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This article was first published in the May 2017 Malaysia edition of Accounting and Business magazine.

2017 is turning out to be a very challenging and interesting year for the accounting profession in Malaysia, with many changes set to take effect for the 2016 financial statements that are due to be released during the year. 

Together with the new financial reporting standards for private entities in Malaysia (MPERS), which is effective for financial periods on or after 1 January 2016, the auditors’ report issued thereto will also see enhanced changes and improvements, as a result of the changes to several International Standards of Auditing (ISAs) that will affect the content and presentation of the auditors’ report. 


In April and July 2015, the Malaysian Institute of Accountants (MIA) adopted the following new and revised auditor reporting and related auditing standards, which are set to enhance the communicative value of the auditors’ report:

  1. ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
  2. ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report
  3. ISA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report
  4. ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
  5. ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information
  6. ISA 570 (Revised), Going Concern
  7. ISA 260 (Revised), Communication with Those Charged with Governance
  8. Conforming Amendments to Other ISAs.

The new and revised auditor reporting and related auditing standards are effective for audits of financial statements for periods ending on or after 15 December 2016. Essentially, this will affect private entities with a 31 December 2016 financial year end and thereafter. The MIA had issued Recommended Practice Guide 12 in November 2016 to guide practitioners in preparing the auditors’ report for financial statements prepared in accordance with MPERS. 

The main changes from the previous version of the auditors’ report include assertions of dual compliance in relation to auditing and ethical standards; enhanced description of the auditors’ responsibilities; information other than the financial statements; changes to the presentation/format of the report; and additional description on the first-year adoption of MPERS. These changes are further discussed below.

Dual assertion of compliance

The revised auditors’ report will now not only have to state that the audit has been conducted in accordance with the ISAs but also state that the auditor is independent of the reporting entity in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). This will be set out in a separate paragraph in the report.

Enhanced description of auditors’ responsibilities

Apart from continuing to state the existing requirements relating to the auditors’ responsibilities, there are additional roles and responsibilities throughout the audit that have to be included, as follows:

  1. Identify and assess the risks of material misstatement of the financial statements, design and perform audit procedures in response to those risks and obtain sufficient and appropriate audit evidence. The auditor also asserts that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls.
  2. Conclude on the appropriateness of the directors’ use of the going concern basis on accounting and whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Where the auditor concludes that a material uncertainty exists, they are required to draw attention in the auditors’ report to the related disclosures in the financial statements. Where such disclosures are inadequate, the auditor will have to modify the opinion. The auditor will also have to assert that future events or conditions may cause the entity to cease to continue as a going concern.
  3. Evaluate the overall presentation, structure and content of the financial statements of the entity, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 
  4. For group audits, the holding company (or parent) auditor needs to assert that sufficient appropriate audit evidence has been obtained with regard to financial information of the entities or business activities within the group to express an opinion on the financial statements of the group. Furthermore, the holding company (or parent) auditor also acknowledges that they are responsible for the direction, supervision and performance of the group audit and remain solely responsible for the audit opinion.

There is also a need now to mention on the communication with the directors regarding the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that were identified during the course of the audit. 

It is important to note that the revised ISA 700 issued by IFAC provides an option for the description of the auditors responsibilities to be included in an appendix to the report or by way of reference to the website of an appropriate authority (paragraph 40(b) and 40(c), respectively), instead of being included in the body of the auditors’ report. However, in August 2016, the MIA resolved not to provide these options. As such, in the Malaysian context, auditors are required to include the description of their responsibilities within the body of the auditors’ report.

Other information 

Other information that commonly accompanies the audited financial statements of private entities is the directors’ report. The audit report must now explicitly state that the audit opinion does not cover the directors’ report and no form of assurance conclusion thereon is expressed.

However, the auditor acknowledges that in connection with the audit of the financial statements, the auditor is responsible to read the directors’ report and, in doing so, considers whether it is materially inconsistent with the financial statements or the knowledge obtained in the audit or otherwise appears to be materially misstated. Where a material misstatement of the directors’ report is discovered, the auditor is required to report that fact. 

Format changes 

The most notable change to the presentation of the auditors’ report, aside from the additional assertions made, is that the opinion is now presented right at the beginning. In other words, the report immediately starts out with the opinion, giving due importance and prominence to the most essential part of the auditors’ report. 

First-year adoption

The auditors’ report on financial statements adopting MPERS in the first year (ie financial statements beginning on or after 1 January 2016) will carry an additional paragraph in the ‘Other matters’ section of the report. 

The financial statements that were published before the financial statements prepared in accordance with MPERS for the first time were audited, and the audit opinions given by the auditor on those financial statements, would not have been prepared based on MPERS. Unless the auditor is separately engaged to report on the restated comparative information in the financial statements prepared in accordance with MPERS, the auditor would not have expressed an audit opinion on the restated comparative information. 

The comparative information, hence, is unaudited. ISA 710, Comparative Information – Corresponding Figures and Comparative Financial Statements, requires the auditor to state in an ‘other matter’ paragraph that the comparative information is unaudited.

However, such a statement does not relieve the auditor of the requirement to obtain sufficient appropriate audit evidence that the opening balances and comparative information do not contain misstatements that materially affect the current period’s financial statements. It is very unlikely that the auditor can obtain sufficient appropriate audit evidence if they have not also obtained sufficient appropriate audit evidence on the opening statement of financial position and the Section 35 Transition to the MPERS transition adjustments in accordance with ISA 510, Initial Audit Engagements – Opening Balances.

Accordingly, the auditors’ responsibilities in respect of the work done on the opening balances as part of the audit of the current financial statements may be included in an ‘other matter’ paragraph to assist users’ understanding of the auditors’ responsibilities relating to the restated comparative information.

Ramesh Ruben Louis FCCA is a professional trainer and consultant in audit and assurance, risk management and corporate governance, corporate finance and public practice advisory