacts. The challenge has always been to find, recruit  and retain such individuals as many other organisations would be trying to entice them as well. One way of addressing this is to have good talent development programs and succession planning.

Boards should also enquire whether management has allocated enough resources for risk management and internal audit to function effectively. In this day and age, investment in technological tools would not only help them to be more efficient but they could add more value to their work which would eventually enhance the quality of risk management and governance at the enterprise level. There would always be conflicting demand for budget and the natural bias towards value creating and money making activities should not be underestimated. This is where the board or relevant board committees could step in to ensure investment decisions are made from the enterprise perspective, balancing between profits and risks and to enable risk management and audit to function effectively.

Amongst the inherent risk in developing strategies, assessing and managing risks as well as assessing effectiveness of controls are the reliability of assumptions and judgments which form their foundation and the quality of data and information used in the whole exercise. In some cases, these factors seemed to be overlooked with severe consequences when the risks around them eventually crystallised. Management should ensure the integrity of data and information used in their planning and decision making processes. All assumptions underpinning strategies and models used should be tested to ensure their reliability. On the other hand, professional skepticism must always be applied when dealing with strategic issues. This is not to suggest that all premises of decisions must be challenged but key elements of those decisions, especially assumptions and models, must be robustly scrutinised by all the parties who have to deal with those decisions.

For all the functions above to work properly, a culture of trust and openness is very crucial. People should be allowed to share their opinions, views and perspective without subsequent repercussions. Knowledgeable and experienced people should be able to externalise their tacit knowledge which is only possible through interactions. Without such trust and openess, the real value of having these check and balance mechanisms would not be realised in full. Hence, such culture must be shaped by the board in its deliberations and when dealing with management and other parties. This will be closely watched by the rest of the enterprise and it will eventually shape the culture of the whole organisation.

Culture, the new mystery

Since the aftermath of the 2008 global financial crisis, one of the areas which has become the focus of regulators worldwide is organisational culture. This includes the consequences of remuneration to risk-taking, especially by executives and traders of financial market players.

This is not an easy topic to be dealt with but it has been demonstrated that culture influenced risk profiles of organisations as “the way things are done here” had higher influence over values statements hanged on the walls of those organisations. In addition to imposing hefty fines, some regulators have revised their governance expectations and started reviewing culture of institutions under their supervisions.

The above development should not be overlooked by the risk and audit functions of organisations. The nexus between culture and risk has to be understood, assessed and managed. If the risk is material, internal audit should have their eyes on the issue of culture as well. Do we really have a good understanding of our organisational culture, its impact on our organisations and how to influence culture so that it becomes our pillar of strength? This is a mystery which will be the focal point of regulators until they are comfortable that enterprises are managing human behaviour properly and would not pose a threat to the stability to the market.

Closing

Vulnerability, Uncertainty, Complexity and Ambiguity are realities which enterprises have to deal with in continuing as sustainable value creation vehicles for many stakeholders. Such realities require risks to be managed with more understanding while allowing enterprises to be innovative and nimble. While technology would enable better oversight, the influence of culture should not be underestimated. Risk management and audit functions have to step up, remain relevant and be counted. 

Note:

This article was published in a Dubai-based magazine The Hawkamah Journal which can be downloaded here.

Pengiran Mokhsein, A Friendly and Professional Accountant

Last week I received a sad news of the passing away of Pengiran Mokhsein, the President of the Brunei Institute of Certified Public Accountants (BICPA), a friend and a professional colleague.

We know each other due to our involvement in the Asean Federation of Accountants (AFA) where we were council members. At one stage, Pengiran was the President of AFA while I was his deputy. Another Bruneian, Hajjah Ning was the Secretary General.

Myself, Pengiran Mokhsein and Hajjah Ning at AFA Council meeting in Manila

Although the membership of BICPA is small, Pengiran Mokhsein managed to make their contributions felt at AFA. He was a nice and friendly but would express his views without hesitant. He was willing to listen to opposite views and would make decisions professionally.

When I left the accountancy fraternity to be a regulator, our contact was reduced. However, we would normally try to meet each other when he was in Kuala Lumpur attending meetings or conference.

Few years ago I was told that he had cancer and went for surgery. It was very devastating for me to hear the news. When he recovered, he resumed his activities as a council member of AFA. I could recall that I met him 3 times, twice in Kuala Lumpur and one in Bangkok, for the last time. He was in high spirit and looking forward to a full recovery.

Apparently, his cancer relapsed late last year and Pengiran had to stay at home beginning of this year.

With Pengiran Mokhsein and Priya Terumalay (General Manager of CPA Australia) in Bangkok at a conference on small and medium sized accounting firms

A number of years earlier, Hajjah Ning also succumbed to cancer when she was holding the post of the Secretary General of the Ministry of Finance. A Bruneian delegation was in Kuala Lumpur and I was expecting to see her after so many years. Instead, I was told that she had passed away few months earlier.

With the passing of both Hajjah Ning and Pengiran, the Bruneian accounting profession had lost two towering figures who had contributed a lot to the profession. It would not be easy for the two of them to be replaced. This also means that I had lost two great friends and colleagues whom I had worked together in promoting the interests of accountants in Asean.

I pray to Allah that both of them would be accorded His forgiveness and be showered with blessings.

IAI Is 60!

Ikatan Akuntan Indonesia (IAI) is the national accountancy body of Indonesia. I was first introduced to IAI when I was the representative of the Malaysian Institute of Accountants (MIA) to the Asean Federation of Accountants (AFA) in 2000. Three personalities whom I could recall representing IAI were Pak Ahmadi Hadibroto, Pak Djoko Susanto and Pak Hanief Arie.

Since them my relationship with the office bearers and executives of IAI became close. We shared a lot of common positions at the regional level including in trade negotiations under the purview of the Asean Framework Agreement in Services (AFAS).

The peak of the relationship was the signing of the Mutual Recognition Agreement between MIA and IAI signed in 2006 where auditors from both institutions are recognised for the purpose of membership provided they fulfil certain requirements. This was the first agreement of its kind amongst accountancy bodies in Asean.

I was invited by IAI to join their 60th anniversary celebration in Semarang, Central Java  last week. I was very meaningful for me as I observed for myself how my accountant friends in Indonesia are recognised as a key pillar in the success of Indonesia. The theme "kejayaan akuntan profesional, kejayaan negeri" or "the success of professional accountants are the nation's success" captures the role of accountants in Indonesia in value creation, strengthening governance and providing career opportunities for Indonesians to develop a successful professional career.

Jusuf Kalla, Indonesian Vice-President, giving his keynote address at the opening ceremony of the IAI 60th Anniversary Conference

A conference was held in conjunction with the anniversary celebration and it could be easily observed how much the profession is recognised by the nation's leaders and the society at large. The conference was officiated by the Vice-President, Jusuf Kalla representing the President who was attending the OIC emergency conference in Turkey. Indonesia Finance Minister Sri Mulyani presented about the state of the Indonesian economy. There were another 5 ministers and 2 deputy ministers who were panellists at the conference covering topics ranging from the contribution of the accountancy profession to the nation to future of government accounting in strengthening public accountability.

A gala dinner was organised by the IAI to commemorate the event including a cultural performance. What was interesting regarding the performance was the participation of a number dignitaries including the Governor of Central Java, the Deputy Finance Minister and a Commissioner of the Financial Services Authority as the casts.

A cultural performance casted by high-powered Indonesians including the Governor of Central Java and the Deputy Finance Minister

I was also invited to be a panellist on the session on The relevance of Small and Medium Sized Practices (SMP) for Accountability in the New Economic Era. Together with me on the panel was Pak Langgeng Subur, the Head of the Center for Supervision of Financial Services Professional and Pak Suhartono, the representative from the Indonesian Certified Public Accountants.

I urged SMP to be meaningful and significant to their clients. This could be achieved by providing services which could help their clients to be better business in addition to the traditional services such as accounting, audit and taxation. I shared the outcome of a servey done by Inovastra which confirmed that small and medium sized enterprises need assistance in the areas of strategy, marketing, talent management, operations, financial management and compliance.

SMPs must be Significant and Meaningful to their clients

It was really an honour for me to be invited and I would like to thank IAI's Executive Director, Elly Zarni Husin for inviting me and would like to congratulate her and her team for a very successful organisation of the anniversary celebration.

Reporting Excellence Means Effective Organisations?

