10 Anson Road #05-01/15, International Plaza, Singapore 079903
Telephone: (65) 62278551 Fax: (65) 62251676 Website: www.acra.gov.sg
PRESS RELEASE
EMBARGOED UNTIL 19 AUGUST 2009, 12.00PM
ACRA releases key report on Practice Monitoring Programme and ACRA
commissioned SMU survey on audit committees at its 4th annual
Public Accountants Conference
Singapore, 19 August 2009 - ACRA will publish its Annual Practice Monitoring Programme
Public Report 2009 (the Report) at the Public Accountants Conference on 19 August 2009. The
Report covers observations from ACRA’s reviews of public accountants and accounting entities
in the April 2008 to March 2009 period.
Another conference highlight is a survey of audit committees commissioned by ACRA and
conducted by Singapore Management University (The survey). The survey covered audit
committees’ considerations when appointing and changing auditors and overseeing the external
audit process. The survey respondents included experienced audit committee chairmen, who
had an average of eight years experience in the role, from nearly 100 SGX listed companies.
The survey gives a valuable insight into the relationship between audit committees and public
accountants, which is vital to the strength of Singapore’s corporate governance framework.
Background
ACRA carries out rigorous regulatory oversight of the public accountancy profession to
safeguard the public interest and to provide the investing public with a strong basis for
confidence in the quality of Singapore’s audit reports and corporate financial information. To
reinforce this confidence, ACRA benchmarks its regulatory work with international regulatory
practices and standards.
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The PMP Public Report
The Report’s purpose is to promote understanding of ACRA’s work and objectives and
communicate key regulatory assessments of Singapore’s public accountancy profession, to
ensure that the profession meets the highest international standards. A visible commitment to
audit quality from ACRA and the profession is critical to local and international confidence in
Singapore’s audited financial reports.
Context of Observations and Findings in the Report
ACRA’s inspection methodologies have evolved in common with ACRA’s international peers in
the International Forum of Independent Audit Regulators. ACRA’s regulatory oversight is
becoming more rigorous but also more targeted and risk based. Therefore, the Report’s
observations, while of concern, reflect a rigorous approach and a high benchmark tied to the
need to maintain high confidence in the financial information that makes Singapore’s markets
work.
This year’s Report is published during a challenging time for the corporate governance
community, including auditors. In response, auditors have lifted their professional scepticism,
extended audit procedures and identified key concerns in financial statement audits.
Overall Findings of the PMP Public Report
Singapore’s financial statement audit market has two broad segments: audits of listed and other
public interest entities (PIEs) and audits of non-PIEs.1 As the two segments have different
challenges and stakeholders, the Report deals with each segment separately.
Overall, ACRA has found that most of the audit procedures and work it has reviewed has met
regulatory expectations. However, in both segments, but to different degrees, ACRA has
identified key performance gaps and systemic threats to audit quality. The profession needs to
work on these issues as individual practitioners, as firms and as a profession. Improvement is
needed before ACRA can regard the situation as satisfactory.
1
PIEs include companies listed on SGX, or intending to list on the SGX, companies in regulated industries such as
banks and insurance companies, and other entities that raise funds from the public such as charities.
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The key findings from the Report are summarised in Fact Sheet One
ACRA will continue to work with the profession, including the Institute of Certified Public
Accountants of Singapore (ICPAS), to address the key issues to raise the overall quality of
Singapore’s profession in its work as statutory auditors. ACRA will continue to take firm
regulatory actions to ensure that Singapore’s public accountancy profession continues to uphold
the highest professional standards and quality in its work as statutory auditors.
Survey on the Oversight of External Auditors by Audit Committees
ACRA commissioned the Singapore Management University (SMU) to undertake an
independent descriptive survey to better understand audit committees’ processes for appointing,
changing and monitoring external auditors in Singapore’s listed companies. The survey sought
an in-depth understanding of audit committees’ decision-making processes to identify current
experiences in industry practice. The survey sought views from Audit Committee Chairmen of
listed companies, whom collectively play an important role in promoting audit quality and a
robust corporate governance environment. The survey provides a base to consider the
important areas that the audit profession and audit committees can work on to strengthen
corporate governance and investor confidence.
The survey findings show that amongst audit committees there is a high degree of awareness
and consensus on the important factors in appointing and overseeing auditors, the top of which
include auditor independence and the ability to communicate audit risks, and the involvement of
the audit partner in the audit.
The key findings from the survey are summarised in Fact Sheet Two
Deputy Chief Executive of ACRA Mr Ow Fook Chuen said: “ACRA undertakes rigorous and
internationally benchmarked auditor oversight to promote local and international confidence in
Singapore’s public accountancy profession. ACRA found that most of the audit procedures and
work it reviewed met regulatory expectations. However, we also identified key performance
gaps and systemic threats to audit quality, which the profession needs to address, as individual
public accountants and firms and collectively as a profession.”
