Call to adopt IIA Malaysia standards

> Institute of Internal Auditors Malaysia engaging with market regulators on the issue

KUALA LUMPUR: Internal auditors in Malaysia should adopt the standards of the Institute of Internal Auditors (IIA) Malaysia, said its president Philip Satish Rao ( pix).

He said given that the internal audit barrier to entry is low and that anyone can become an internal auditor, there is a need to safeguard the capital market by bringing about better awareness on the standards needed in the profession.

“The low barrier to entry to become an internal auditor means the standards of professionalism and care, independence, objectivity and quality of execution may not be at the same levelplaying field,” Philip told SunBiz in an interview recently.

Since 2009, it is mandatory for all listed companies to have an internal audit function in the organisations, which can be inhouse or outsourced. However, there are no further guidelines by the regulator to require all internal audit functions to be members of IIA or that they must adhere to the standards of IIA.

“To us, the internal auditor must be a member of IIA, who applies the standards and code of ethics of IIA because it’s internationally recognised,” said Philip, who is also Ernst & Young Advisory Services Sdn Bhd partner.

Over half of the listed companies are believed to outsource their audit functions, especially small capitalisation companies. But Philip said this does not necessarily mean that the outsourced firms have the ability to execute audit in a way that will provide a level of assurance and quality.

“Regulators have to think of the integrity of the market and the protection of shareholders’ interest. The company and its shareholders are bearing the risks so there must be some point of regulation.

“I’m not saying that because you’re a member of IIA and you follow the standards of IIA, the world will be a different place. But at least there is a mechanism to monitor the standards applied. At least every one adheres to the common rules and standards,” explained Philip.

IIA Malaysia is a non-profit professional organisation dedicated to the advancement and development of the internal audit profession in Malaysia. Today, it serves over 3,300 individual and corporate members in Malaysia and sees an 8% growth in membership year-on-year. IIA Malaysia is affiliated to the Institute of Internal Auditors Inc, USA, a worldwide body.

“We’ve been around for 39 years in the country and IIA Malaysia has been promulgating the standards all through to our members,” Philip said, adding that IIA Malaysia also offers professional certifications, training and development programmes.

He said IIA Malaysia has been engaging with the Securities Commission and Bursa Malaysia on the matter and hopes that a more definitive rule on the adherence of IIA standards by internal auditors can be put in place in the next one year.

He added that the regulators have taken great strides in making internal audit mandatory and stressing its alignment to professional standards.

“Simple tweak (like specifying which standards to follow) should make a big difference and hopefully IIA will be the voice of the profession.

“I don’t mind if the regulators start off by wanting internal auditors to apply the IIA standards and have themselves (internal auditors) reviewed every five years to see whether the standards applied are in order.

“Listed companies are big benchmark or measure of standards of the capital market. If over 1,000 listed companies apply the IIA standards, we’ve won a great battle,” said Philip.

Philip echoed the views of KPMG Malaysia partner and head of risk consulting Lee Min On that there is a need for internal auditors to be regulated in corporate Malaysia. Lee has said the lack of a regulated framework for internal auditors is the greatest challenge and the biggest gap in the marketplace.

Besides listed companies, IIA Malaysia also advocates its standards to the public sector.