ASSIGNMENT SUBMISSION COVER SHEET NAME TAN HUEY LING SEGI ID SCKL00048148 PROGRAMME DIPLOMA IN ACCOUNTING SUBMISSION DATE 18 AUGUST 2018 LECTURE NAME MR VEERAPPAN PERIAKARUPPAN INTRODUCTION According to the 2016 company law, it seems that small companies will no longer need to appoint auditors. This external audit exemption will allow startups and SMEs to enjoy further cost savings in their business operations. Allowing audit exemptions also aligns Malaysia with practices in other countries such as the UK, Australia and Singapore. However, it seems that there is no consensus on audit exemptions for small companies. In general, the SME community is very happy to pay audit fees. On the other hand, the audit industry is worried about a shrinking income base. The cold of the proposed exemption is also the bank and other people who rely on audit accounts. Although these companies may be exempt from auditing, the company must still submit financial statements to the registrar of Companies. Therefore, these financial statements will be in an unaudited form. Although external auditing is important, many countries, for instance the United Kingdom (UK), Australia, and some Asian countries (such as Hong Kong and Singapore), do not need to audit small companies for financial statements if they meet certain criteria. For example, if a UK companys turnover does not exceed 6.5 million and its annual balance sheet does not exceed 3.26 million, the audit can be waived. In Singapore, if starting from June 2004, their turnover is less than S5 million, the company will be exempted (IRAS, 2004). However, among the ASEAN countries, Malaysia is a country that still enforces audits for all companies. According to the Malaysian Companies Act of 1965, all companies in Malaysia will be regardless of their size, private or public, require their annual accounts to be audited by independent auditors. Section 169(1), Sections 174(1) and 174(2) of the Companies Act provide for this requirement. Before discussing the need for external audits, its helpful to understand what an audit entails. At the most basic level, an audit is simply an independent examination of a process or procedure. Audits are useful because they provide validation to financial stakeholders that a companys written policies and procedures are actually being carried out as intended. Positive audit results provide proof that a company is operating in a sound fashion. External auditing is an accounting term that refers to examine the company records and operations to ensure financial statements are accurate. External auditors are accountants who work independently of a particular company (Generally called audit firms) External auditors are important to establishing your small business credibility and to ensuring compliance with relevant laws. They ensure that the financial practices of a business are in line with generally accepted accounting principles and to spot real or potential problems. Auditors confirm that an organizations claims about its financial position, its profitability and the process behind these claims, are true and fair. The purpose of external audit process ensures that the companys internal controls, processes, guidelines and policies are adequate, effective and in line with government requirements, industry standards and company policies. Such audits also ensure that reporting mechanisms prevent errors in financial statements. Audit report users include investors, company management, regulators and business partners – such as lenders, suppliers and creditors. Time frame is an external audit process typically runs year-round, but the external auditor begins testing the financial statements after the company closes its accounting records and prepares financial statements. External auditors can work with internal auditors to review areas or departments with significant internal issues and can audit based on such review plans. The external auditor can also discuss the audit plan, resource allocation and test schedule with the department head during the year. Why should be audit Today many companies think that auditing the accounts once a year is something they must do by law. But most business experts agree that the real value of the audit process is more valuable than that you think. Many organisations operate under loss but assuming that they are in profit. This is mainly due to unavailability of correct financial information or improper maintenance of books of accounts. No doubt, Accounting is a vital success factor in a business. It is what shows the real face of a business. How do you know that your accounting process is going well In fact, we need independent, unbiased and professionally qualified experts to verify and confirm your accounting process and the success of your organisation. They are the external auditors. Otherwise, who will benefit from external auditing Auditing is always very useful for different types of person in an organization. In many cases, the companys owners and shareholders are not closely involved in their day-to-day operations. So, once again, an independent audit is very interesting to them because it provides a second, trustworthy opinion on the organizations financial statements which in turn provides insights into how it works. In addition, the companys accountants and financial controllers will also benefit from the audit. These people are basically responsible for the finances of the organization therefore, they must ensure that everything is within their responsibility. The advice of independent professional qualified experts is critical to their correction of errors. DETAILS Business owners often spend copious amounts of time managing their companys financial information. Accounting is the primary tool for recording, reporting and analyzing financial information. Business owners can use external audits to review their accounting process and financial information. Public accounting firms are usually responsible for conducting these audits. Professional accountants will interview the owner, discuss the accounting process and test the companys accounting information. Below is articulated the advantage and disadvantage of external audit. An important advantage of auditing is that it makes easier to compare different companies when the auditor clearly expresses judgments about equality of measures. If a company gets a good judgment, it means it follows the law. It also helps to follow positive values. The audit will save managers from frustration and condone deceptive performance because it is a source of responsibility. It confirms the reliability and honesty of the consequences. However, the only disadvantage to auditing may be the associated costs, because you must pay the auditor and ensure that you keep a comprehensive record of all the interactions that involve a lot of expense. If the internal auditor is unfaithful to the organization, then external audit is essential and external auditor can verify the companys accounts to determine whether the company has a fair and authentic account or whether there are some unfair and false accounts so this is why the company allocates external