Malaysia far from 2030 target of 60,000 accounting professionals

Sunday 19 May 2024

This article first appeared in The Edge Malaysia Weekly on July 3, 2023 - July 9, 2023

TALK of a shortage of accountants in the country is rife, with practitioners citing mounting regulatory pressures as a major pain point for accounting professionals, in addition to recruitment issues and talent importation exacerbating the dilemma. After all this time, accounting and auditing jobs continue to be perceived as underpaying, undervalued and less dynamic than positions in tech, investment banking and private equity.

Although Putrajaya in its Economic Transformation Programme in 2010 said it targeted to produce 60,000 accountants in the country by 2020, this was not achieved, with subsequent data from the Malaysian Institute of Accountants (MIA) showing that there were “more than 38,500 members in its registry as of June 2023”.

And while the MIA, a regulator and developer of the profession in Malaysia, says its total membership growth for the last six years, averaging 2.5% per annum, has been steady, Malaysia’s accountant-population ratio is inferior compared with other countries.

According to a 2015 report by the Ministry of Finance’s multi-agency panel Committee to Strengthen the Accountancy Profession (CSAP) referencing 2014 data, Australia has an accountant-per-population ratio of 1:119, Singapore 1:184, New Zealand 1:136 and Hong Kong, 1:195.

“With 38,500 members [as per the MIA’s registry] serving Malaysia’s population of about 33.2 million, that means each accountant is serving approximately 874 people, giving us an accountant-population ratio of 1:871. [Malaysia is still behind, but nevertheless, that’s a] significant improvement from 1:1,342 in 2003,” MIA president Datuk Bazlan Osman tells The Edge.

“[I believe] the government’s target of 60,000 accountancy professionals can be achieved in 2030 upon the repeal of the Accountants Act 1967 and full enforcement of the three membership levels (accounting technician, accountant and chartered accountant) based on the MIA competency framework. [Removing the focus from only one professional title] will increase the number of accountancy professionals in the country,” Bazlan says.

Challenging regulatory landscape

In response to high-profile corporate accounting scandals, regulatory bodies around the world have enhanced their financial reporting standards.

“For example, the International Financial Reporting Standards (IFRS), which are adopted in Malaysia, require accountants to comply with more rigorous reporting requirements. Adapting to these complex standards and ensuring compliance may be challenging and time-consuming for accountants, but they provide better reporting alignment and governance,” Bazlan explains.

In addition, there are also increased regulatory oversight and penalties, where regulatory bodies such as the Securities Commission Malaysia (SC), Bursa Malaysia and the Companies Commission of Malaysia (SSM) have intensified their scrutiny of corporate reporting practices.

Take, for example, the SC’s introduction of updated corporate governance practices (through the Malaysian Code on Corporate Governance [MCCG] 2021) to improve accountability and transparency within organisations in line with global expectations; and evolving taxation regulations within Malaysia and globally to address emerging issues such as transfer pricing changes, global minimum tax rules and sealing loopholes.

“Over-regulation has been driving talents away from the profession. This perception of riskiness and unattractiveness hinders the influx of new talent, further dampening the talent pipeline,” says an auditor who declines to be named. “People used to gain experience at accounting firms for at least three to four years before leaving for the commerce or finance industry. But these days, talents leave within a year.”

In addition, the frequency of tax regulation changes, Bazlan notes, can make it challenging for accountants to navigate such changes effectively.

Needless to say, accountants’ need to stay informed about the changing regulatory landscape, invest in continuous professional development, and dedicate significant time and effort to ensure compliance pile on the responsibilities.

Then, there are also the severe consequences of non-compliance, including reputational damage, legal penalties and professional sanctions, remarks Bazlan.

“With Malaysia’s accountancy talents being sought by neighbouring countries such as Singapore and Australia, and even in Europe, the talent crunch has been exacerbating the situation as a talent exodus can weaken compliance,” he adds.

Both Bazlan and the Institute of Chartered Accountants in England and Wales (ICAEW) Malaysia emphasise that regulations should not be viewed as problems, but as constantly evolving guidelines and opportunities to protect public interest, shareholders and stakeholders.

ICAEW Malaysia says that digital adoption in accounting processes, which have been said to push accountants to adapt to even more changes, actually allows accountants more time to analyse data and create decision-support capabilities.

