KUALA LUMPUR (Aug 6): Malaysia’s Audit Oversight Board is now training its attention on audit firms’ rising use of artificial intelligence.

One inspection focus in 2026 will be on how firms manage technology risks, according to the board’s Annual Inspection Report 2025 released on Thursday. Firms are expected to show strong governance, perform full risk review and take measures to mitigate technology risks, the report said.

“As the profession embraces new technologies, firms must be proactive in strengthening their governance and risk management practices to uphold audit quality,” the board said.

The report is issued annually by the board, also known as AOB, set up under the Securities Commission Malaysia.

Major audit firms have begun leveraging artificial intelligence, or AI, in audit procedures, including support document analysis, such as contracts, internal audit reports, and invoices, extracting key data points, and generating structured tabular outputs.

Other areas where audit firms utilise AI include financial reporting standard compliance checklists and AI analysis tools embedded within audit software to generate suggestions that enhance the quality of audit documentation.

“However, the use of AI does not diminish the auditor’s responsibility to obtain sufficient appropriate audit evidence and exercise professional scepticism,” AOB said.

The AOB said while technology offers numerous benefits to audit firms, it also introduces unique risks that must be properly identified, assessed and addressed.

The risks include the confidentiality of audit engagement information being compromised, loss of audit engagement files, disruption to audit software due to server outages, software bugs and delays in reporting and resolving IT issues.

The report comes as audit quality continued to improve, with the proportion of audit engagements requiring significant improvements falling to 27% in 2025 from 46% in the previous year.

However, the AOB said recurring deficiencies remained in areas including accounting estimates, sampling, internal control testing and revenue recognition.

As at Dec 31, 2025, the AOB regulated 41 audit firms and 397 individual auditors. During the year, it inspected 14 audit firms, 40 individual auditors and 41 audit engagements across various industries and risk areas.