I always believe that when you are new at something, you are entitled to ask the most basic questions. That was exactly what I did when I was the MIA President. I asked about the value of excellence awards such as the National Annual Corporate Report Awards (NACRA) and the National Awards for Management Accounting (NAFMA) where MIA was co-organisers for both.

As for NACRA, listed companies are not required to apply. All their annual reports would be screened by dedicated accountants until winners are determined. Not a bad deal for those companies, the accountancy profession takes all the trouble. Only when they are shortlisted, they have to pay for attending a dinner where the winners would be announced.

NAFMA, then, differed slightly where companies are required to apply and disclose their management accounting practices. The panel of judges would visit them to verify and understand more their practices. One organisation kept on winning for the first few years until they were gently encouraged to give way for others.

Of course I got strong responses from the other partners which were very clear of their positions in defending those awards. Among the arguments were the awards encourage companies to be more transparent in corporate reporting and would continue to enhance their management reporting practices because of the awards.

I am not denying that these kind of awards could generate benefits. There could be real progress where the winners become better companies. However, does this rule apply to all companies? How many award winners had troubles later and are no longer listed? Someone should look into this aspect.

So, does reporting excellence correlate to organisational effectiveness? I am not yet convinced. My scepticism applies to even organisations which managed to implement integrated reporting. 

If organisations have specific mandates and key information about the mandate are missing, what is the point of telling lengthy stories about "value creation" when certain fundamental information are not there? With the present printing capabilities, readers might be fascinated with beautiful graphics and could miss the "missing links or points".

Doing the same thing over and over again without challenging their meanings and ascertaining outcomes is not my cup of tea. Isn't this the cause of why many great companies failed? They got very nervous when their flagship products were criticised. Until the market really shifted and competitors have secured huge chunks of their markets with superior products or solutions, then only the reacted, albeit too late.

Well, I am still wondering about the nexus between excellence in reporting and organisational effectiveness. I could be alone. What the heck!

How Boards Drive Innovation

I was invited by the Malaysian Directors Academy (MINDA) to be a panellist at the Bursa Malaysia's Power Breakfast session on innovation. While this was certainly an honour, the bonus was I would be sharing the stage with Ross Dawson, a technologist and futurist from Australia whom I respect very much.

Ross started by sharing his observations on the global state of play around innovation. It was made clear that for companies to remain sustainable and continue to create value for their customers and shareholders, they have to keep on innovating. Otherwise, products would be less competitive, cost will go up and the very business models which worked in the past may have been overtaken by time and competitors.

I shared my observation on how the Securities Commission (SC) decided to facilitate the adoption of financial technology (fintech) by introducing regulatory frameworks for Equity Crowdfunding and Peer-to-Peer lending platforms. At the moment, such funding platforms would only be useful for the small-medium enterprise sector which is small relative to the size of the Malaysian capital market which exceeds RM 1.3 trillion Ringgit. If the SC did not have the innovative mindset, such space would remained a mystery.

A day earlier, when opening the SCxSC 2017, the SC Chairman, Tan Sri Ranjit Singh announced that the platforms had succeeded in promoting 450 campaigns, raising RM 50 million in a space of more than a year. 70% of the businesses which benefitted were founded by women and youth while 40% of investors are below the age of 35.

At present, both the SC and Bank Negara Malaysia are at the forefront in transforming the financial services landscape by enabling financial institutions and market intermediaries to test their ideas through regulatory sandboxes which allow both sides to experiment. This sandbox approach is very revolutionary for regulators which are well known to be risk-adverse in their approaches towards formulating regulation.

So, how would the board influence innovation? I shared the following points:

Board could steer companies toward being more innovative especially at the strategic level. By challenging management to be clear of the market landscape, market positioning, differentiating from competitors and developing brands which actualise those strategic intents, management would have to develop and implement innovative business initiatives. This would over time, inculcate the mind and culture of innovation.

The other issue around innovation is the risks-tolerance towards failures. Would the board expects all initiatives to be successful or they could be sending signals that failures are part and parcel of business? By indicating the board's tolerance,  people would be encouraged to explore and test new ideas and would be less restraint to take some risks. However, this does not mean that governance processes are abandoned but managing risks out of innovation should be part of the framework.