Delay in student recruitment pipelines, employee attrition and talent importation

ICAEW Malaysia explains that during the pandemic, lockdowns, remote working arrangements and economic uncertainty slowed down the recruitment of new accounting professionals, which has in turn disrupted the supply chain of both qualified and trainee accountants. And while student intakes for both accounting degrees and diplomas have been strong, to the point that demand outstrips the number of seats available at tertiary level institutions, many graduates have ventured into different fields of work including online entrepreneurship.

“[That there have been leakages] where accountancy graduates pursue different career pathways, such as online entrepreneurship instead of continuing within the profession, has had MIA looking to strengthen talent retention. But this requires a concerted effort from all parties concerned — academia, corporates, public practice and the public sector,” Bazlan stresses.

ICAEW Malaysia adds that promotional initiatives that support the development and growth of future accountants, such as online learning programmes, virtual internships and flexible training arrangements, can help mitigate the impact of the recruitment pipeline delay.

Where talent importation between countries is concerned, ICAEW Malaysia has observed increased mobility of Malaysian ICAEW members to Singapore and returning members to Malaysia, with proximity and economic ties between both countries facilitating the movement. Globally, the importation of accountancy talents is also seen in the US, Canada, Australia and the UK.

“Focusing purely on the accounting factors, typically, more developed economies have increased demand for accounting services due to growth, changing regulatory requirements and evolving business practices, and are thus forced to seek [skilled] talents internationally [at expected cost and quality].

“Moreover, the evolving business landscape has given rise to new job opportunities; for example, in the field of sustainability. As demand continues to grow, accountants can readily adapt to these emerging roles and leverage their existing skill sets to drive sustainable practices and outcomes. Their ability to navigate financial data, assess risk and provide strategic insights position them well to contribute to the sustainability agenda and play a vital role in shaping a more sustainable business environment,” says ICAEW Malaysia.

(Re)courting talents

Bazlan explains that the accounting profession has seen many changes over the years with various initiatives implemented by industry players to court talents.

These efforts include flexible working arrangements adopted by firms and corporates, as well as increased starting salaries and better perks at corporates and public practice firms.

Efforts by the MIA include recognition awards and sponsorship programmes for deserving students (recognised via MIA’s National Accounting Student Excellence Award scheme under which students can pursue professional qualifications within accountancy upon graduation).

“This is in addition to the continuous support by public practice firms by providing tuition and examination fees, tuition classes and study and exam leaves to articled students pursuing professional qualifications,” Bazlan says.

AOB wants to set record straight on fairness of audit regulation

The Securities Commission Malaysia’s (SC) Audit Oversight Board (AOB) wants to set the record straight on concerns about the fairness and objectivity of the regulator’s periodic inspections of the audit firms in its registry.

For context, firms auditing more than 50 public interest entities (PIEs) with a total market capitalisation of more than RM15 billion (Major Audit Firms, as AOB terms them) are subject to annual inspections by AOB, while Other Audit Firms are reviewed on a rotational basis by way of a risk-based approach.

Eight Major Audit Firms comprising the Big Four (KPMG, PwC, EY and Deloitte) as well as later additions BDO and Crowe, followed by Grant Thornton and Baker Tilly Malaysia, are inspected every year. At present, there are 36 audit firms, including the eight Major Audit Firms, registered with AOB.

However, auditors whom The Edge spoke to have hinted at “over-regulation by audit regulators” — in particular, AOB for its scrutiny of certain small- to medium-sized audit firms — despite their client portfolios being smaller than those of the Big Four.

“AOB visits us every year, although the total market capitalisation of our 70 public-listed client companies makes up only 1% of the statutory RM15 billion. Our partners are reviewed at least once in three years while [some] Big Four partners permanently dodge inspections,” says an auditor who declines to be named, adding that “excessive scrutiny and disproportionately harsh penalties have left many auditors dissatisfied with AOB”.

The auditor adds that constantly evolving accounting standards “complicate the already onerous work of accountants to keep up with the changes while dealing with incessant regulation by the authorities”.

“[AOB] may argue that the focus should be on addressing systemic issues and improving audit quality rather than solely penalising individual auditors. Bear in mind that these issues have tremendous impact on the audit firms’ reputation and talent pipeline as the oversight board’s actions, such as public censures, can affect their professional reputation and discourage new talents from entering the profession. This can create concerns about the long-term sustainability of the profession and the availability of skilled auditors in Malaysia,” says the auditor.

