The objective of the guidance is to guide directors of listed companies in making disclosures on the state of internal control of their companies in their annual reports as required by paragraph 15.27(b).
Paragraph 15.27(b) is part of the new Listing Requirements that was announced on 22 January 2001 and it will take effect on 1 June 2001. However, only listed companies with financial years ending after 31 December 2001 will be mandatorily required to comply with this requirement. This is to ensure adequate time is given for industry participants to be familiar with the guidance before they commence compliance with the disclosure relating to their state of internal control.
The Taskforce issued the exposure draft of the guidance for industry consultation on 6 September 2000, with the initial deadline of 25 September 2000 extended to 30 November 2000 for adequate industry feedback. Members of the Taskforce on Internal Controls consist of experienced industry professionals. The Institute of Internal Auditor Malaysia (IIAM) is the secretariat and custodian of the guidance issued by the Taskforce.
To ensure the exposure draft was widely disseminated and given due consideration during the consultation period, the exposure draft was sent to all relevant organisations and was also made available on the KLSE Website. Organisations consulted include listed companies, industry associations and regulatory bodies.
In developing the guidance, the Taskforce observed the recommendations of the Turnbull Report (the guidance issued to directors of companies listed on the London Stock Exchange), Committee of Sponsoring Organizations of the Treadway Commission (COSO), the Basle Committee on Banking Supervision and the International Standards on Auditing (ISA) as adopted by the Malaysian Institute of Accountants and the Malaysian Association of Certified Public Accountants.
For ease of reference and to eliminate ambiguity, the guidance explains in clear and simple terms key areas that directors must focus on before making any statements about the state of the company’s internal control, including:-
- the system of internal control and the responsibilities of various parties in the maintenance of a sound system of internal control;
- the process of review of the adequacy and integrity of a system of internal control; and
- the minimum disclosures to be made by the board of directors on the state of internal control.
The issuance of the guidance signifies the importance of internal control for enhancing corporate governance in a company. The implementation of the guidance should also augur well for the preservation of company assets and result in better protection for investors.