assets to the company. Therefore, contributors to external inspections may deviate from the organizations easy network and place them in a weak position while navigating the surrounding environment. External service providers do not provide a systematic internal recruitment base for future senior managers. External auditors are very important to establish the credibility of small businesses and ensure compliance with tax laws. An external auditor can help you determine if your small business meets all applicable IRS rules. The external auditor is not affiliated with your company, so if you dont like what he says, you can change the behavior of your company without worrying about being affected. External auditors can seize them before they become serious and help your business get back on track. However, if the external auditor evaluates it and agrees that it is accurate, then your financial statements will be more credible. Integrity is very important for small businesses, especially during their first few years of operation they are working hard to build a positive reputation. Because external auditors do not work directly for your company, they have less prejudice. Therefore, the external auditors approval of your financial statements is more credible than the internal auditor. There are two reasons for the external audit process when signing a contract with a business controller. First, by using an external auditor, the company can achieve greater efficiency. There are many reasons for this company employees are already busy with other tasks, external auditors have received better training, and internal fraud may prevent internal auditing from becoming valuable, and so on. In any case, the company will use an external audit firm to find answers to certain questions about its accounting. A professional companys external audit program may involve a lack of funds, provide a second opinion, or simply audit the accounting cycle that the company follows. Second, when a government entity challenges a portion of a companys financial statements, an external audit report may occur. In this case, external auditing is not voluntary. The US Internal Revenue Service or the court usually mandates it. There are many reasons for conducting external audits in these situations the IRS challenges the companys financial statements, the IRS may detect internal fraud, the company may not have created a statement that complies with generally accepted accounting principles, and the court approves the audit because they suspect the funds may has been used for illegal activities and so on. External audit fees are usually paid for by the audited business. The exception is if they find illegal activities then, the company may charge for an external audit. Whether or not the law requires it, external auditing is important to improve the credibility of companies of any size. External auditing not only checks the companys financial situation, but regular annual audits can help the public track the companys success and corporate responsibility approach. In this way, external audit can help build public confidence in the company. It can also provide the public with the necessary information to identify situations in which the company operates below full transparency. Consequently, private companies and small non-profit organizations have no legal obligation to conduct annual external audits. Despite this, many people still choose to conduct voluntary external audits. The goals of a companys voluntary external audit vary. While there are some basic audit decisions based on public reputation goals, others are more concerned with practical considerations. For example, when a small business or non-profit organization applies for financing, the lender may need audit results. The audit results may also be a prerequisite for bidding for a contract or for a grant proposal. CONCLUSION Therefore, each company must appoint an auditor to increase its profitability and ensure the company goes smoothly. The various actions supported by each of the external auditors cases can be more proficient. When an organization has subsidiaries around the world, the two groups of auditors can establish a common access plan to ease the burden of accessing all entities. Internal auditors can perform intermittent or annual registration reviews that can be used by external auditors, thereby saving the organizations external audit fees. Of course, the contribution of internal audit to partnerships must be credible, and external auditors can rely on this work. I suggest welcome to introduce an external audit exemption for a company. It gives companies more choices to keep costs low. However, the audit profession may see their costs hurt, and many small companies can avoid having to hire an auditor. According to the experience of other jurisdictions exempting small companies from auditing, various thresholds continue to climb in a few years so that more and more companies enjoy audit exemptions. The cost difference with or without annual audits can be significant, and in the current economic environment, reducing costs is critical for any business. Auditing typically involves the audit team at your office, ranging from a few days to a few weeks, depending on the size of your business. This can result in a lot of time for you and your employees to process the auditors query. When audit exemptions are implemented in Malaysia, it will challenge the audit industry, especially small companies, as they rely on audit fees as their primary source of income. As a result, audit firms need to promote new services such as consulting services to generate additional revenue streams. In terms of service quality, audit companies should strive to improve. The audit company should continually send employees to receive training. If the audit exemption is implemented in Malaysia in the future, policy makers should review the audit exemption threshold from time to time to ensure that the threshold applies to the business environment in Malaysia. To recapitulate, the objective of this study is to answer the question of Why should be audit in Malaysia through tracing the historical development of the audit function since independence in 1957 and analyzing the environmental influences on this development. Thus, the subject of the study is auditing and auditors generally, and auditing change particularly. The emphasis will be on discovering rationales for past and present auditing. Finally, by interpreting the past, the present may be understood in order to help in charting the future. The main and specific assumption held throughout is that the audit activities taking place within a certain length of time are associated with a unique configuration of social, economic and political conditions. The study in all probability provides the first comprehensive analysis of audit practice in post-independence Malaysia, utilizing an analytical framework which employs a process orientation, recognition of environmental influences and a historical perspective. 6i4MlMicd-Yc1313luO,98wA)20J-lJ08OHhoo723plgzdBMPLGP_7.w8nGZQ6nWf
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