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Sarah binti Sajap
Aini Nadhirah Binti Mohamad Safee
Farah Aina Binti Omar
Lisya Rafiha binti Amran
Hawa Nabila binti Tuah
Nur Liyana binti Ahmad Jasman Syah
Saberina Mayang Anak John

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Narmatha
Deevashiny
Leela
Darshini
Hema
Sharmila
Arif

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Hanis
Maisarah
Atiqah
Farisha
Hafizah
Izyani

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Putri Nurul Shafeera
Amiratul Syazwani
Aina Farhana
Nur Ramizatul Syazwani
Syafiqah Zin
Anis Sofia
Nadzrin
Uzair

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Aqilah binti Yusof
Ikmal Hakimi
Muhammad Ezzat Ezman bin Mohd Hairis
Muhammad Ikram
Muhammad Imanuddin
Nur Amanina Uzma binti Azizan
Nurul Ain binti Othman

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A systematic process of obtaining and evaluating, sufficient and reliable evidence by internal Shari'ah auditor as a basis to form an opinion as to whether the operations and activities of the entitiy being audited is in compliance with the established Shari'ah criteria and reporting the opinion thereon to the appropriate authority.

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Imposition on the limit of period of years during which an accounting firm may be the auditor of the record

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🔸Definition is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team. It is an important part of an organization's quality management system and is a key element in the ISO quality system standard.
🔸Audit quality are typically performed at predefined time intervals and ensure that the institution has clearly defined internal system monitoring procedures linked to effective action. This can help determine if the organization complies with the defined quality system processes and can involve procedural or results-based assessment criteria.

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Developing comprehensive internal audit program or plan.

Conducting Shari'ah audit on periodical basis

To obtain knowledge about the Shari'ah rules and principles to enable them enough competent when auditing the process of IFIs

Obtaining and making reference to relevant references

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1) Audit Partner Rotation
- Audit firm remain as auditor of the same client company for unlimited number of years or until the company decides to change its auditors
- Same audit firm, but different partner

2) Audit firm rotation
- Audit firm remain as auditor of a client for no longer than a specific number of years
- Different audit firm

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- To maintain auditor independence
- To reduce familiarity threat between auditors and client
- Gain more public trust

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▪️Size of client

▪️Type of auditor

▪️Level of independence of BOD and audit committee.

▪️Audit Firm Rotation (mixed results)

▪️Public Issues
▪️Audit fees

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Four categories of audit deficiencies identified:

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Four categories of audit deficiencies identified:

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🔹Tendency to accept management’s representations without adequate verifications

🔹Inadequate documentation of audit work

🔹Failure to report any departures from accounting standards.

🔹Uncritical acceptance of questionable accounting practices

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- the auditor does not have broad exposure about the company’s operation
- the auditor needs to recollect information about their clients
- costly to the client

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To ensure company comply with shariah regulations

Received advise from a shari'ah auditor regarding organization operations

Increase the investor confidence

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Benefits to conduct audit for small companies

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Benefits to conduct audit for small companies

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1. Identify the weaknesses of the business
It give it owner the opportunities to address and correct the weakneses before the business in the market. It also enhance the credibility of company's trading performances and its net asset position.
2. Improve business efficiencies
It gives small business owner opportunities to improve overall of the business. They can reduce cost and increase profitability as it will provide the detail of expected profit margin.
3. Provide assurance to other auditor
Conducting an audit would provide assurance to the other non active directors that the business is running well and in efficient manner.
4. Improve control and reduce fraud
Auditor will review and test the controls to ensure they are operating efficiently. They will suggest on how to overcome the weaknesses of the control and detect some fraud.

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The difference between the expectations of auditors and the expectations of financial report users concerning the role and responsibilities of auditors

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adequate auditing knowledge, skills and competencies

ability to construct relevant and appropriate audit test

Correctly identify testing procedures in order to verify evidence for different auditable areas to ensure Shari’ah compliance.

In case the internal Shari’ah auditor majoring non-accounting field, he/she must have the experiences in internal audit of a financial institution for at least 5 years.

Have knowledge about Shari’ah such as usul fiqh relevant to fiqh muamalat, sources of Shari’ah, maqasid of Shari’ah, principles of Islamic financial contracts etc.

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ISSUE :  Audit firm, auditors fined and prohibited from auditing

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ISSUE :  Audit firm, auditors fined and prohibited from auditing

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🔸The Securities Commission Malaysia’s (SC) Audit Oversight Board (AOB) has fined and prohibited Chengco PLT and its partners from accepting public interest entities (PIEs) or schedule funds as clients and auditing their financial statements for 12 months.
🔸The SC said the firm and its partners concerned were found to have multiple instances of noncompliance with international auditing standards, which were discovered in two inspections conducted by the AOB in 2016 and 2018 respectively.

