Examining the effectiveness of regulators in supervising the conduct of auditors

The term ‘auditor’ originates from the expression auditor, which in Latin, means ‘to listen’. Nonetheless, when scrutinising the duties and obligations of auditors, it reveals that they do not merely listen. They also examine and report to the company, on its accounts. Moreover, the scope of these duties and obligations has amplified over recent years. This is due to the changes in the corporate landscape which encompasses the business world. On the other hand, significant judgments have been laid down by the courts across jurisdictions with regards to auditors’ duties and obligations. It began with the historic English decision of Re Kingston Cotton Mill Co (No 2) [1896] 2 Ch 673 where Lopes LJ stated that “...auditors are watchdogs but not bloodhound…” to the ingenious statement of Cardozo CJ in the American decision of Ultramares Corporation v Touche (1931) 174 NE 441 that to hold auditors liable results to a case of “…liability of an indeterminate amount for an indeterminate time to an indeterminate class…” In the midst of these legal propositions, it is pertinent to determine the effectiveness of the regulatory bodies namely the Companies Commission of Malaysia, Securities Commission and Central Bank of Malaysia and the proposed independent body in monitoring, supervising and regulating the conduct of auditors. This is important in view of the various scandals involving auditors that have occurred in Malaysia. Moreover, shareholders and stakeholders have placed much reliance on the regulators in protecting their rights and interests. Nonetheless, the findings show that the relevant regulatory bodies namely the Companies Commission of Malaysia, Securities Commission and Central Bank of Malaysia are still far from carrying out their role effectively. Thus, they should be more effective in ensuring accountable auditors.