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1. Examining the Effectiveness of the Laws Which Govern Auditors’ Eligibility to Ensure Auditors are Effective Watchdogs
2. Examining the Threats to Auditors’ Independence: Malaysian, Australian and European Union Law Perspective
Corporate governance reform in Malaysia is mainly focussed on boards' role and accountability with minimal discussion on shareholders' role. Research on shareholders has been conducted mostly on protection of shareholders' rights and remedies via provisions enabling shareholders to sue directors. While the right to sue directors is an important corporate governance mechanism, an often neglected area is the preventive action that can be taken by shareholders to minimize or prevent boardroom complacency which depends on the recognition of shareholder's participatory right but there is minimal discussion on shareholders' participatory rights, that is, by considering the extent of shareholders' control power in Malaysia to determine membership of (board selection, nomination process and procedures) and incentives for the board (remuneration) and ascertain whether there is legal and/or commercial recognition of shareholders' participatory rights and improvements that can be achieved. An important component in this research is exploring the role of institutional shareholders In terms of the use of their voting power.
As part of the Malaysian Government's Economic Transformation Programme (ETP), one of the main agenda is the revitalisation of the capital market with the government announcing a paring down of their stake in listed companies. The transfer of this block of shares will probably see an increase in institutional shareholders taking over the share. It is timely for a model for insitutional shareholders' involvement to be considered and implemented for Malaysian capital market In considering the above, the research will assess the suitability of proposals that intend to empower shareholders (some examples are proxy reform proposals for directors' election and nomination, the witholding of votes, non-binding shareholdders' resolution); the suitability of proxy advisory services as a mechanism to deal with information assymetry faced by unsophisticated shareholders and the necessary legal and regulatory framewrok if these are implemented in Malaysia.
This research addresses the above stated issues with a view to ascertaining the appropriate mix of regulatory approaches, that is legal and/or extra legal solutions-via codes or best pratice guidelines.
The research will adopt doctrinal analysis to identify the possible inconsistencies in the legal and regulatory framework and structured interviews to ascertain industry views. The expected outcome would include policy recommendation relating to mechanisms and incentives that can be put in place to encourage and facilite shareholders' responsiblity in corporate governance.
Researchers: Associate Professor Shanthy Rachagan, Monash University Malaysia and Professor Aiman Nariman, International Islamic University.
Auditors must be independent in conducting audit on a company's financial affairs. The independence is imperative as members of a company place utmost reliance on auditors' report. The report is a tool for members to evaluate the company's management. Additionally, there are persons other than members who rely and use the report. There is utmost reliance on the report since auditors are external parties. Nevertheless, if auditors are not independent, the report may not reflect a true and fair view of the company's affairs. Hence, financial irregularities of a company will not be reported to its members. This will be damaging to the company and its members.
This study critically examines the current legal framework which govern independence of auditors from a Malaysian, Australian and EU perspective. Case law across the three jurisdictions will also be examined to determine the approach taken by the courts in establishing the requirements of auditors' independence. The study will unearth the shortcomings of the legal framework in relation to auditors' independence. In light of the shortcomings, the study discusses the factors which affect auditors' independence. Scandals due to non-independence of auditors which transpired in Malaysia, Australia and EU are explored to show how threats to independence can be damaging.
Interviews were conducted with audit practitioners, regulators and academics to obtain a holistic picture on the issue of auditors' independence. The results of the interviews show that there are loop-holes in the current legal framework. Results also show that the Malaysian legal position is far behind the approach taken in Australia and EU. Nevertheless, the results do not show that the legal position in Australia and EU are absolutely fault-proof. Thus, further amendments should be made to the Malaysian, Australian and EU laws to restore integrity to the audit profession which has declined in recent years.
Researchers: Dr Loganathan Krishnan (BLT) and Prof. Dr. Choong Yeow Choy (University of Malaya)
In 2012 the Future of Financial Advice (FOFA) laws were enacted to protect consumers of financial advisory services. The FOFA laws aim to remove certain incentives for financial advisers to place their own interests ahead of the interests of their clients – specifically, by prohibiting the payment of ‘conflicted remuneration’. Further, the FOFA laws sought to raise the required standard of conduct applying to individual financial advisers who provide personal advice to retail clients by requiring those advisers to act in the best interests of their clients. The FOFA reforms also sought to enable consumers to better monitor the value of the ongoing services they receive from their financial advisers by permitting ongoing fees to be charged only if the consumer is provided with annual information about the fees he or she is paying. This project examines the impediments to effective enforcement of the FOFA laws. A key issue in this regard is whether the current penalties are sufficient to deter misconduct. . Another key issue which this project explores is whether ASIC’s administrative powers are sufficient to protect consumers.
Researcher: Andrew Serpell
This project has produced the following publication: