Reading a Malaysian Auditor's Report, Section by Section

A Malaysian auditor’s report is a fixed-format document. MIA publishes the illustrations — AAPG 1 for the MFRS framework, AAPG 2 for MPERS, both read with the Companies Act 2016 — and firms follow them closely. That makes diligence fast, because anything out of place is visible.

Here is every field, in order.

The report, field by field

1. Title and addressee

INDEPENDENT AUDITORS' REPORT followed by TO THE MEMBERS OF [COMPANY] SDN. BHD. or BERHAD.

The addressee is the members, not the company and not the board. That matters when the Other Matters paragraph turns up later.

2. Report on the Audit of the Financial Statements

A structural heading. It exists so that a second heading, Report on Other Legal and Regulatory Requirements, can appear further down when needed.

3. Opinion

Identifies the company, lists the statements audited, gives the period, and crucially includes a page reference — MIA’s illustration reads as set out on pages XX to XX. Check that reference against the document in front of you. It is the auditor telling you exactly which pages the opinion covers.

The opinion sentence names the framework:

…give a true and fair view of the financial position of the Company as at 31 December 20XX … in accordance with Malaysian Private Entities Reporting Standard and the requirements of the Companies Act 2016 in Malaysia.

An MFRS report names the Malaysian Financial Reporting Standards framework instead. If a company that should be on MFRS shows MPERS, that is a real finding.

Where the opinion is modified the heading itself changes — Qualified Opinion, Adverse Opinion, Disclaimer of Opinion — and the next section is the correspondingly named Basis section.

4. Basis for Opinion

States that the audit was conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. That dual assertion is deliberate: MIA approved it in August and September 2016 to make clear that an audit under the Companies Act 2016 meets globally accepted standards.

5. Independence and Other Ethical Responsibilities

Presented as a subheading inside the Basis section. Names both the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants and the IESBA International Code of Ethics, again dual compliance.

The one exception is a disclaimer of opinion, where ISA 705 (Revised) paragraph 28(c) governs the presentation instead.

6. Material Uncertainty Related to Going Concern, if present

A separate headed section, required by ISA 570 (Revised) paragraph 22 where a material uncertainty exists and disclosure is adequate. It ends with a statement that the opinion is not modified. Read it; do not treat it as a qualification.

7. Emphasis of Matter, if present

Draws attention to something already disclosed. Also ends with our opinion is not modified in respect of this matter. It may sit before or after the Key Audit Matters section.

8. Key Audit Matters — listed entities

Present for complete sets of general purpose financial statements of listed entities, and where the auditor otherwise decides or law requires. Absent from a normal private company report.

9. Information Other than the Financial Statements and Auditors’ Report Thereon

For a private company the other information is the directors’ report. The section says the opinion does not cover it, and that the auditor read it to consider whether it is materially inconsistent with the financial statements.

Look for the closing line. We have nothing to report in this regard is the clean version. The alternative describes an identified material misstatement of the directors’ report — an easy thing to skim past and a genuine finding.

10. Responsibilities of the Directors for the Financial Statements

Covers preparation to the applicable framework, internal control, and the going concern assessment.

MIA made a Malaysian-specific decision here: because directors under the Companies Act 2016 have statutory responsibility for preparing the financial statements including oversight of the financial reporting process, no separate reference to oversight responsibilities is required. A report that imports a foreign template with a separate governance body named is not following AAPG 1.

11. Auditors’ Responsibilities for the Audit of the Financial Statements

The long section: reasonable assurance, professional scepticism, the five bulleted responsibilities including the going concern conclusion, and communication with directors on scope, timing and significant deficiencies in internal control.

A Malaysian check nobody performs. In August 2016 MIA resolved not to allow the option of placing part of this description in an appendix or on a website. Auditors are required to include it within the body of the report. A Malaysian report that cross-refers to a website for the auditor’s responsibilities is not following the Institute’s decision.

12. Report on Other Legal and Regulatory Requirements, if present

Appears only where there is something to report under the Companies Act 2016. Two common triggers in MIA’s illustrations:

• Unaudited subsidiaries. Where the reporting firm did not audit all subsidiaries, the report identifies them, addressing s.266(2)(c).
• Records deficiencies. Where accounting and other records have not been properly kept, or where the auditor did not obtain all information and explanations required, the report says so. MIA footnotes this to s.266(3), which requires the auditor to state the particulars of any deficiency, failure or shortcoming.

If you see this heading, read it. It is where a records or governance problem surfaces even when the numbers pass.

13. Other Matters

MIA’s standard limitation wording:

This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

If you are a lender or a buyer, this sentence is about you. The report was written for the members. Anyone else relying on it is doing so outside the stated purpose, which is why acquirers commission their own work rather than relying on the statutory report.

14. Signature block

MIA’s illustrative layout:

[Audit Firm]                [Partner]
[AF XXXX]                   [99999/99/9999 (J)]
Chartered Accountants       Chartered Accountant

Section 265(5) of the Companies Act 2016 makes this mandatory, not cosmetic: a report by a firm is not taken to be duly made or given unless it is signed in the name of the firm and in his own name by a partner who is an approved company auditor, with the firm number and the partner’s approval number legibly written or printed beside the respective signatures.

The firm number is the AF number allocated by the Registrar under s.265. The approval number is the number allocated when the Minister of Finance approved that individual under s.263 — and recall that under s.263(4) every approval is in force for two years and may be revoked at any time.

15. Date and location

The date comes last, and under paragraph 48 of ISA 700 (Revised) it must be no earlier than the date the auditor obtained sufficient appropriate evidence, including evidence that those with recognised authority have asserted responsibility for the financial statements. In Malaysia that is the directors’ approval under s.251.

Paragraph 47 requires the report to name the location in the jurisdiction where the auditor practises. Kuala Lumpur, Johor Bahru, Kuching — not the client’s address.

Five-minute diligence checklist

Check	Where	Red flag
Opinion heading	Section 3	Anything other than plain Opinion
Framework named	Opinion sentence	MPERS on a company that should be on MFRS
Page reference	Opinion sentence	Does not match the statements supplied
Extra sections	Between Basis and Other Information	Going concern or emphasis section skimmed past
Other information conclusion	Section 9	A described material misstatement of the directors’ report
Auditors responsibilities	Section 11	Cross-referred to a website instead of set out in full
Other legal and regulatory	Section 12	Present at all — read why
AF number	Signature block	Missing
Partner approval number	Signature block	Missing, which makes the report not duly made under s.265(5)
Report date	Foot	Earlier than the directors approval date
Location	Foot	Absent

Common mistakes

• Reading only the first paragraph. The going concern and other information sections carry the most commercially useful content.
• Assuming the report was written for you. The Other Matters paragraph says otherwise.
• Treating the absence of key audit matters as a weakness. ISA 701 is a listed entity requirement.
• Ignoring the signature block. It is the only field with a statutory validity rule attached, in s.265(5).
• Accepting a report dated before the directors approved the accounts.
• Missing the Report on Other Legal and Regulatory Requirements heading, which is where records deficiencies and unaudited subsidiaries are disclosed.

What’s next

If the report carries a modification, the useful next step is understanding which of the four opinions it is and why that particular one was chosen.