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This article was first published in the March 2016 China edition of Accounting and Business magazine.

In December last year, the International Auditing and Assurance Standards Board (IAASB) issued a consultation paper to seek feedback that can guide its efforts to bolster audit quality. Titled Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits, the invitation to comment is open until 16 May.

One of the things that stands out about this exercise is the emphasis on how the audit profession serves the public interest. True to its title, the 96-page paper is a deep exploration of professional scepticism, quality control and group audits, but the IAASB has also identified what it reckons are the most relevant public interest issues related to these three topics.

The board points out that the consultation will be successful if it fully understands what the stakeholders believe needs to be addressed in the public interest. ‘As the global auditing standard setter, we have a public interest responsibility to develop standards and guidance for auditors to facilitate high-quality audits being achieved – which in turn builds public trust and confidence in financial statements and financial reporting more broadly,’ writes the IAASB.

For that matter, accountants in general need to be mindful of how much the public relies on them to do their job well. And so in June 2012, the International Federation of Accountants (IFAC) released a policy position paper that presents a practical definition of the public interest as ‘the net benefits derived for, and procedural rigour employed on behalf of, all society in relation to any action, decision or policy’.

In auditing, a highly visible form of acting in the public interest is the oversight of the audits of public interest entities (PIEs), including the registration and inspection of audit firms that undertake such audits. The thing is, there is no global consensus on what ought to be classified as PIEs. Everybody agrees that anything listed on a stock exchange is a PIE, as is a financial institution, an insurance company or an investment firm. But beyond that, different jurisdictions have different ways of casting their nets.

When Malaysia’s Audit Oversight Board (AOB) began operating in April 2010, the PIEs within its ambit were listed companies, banking and financial institutions, insurance companies and takaful operators, and those with Capital Market Services licences, such as securities and futures trading firms, and fund management companies. Last September, the list was expanded to include the Capital Market Compensation Fund Corporation and several entities approved under the securities law such as exchanges, central depositories, clearing houses, self-regulatory organisations, private retirement scheme administrators, and trade repositories. In addition, the AOB now regulates auditors of private retirement schemes and unit trust schemes.

But what about government-linked corporations (GLCs) that do not come under any of these categories? According to an October 2014 survey report by the Federation of European Accountants, state-owned companies are classified as PIEs in Bulgaria, Croatia, Denmark, Estonia, Portugal, Romania and Slovakia. 

Considering that Malaysia has many GLCs that are not listed, including sizeable ones, it is a good idea that the powers that be look at the wisdom of placing GLCs under the PIE banner as well. Such a move will go a long way towards boosting confidence in auditors and audited financial statements.

Errol Oh is executive editor of The Star