I do not believe that there should be a specific board committee on innovation as such mindset should be applied across all aspects of business. What is more important is the tone and support provided by the board in enabling the companies under their care to test and explore new grounds, guided by boards which are aware of the changing business landscapes, understand where the opportunities are and what could possibly go wrong.

Coming back to Ross, he also explained about the scope of innovation. Innovation is not about applying new technology but it covers broad areas including business models, products and processes. Hence, companies have ample opportunities to be innovative but they need to be very strategic and focus so that positive results could be derived out of such investments.

A New Accountant in the Family

I have been advocating professional accountancy as a career of choice for many years. Benefiting from the qualification myself, I thought it is appropriate for me to spread the virtues to other aspiring accountants.

While I never tell my children what should be their career paths, three of them decided to take up accountancy from our local universities. Two graduated from the Internal Islamic University and one from University ITM. Fortunately, all of them started their career in accounting firms, where the real actions are and where high-end accounting concepts and knowledge are applied on daily basis.

My eldest decided to pursue one of the professional accountancy qualifications from the UK. He did that while he was with one of the Big-4. However, his interest in Triathlon distracted his focus. He eventually started his own cake company with his wife and their business is growing steadily. What could I say?

It was my second daughter who managed to complete her Malaysian-Australian professional accountancy programme. I suppose the support she had from her firm, another Big-4, and the exposure she gained from her work helped her to succeed. So, last week, me and my wife attended the event where she was awarded her certificate of completion. She needs to work for another few months to clock the necessary hours before she could join the Malaysian Institute of Certified Public Accountants and possibly the Chartered Accountants in Australia and New Zealand. Finally, I am not the only qualified accountant in the house.

My second son joined the accounting firm that I established, Khairuddin Hasyudeen & Razi (KHR). Although it is not that large, the firm has a policy of encouraging and sponsoring its staff to become professional accountants. So far, more than 30 young Malaysians had passed or are in the process of qualifying. While many other firms fear that by having professional accountancy qualifications the market value of their staff would be enhanced and they might move on for better opportunities, KHR believes that if such event happens, those well trained accountants would be its ambassadors and would shape a good perception of the KHR brand. Many had actually left, including going overseas but KHR remained as a growing business. Hence, my son is sponsored to pursue CPA Australia, the same qualification with his father.

I am amazed with some Malaysians who are seeing professional accountancy as a mean colonisation especially when smart Malaysians obtained well-recognised accountancy qualifications from the UK or Australia. If they care to study the history of our nationhood, many overseas-qualified accountants contributed to the progress of Malaysia. Tan Sri Hanafiah Hussin, Tan Sri Azman Hashim and Tan Sri Abdul Samad Alias are amongst the living examples who we can still meet and ask them questions.

In fact, the Malaysian Association of Certified Public Accountants (MACPA) was established in 1958, a year after we achieved our independence. Unfortunately the nay sayers somehow do not recognise MICPA (its present name) as a Malaysian body!

In 2000, the Malaysian Institute of Accountants (MIA) changed the title of accountants registered with it from Registered Accountant or Public Accountant to Chartered Accountants. This has mislead many accountants! While many of MIA members had set for the many professional accountancy exam available like MICPA or ACCA, there is a group who had never taken any professional accountancy examination in their life. Hence, the registration title should be reviewed.

Employers in Malaysia are smart. They are able to differentiate the "Chartered Accountants" of MIA with others. So, while some MIA members could be smiling with their title, many employers ask these "Chartered Accountants", which examination did you pass? How to answer?

Again, I am stressing that I have benefited from being a professional accountant and I am mindful of the potentials brought by these qualifications. While I recognise that not all accountancy graduates would like to pursue this path, those who have the opportunities should not forego them simply because they are tough. Let me ask you this question, apart from being a Chartered Accountants of MIA, what else is easy in life?

I would like to thank my daughter's lectures, employer and friends for your contribution in her achievements. I wish every family in Malaysia to have an accountant in the house, a professionally qualified one.

Society and Faith in Fashion Business

What have society and faith got to do with business? Well, they are the major drivers in fashion business! That was the point discussed at a forum on Society, Faith and Fashion in Australia and Malaysia, organised by the Australian High Commission in Kuala Lumpur.