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Issue 1: Lack of accountability of shari’ah auditors

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Issue 1: Lack of accountability of shari’ah auditors

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Shari’ah audit can be performed by the internal auditors or the external auditors provided they must have

adequate shari’ah related knowledge and training. Subsequently, the report is forwarded to the shari’ah committee of the IFIs. The Shari’ah committee may give their opinions only on shari’ah matters to the

Board of Directors, who will decide or make the final decision. Shari’ah

auditor should have been more accountable because they have to be accountable to the stakeholders,

which include the shareholders, the society and the Ummah. Next, they are accountable to Allah for every actions and unactions.

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1. The Performance Gap. This is caused by the failure to conform to statutory requirements and professional standards by auditors.
2. The Standard Gap. This exists where statutes and the professional standards fail to properly reflect the appropriate standard of performance deemed appropriate by the courts of law.
3. The Feasibility Gap. This is caused by society s increasing, and often unrealistic, demands for accountability.
4. The Communication Gap. This is caused as a result of inadequacy in the report issued by auditors or upon the conclusion of the statutory audit and the unreasonable expectation of the intended users.

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The integrity of the shari’ah auditor needs to be perceived as independent enough by those stakeholders of

Islamic finance. It is a common practice for the shari’ah auditors to rely heavily on or follow the advice of shari’ah advisors. This is not acceptable if we want to have fully independent shari’ah

auditors. Shari’ah audit in Islamic finance is argues as one of the social functions for the benefit of the ummah. The full benefit of the shari’ah audit cannot be realized if they are not wholly or truly independent.

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1. A strategy to minimise failure of the public would be to educate public beneficiaries of the audit to develop expectations that are more consistent with auditors' current duties.

2. Measures to minimise failure of the auditor aim to achieve greater congruence between actual auditor performance and applicable audit standards, such as better professional training for auditors (to increase auditors' awareness and knowledge of the requirements as set out in auditing standards) and/or more stringent supervision or more severe penalties in cases of auditor misconduct (to increase the extent of auditors' compliance with auditing standards).

3. Possible strategies to avoid failure of the standard-setter include eliminating inconsistencies in the standards and specifying the requirements with an appropriate level of detail. Regarding the introduction of potential new duties in a future audit regime, strategies include carefully evaluating the costs and benefits of changes to identify those public expectations that are justified and to reflect such expectations in the audit standards.

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1. Interpersonal problem
Some company fear of an audit. On one engagement, a bookkepper shredded every ledger and supporting document before auditor arrived. He does not want the auditor to find anything wrong and error that might have.
2. Limited experiences
The accounting staff often assists the CPA in preparing various schedules and summary. This request can be quite disruptive to a small business's operation. The limited accounting experience of small business employees inhibits their ability to prepare this schedule without instruction and review by the CPA.

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Issue 3: Lack of competency of shari'ah auditor

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Issue 3: Lack of competency of shari'ah auditor

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Until today, the lack of both shari’ah and accounting knowledge has dampened the crucial needs of the

shari’ah auditor. Those with accounting knowledge tend not to have shari’ah knowledge and vice versa.

This issue has been debated since the early formation of modern Islamic finance in the 1970s. It should be noted that a shari’ah auditor must have a good knowledge in accounting and also in shari’ah to be able to

understand and audit the IFIs. Investments for the education in shari’ah, accounting and auditing is crucial to enhance the knowledge and expertise of the actors involve with the shari’ah audit especially and IFIs in general
(Rahman, 2011; Sulaiman, 2011).

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The Nigerian Business community is also plagued with these financial scandals involving African Petroleum Plc, Cadbury Nigerian Plc, Lever Brothers. He said these financial scandals were as a result of widespread fraud, in which accounting firms and professionals played significant role through fraudulent financial reporting, thereby misleading the public.

The public wonders why an organisation should fail or a major fraud be subsequently discovered once an independent audit has been conducted. The public expects such an audit to provide a complete assurance that everything is fine.

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- Few sources of income and uncomplicated activities.
- Unsophisticated record-keeping.
- Limited internal control together with potential for management override of internal.

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- A small company need not appoint an auditor to audit its financial statement.
- A company qualifies to be a small company by satisfying two of three criteria for the period of two financial years before the financial year :
a) Revenue does not exceed Rm300,000 for each financial year.
b) Total asset does not exceed Rm500,000 for each financial year
c) Employees are no more than 5
Although they are exempted from audit, company must lodge the financial statement with Registrar of Companies.
(According to Companies Act 2016)

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+Internal audit
+external audit
+Internal Revenue Service audit