AOB — which was set up in April 2010 by the SC as an audit oversight framework to promote confidence in the quality and reliability of audited financial statements in Malaysia — tells The Edge that it has always applied a risk-based approach and professional scepticism to its inspections.

“If we had a choice between the Other Audit Firms [excluding the Major Audit Firms], we have to choose the ones whose risks are more obvious to us. This is where data analytics and the board’s decisions come into play. For example, if Firm A hasn’t been inspected in three years while Firm B was just inspected last year, we would inspect Firm A again.

“We would like to see the firms periodically over a cycle of five to seven years, but if there is a risk area that has been highlighted, we would go in and inspect,” responds AOB, which last Monday released its annual inspection report 2022, in which the regulator urged auditors to improve audit effectiveness and beef up internal capacity given the complexity of the PIE’s portfolio and challenges posed to firms’ audit planning, judgement and execution.

“If you look at the composition of AOB, its members are completely independent of the profession. Some were former partners, but none for several years now who is a Big Four audit firm partner.

On complaints about AOB’s objectivity in the reviews, the regulator explains it follows a fair inspection process, where its queries are raised in writing and discussed to ensure that the engagement partner in a job understands the issues.

“The engagement partner then responds to us in writing to address the queries, followed by an exit interview with the firm’s leadership before AOB finally presents a draft inspection. Having heard the firm out, we may reduce [the observations presented during the exit meeting], but we never add to them,” AOB assures, adding that in the event the said firm is sanctioned, appeals can be lodged with the SC.

‘Lack of transparency and accountability’

Concerns about AOB’s apparent lack of accountability and transparency have also been raised, with detractors articulating that the investigation and appeal process falls within the ambit of the SC, with no other avenue with which to file “dissatisfaction over unfair inspection outcomes and processes”.

“That current laws only allow appeals against the decision of AOB to be filed with the SC, which is the mother body of AOB, is a clear conflict [of interest] and an issue of playing police, prosecutor and judge within the same body.

“If there is the perception that the AOB is not subject to sufficient scrutiny of external oversight, auditors may question the fairness and integrity of the regulatory framework, leading to dissatisfaction,” says the auditor who declines to be named.

Prominent accountant Datuk Nik Mohd Hasyudeen Yusoff, a former executive chairman of AOB, tells The Edge that parties who are dissatisfied with the outcome of appeals lodged with the SC board can bring the cases to court.

To this end, AOB says it has won all five of its judicial review cases, right to the Federal Court.

“[This speaks of] the robustness and transparency of AOB’s processes. Of course, there were learning points for us, but nothing the court deemed illegal,” says AOB, emphasising that its views in the inspection reports do not necessarily reflect the quality of the PIE but that of the audit quality.

According to AOB, six of the 21 firms in total which the regulator inspected in 2022 were subject to enforcement, while none of the 14 firms inspected in 2021 went to enforcement. There were enforcement proceedings against five firms out of 10 inspections in 2020, while three of 13 inspections in 2019 were subject to enforcement.

“We may be criticised for very high standards, but our membership of the International Forum of Independent Audit Regulators (IFIAR) and Asian Corporate Governance Association (ACGA) lends credence to our role as audit regulators in Malaysia. In fact, the latter recognises AOB as a progressive audit regulator in the region,” says AOB.

“For AOB to be a member of IFIAR, the majority of the former’s board composition must not be from the profession and must not have any interest in audit firms. That gives us the market’s confidence and trust,” says the audit regulatory board.

Nik Mohd Hasyudeen emphasises that AOB’s affiliation with IFIAR, which conducts regular engagements with Global Public Policy Committee firms and the investor community, posits AOB with sufficient knowledge and experience “to focus on what really matters in enhancing audit quality”.

“By now, AOB is 13 years old. It has accumulated high [volumes] of data that relate to audit firms, audit quality and the culture in these firms.

“In my view, such perceptions [as those posed above] could be due to the significant gap between the AOB regulatory regime and that which is overseen by the Malaysian Institute of Accountants. If you read the MIA annual practice review report, its findings are worrying due to the proportion of audit work assessed as not meeting standards. However, the consequences of such unprofessional conduct differ significantly due to MIA’s lack of ability to take serious action.”

AOB adds that while the prohibition on firms from auditing or accepting clients for 12 months may seem a very harsh penalty, it is “breathing space to improve their processes to come back stronger”.

“[This has been the case with] some of the firms after our review.”

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