Insted of the usual corporate topics, I attended the event to understand more about fashion and society and was not disappointed at all. The panellists, Karen Teh, General Manager, Chopard; Glynis Jones, Curator, Museum of Applied Arts and Science; Aheda Zanetti, Founder & Designer, Ahiida and Calvin Thoo, Calvin Thoo were excellent in sharing their views on how societies influenced fashion and the emergence of "modest fashion" inspired after the Abrahamic faith shared by Muslims, Christians and Jews communities. In fact Calvin did very well in explaining why Muslim ladies need to cover themselves and how he blended those requirements with his designs.

Aheda shared her experience in designing the "Burqini", as a choice for ladies who want to remain modest while still enjoying the carefree lifestyle of Australians. In fact, 40% of her customers now are non-Muslims and her designs, which comply with her faith, have provided comfort to women who are inclined towards modest fashion, irrespective of their beliefs. She, again and again, emphasised that modest fashion is a choice, which works well in societies which are less judgmental like in Australia. Calvin, on the other hand, explained that in Malaysia people are more judgmental and one need not only pleases herself but her host and other guests. That makes modest fashion designs in Malaysia more complicated.

Me and Aheda

One interesting point which was discussed was on the influence of online and social media on fashion. According to Calvin, online sales in Malaysia exceed offline. One of the artiste who has done this well is Neelofa who has her lines of head cover and is promoting them via her Instagram account very well. Karen shared that even the high end brands do have online channels which are contributing to their overall sales quite well.

Glynis walked the audience through the evolution of fashion in Australia which according to her was still new. She also sees modest fashion as a segment of a larger choices which Australians have and that segment compliments the choices which Australians could make when deciding what they think suit them.

The Nasi Lemak design was raised by one of the audience and Calvin was very firm on his view about how much that design lacks taste and quality, even from the technical point of view. He is willing to sponsor a better design, something which will make Malaysians proud.

Looking forward to more life events, away but still connected with business.

The Quest For Prosperity

The Chartered Accountants in Australia and New Zealand (CAANZ) recently released a report on the Quest For Prosperity: Shaping The Future Of Our Region. It is based on the Legatum Institute Foundation's Legatum Prosperity Index which measures prosperity of 149 countries in the world.

The index measures prosperity on a broad measured covering:

Economic quality

Business environment

Governance

Education

Health

Safety and Security

Personal Freedom

Social Capital

Natural Environment

The data-driven report analyses prosperity across Australia, Hong Kong, Malaysia, New Zealand, Singapore and the UK - key markets for the CAANZ and its members.

I was invited to share my views and thought on the topic at a forum organised by CAANZ with the same title.

During the discussion, I highlighted my concern on the direction of Malaysia's education performance as education was the tools used in helping many people to move out of poverty and enabled them to contribute towards nation building.

At the same time, given that the whole world is competing based on knowledge and innovation, excellence in education would provide any country or community competitive edge.

When asked about the role of accountants in enhancing prosperity in the markets they are in, I argued that being competent and performing their respective roles with the highest standards of professionalism and integrity would be critical. In Malaysia, many accountants are occupying C-suites with decision making power which would influence wealth creation and distribution. Hence, they carry heavy responsibilities on their shoulders to ensure the country progresses in the right direction.

Accountants should also be willing to walk away if required to do things which are against our professionals values and the best interest of our society. We need to stand tall and be counted.

Looking at prosperity beyond financial wealth would provide a more balance idea of the meaning of being citizen. I hope this report would provide Malaysians ideas of assessing the performance of their leaders and this report is an independent view of where Malaysia stands compared to markets which we are competing with.

The report could be downloaded here:

https://www.charteredaccountantsanz.com/news-and-analysis/insights/future-inc/shaping-the-future-of-our-regions

Board Expectations on Internal Auditors

I was invited to be a panellist at the 2017 Institute of Internal Auditors Malaysia National Conference recently. The subject given to me was the expectation of the board and the C-suite on internal auditors.

Points which I shared were:

Internal auditors have to demonstrate that they understand business issue beyond matters relating to the companies they serve. This means they must understand what is happening in the business landscape, their industries and key stakeholders such as customers, suppliers, competitors, regulators and NGOs. Only with these cumulative knowledge, internal auditors are able to discuss and flag issues from various perspectives and angles.

