KUALA LUMPUR: Public limited companies (PLCs) are urged to strengthen their internal audit functions for the benefit of the companies’ overall health.

Institute of Internal Auditors Malaysia (IIAM) president Lucy Wong Kam Yang said strong internal audit functions in PLCs contribute to good governance, and better risk and control systems in organisations.

Based on a recent study conducted by IIAM on 785 PLCs listed on the Main Market of Bursa Malaysia, Wong said 41% of audit committee chairs did not have professional accounting qualifications.

“These qualifications are important to ensure that the audit committee chair has the skills to lead and deliberate on financial matters, as well as to oversee that [the] end results reflect the understanding of the audit committee chair,” she told a news conference yesterday.

As she highlighted the issue of insufficient qualified internal auditors, Wong said there are around 3,000 members in IIAM, but only about 822 of them are certified internal auditors in Malaysia.

Further, she said internal audit functions should be an independent function to enable auditors to work more effectively without fear or restrictions from management.

“When there is an independent function, the internal audit will be able to do their work and be able [to] report exactly what they see,” said Wong.

Another issue she raised was the lack of disclosures of professional qualifications by in-house heads of internal audit and lead auditors from outsourced service providers (OSPs).

Wong said qualification disclosures by heads of internal audit and lead auditors of OSPs will provide better accountability to PLCs. However, the study showed an overwhelming 94% of PLCs choosing not to disclose their heads of internal audit’s professional qualifications.

Moreover, the study showed that some 7% of audit committee chairs were also board members. Wong said there is a need to separate the role of audit committee chair from that of board chair to avoid impairment of independence.

She added that 90% of PLCs that outsourced internal audit functions paid RM100,000 or less in a year — 67% of whom were large PLCs — indicating that very junior staff or very few staff were in the outsourced audit team. Hence, limited scope was covered.

She also said the low amount was an indication that the staff did not have professional qualifications, and may not have the experience and skill set to effectively carry out the work.

In the study, 54% of PLCs surveyed indicated that they preferred outsourcing to OSPs, while the remainder relied on in-house internal audit functions.