Given that board members consist of people from diverse backgrounds, having the ability to engage them in meaningful ways would be important to gain their trust and respect. Once trust and respect are given, they would be more open to listen to the issues raised and recommendations made by internal auditors. How issues are prioritised and discussed would be amongst the ways to improve engagements. 

Focus on matters which would make them stop and think and don't waste their time by raising a long list of issues where 90% of them could be resolved quickly by management. Always angels issue from the perspectives of director, especially they risks which they have to deal with if no action is taken on the matters discussed.

Another key point which was raised by another panelist was the depth of knowledge and expertise which internal auditors have. If they are expected to deal with more strategic issues, are they in the position to add more value than those people in the C-suites who are dealing with strategic issues as their day jobs? This is fairly high order but internal auditors have to address such needs if they want to earn the trust and respect of directors and management.

Is MIA a regulator or a country club?

This had been the perennial question even when I was involved in the leadership of the Malaysian Institute of Accountants (MIA).

There are two schools within MIA when it comes to this issue. One who feels MIA should be protecting public interests and exerts its powers on accountants across the board to ensure they maintain professionalism and create value for their employers, clients and other stakeholders.

The other group, mainly practitioners, wants MIA to be more like a country club where the interests of members should be paramount over others.

I don't have any problem for MIA to be a country club if it is just like any other professional bodies where people join them to be recognised and enjoy benefits they offer. MIA on the other hand is a body created by a statute where its membership is compulsory. Why? So that only competent individuals are recognised as accountants and they are regulated to serve public interests.

However, the unique feature of MIA as a regulator is that a third of the Council members are elected by the members at large instead of being appointed by the government unlike the Board of Engineers or the Malaysian Medical Council. This is akin to have the cab drivers electing who should be on the board of SPAD to regulate them! This feature creates confusion, even to some of the MIA Council members themselves. 

Whenever there is election to elect Council members, there would be campaigns, although not as low as those in politics, by aspiring candidates. Guess what would be their core promises? Members interests!

This conflict of role was best demonstrated when the Companies Commission solicited views on audit exemption for small companies, MIA fought tooth and nail to retain mandatory audit across the board even when it knew that audit exemption is practically implemented in most countries in the world to make life simpler for budding businesses until they reach the stage where the risks they pose to the society is significant.

At the same time, MIA appears reluctant to be more assertive on auditors who keep on failing their practice review. Even the whole framework can be questioned. Why have practitioners making decisions on practice review outcomes when their conflict of interests in that subject is very clear? In the era of modern audit regulation, having practitioners on decision making structure of audit regulators is a big no, no. 

As at 30 June 2016, 681 out of 1,487 audit audit firms registered with MIA had been reviewed. The results certainly are not giving confidence to the public. Only 7% of those firms obtained the Satisfactory level, 45% had "assurance of compliance" while 48% needed "follow up". Needed follow up means the work of these firms had not been up to the professional standards set by MIA. Just imagine close to 50% of the cars in showrooms may have major defects!

MIA also shared on its website that it did 29 follow-up reviews on firms which were reviewed earlier. Based on my understanding of the report, 16 firms or 55% of them still were not been able to achieve the quality of work expected out of audit firms.

MIA cannot avail itself from responsibilities regarding audit quality amongst audit firms which are registered with it. I am aware that for auditors to get their approvals renewed by the Minister of Finance, they need the support from MIA. I wonder whether those firms which failed their second review are still supported by MIA? Such support, if given, is a clear breach of public trust given to MIA. MIA also has an obligation to IFAC to ensure its audit supervision work is effective. That is a tall order.

The MIA Council must remember MIA is not a country club. They have the responsibilities to make MIA a respected regulator. Why should MIA’s membership be made compulsory if there are no serious efforts to weed out members who failed to uphold MIA’s own standards? The auditors only deserve their rice bowls if their behaviours are consistent with public interests.

I feel MIA's structure has to be clarified once and for all. As a regulator, MIA has to be focused on ensuring accountants perform their duties as promised and uphold professional values as all time and all cost. If this is not the primary duty of MIA, then it should become a real country club so that those joining it is clear that the main purpose of joining it to have fun.

This article was published by Astro Awani in its Business section which could be read here http://english.astroawani.com/business-news/mia-regulator-or-country-club-152804