Commenting on the ACRA-commissioned SMU survey, Mr Ow said “It was good to see a strong
consensus come through on the key attributes and best practices that Audit Committees look for
in their interaction with external auditors, such as the need for external auditors to engage in
open communication with Audit Committees. We hope the survey findings provide a good basis
upon which external auditors and Audit Committees can work together to make the audit
process even more effective and robust, in the interests of the investment community.”
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For media enquiries, please contact:
Sitharani Doriasamy
Head, Corporate Communications
DID: 6325 3787
Email: sitharani_d@acra.gov.sg
Keeve Chan
Manager, Corporate Communications
DID: 6325 6738
Email: keeve_chan@acra.gov.sg
About ACRA
The Accounting and Corporate Regulatory Authority (ACRA) is the national regulator of
business entities and public accountants in Singapore. ACRA also play the role of a facilitator
for the development of business entities and the public accountancy profession.
The mission of ACRA is to provide a responsive and trusted regulatory environment for
businesses and public accountants. As at 31 July 2009, over 360,480 business entities and
about 879 public accountants practising in public accounting firms, accounting limited liability
partnerships and accounting corporations are registered with ACRA.
For more information, please visit www.acra.gov.sg
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FACT SHEET ONE: KEY FINDINGS FROM ACRA’S PMP PUBLIC REPORT 2009
Context of Observations and Findings in the Report
ACRA’s inspection methodologies have evolved in common with ACRA’s international peers in
the International Forum of Independent Audit Regulators. ACRA’s regulatory oversight is
becoming more rigorous but also more targeted and risk based. Therefore the observations in
this report, while of concern, reflect a rigorous approach and a high benchmark tied to the need
to maintain high confidence in the financial information that makes Singapore’s markets work.
This year’s Report is published during a challenging time for the corporate governance
community, including auditors. In response, Auditors have lifted their professional scepticism,
extended audit procedures and identified key concerns in financial statement audits.
Overall Findings
Singapore’s financial statement audit market has two broad segments: audits of listed and other
public interest entities (PIEs) and audits of non-PIEs.2 As the two segments have different
challenges and stakeholders, the Report deals with each segment separately.
Overall, ACRA has found that most of the audit procedures and work it has reviewed has met
regulatory expectations. However, in both segments, but to different degrees, ACRA has
identified key performance gaps and systemic threats to audit quality. The profession needs to
work on these issues as individual practitioners, as firms and as a profession. Improvement is
needed before ACRA can regard the situation as satisfactory.
Auditors of Public Interest Entities
In public accountancy firms that audit PIEs (PIE firms), the internal quality control system at the
firm level is a key determinant of audit quality. Thus for PIE firms, ACRA’s review places its
strongest emphasis on the quality and effective implementation of the firm’s policies and quality
controls which influence the overall effectiveness of the audit process. ACRA extends its
inspections to individual audit engagements to ensure compliance with standards.
2
PIEs include companies listed on SGX, or intending to list on the SGX, companies in regulated industries such as
banks and insurance companies, and other entities that raise funds from the public such as charities.
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ACRA has found that the quality of policies, controls, and auditing in the reviewed PIE firms and
audit engagements was for the most part acceptable. However, for nearly all reviewed firms,
ACRA has identified a need for important improvements. Whilst over the past two years the
PIEs segment has made progress in addressing key gaps identified, ACRA has advised the PIE
firms to make further improvements particularly in the following four areas:
(a)
A need to strengthen involvement by experienced auditors in key audit areas;
(b)
A need for greater rigor in the exercise of professional scepticism in the
conduct of audits;
(c)
A need for a more diligent and rigorous approach to tests for existence of
assets and liabilities such as accounts receivable and accounts payable; and
(d)
A need to improve the effectiveness of internal monitoring programmes.
Auditors of Non-Public Interest Entities
In the non-PIE segment, which comprises mostly sole-proprietorships or firms with two to four
partners, a detailed review of public accountants’ individual files is viewed as the best way to
monitor audit quality.
As the PMP in the non-PIE segment has progressed, the reviews have continued to find a broad
range of weaknesses. While there has been some progress in addressing previously reported
findings, there were still recurring findings in certain basic audit areas. This trend highlights the
systemic impediments the segment faces in the conduct of high quality audits. ACRA considers
quality in some areas to be unsatisfactory and is concerned that the professionals in the smaller
practices segment are struggling to keep up with increasing demands imposed by the changing
audit environment.
The key systemic impediments would include the challenges the segment faces in attracting
qualified audit staff, providing for adequate supervision and involvement by the public
accountants responsible for the audit, as well as getting access to technical resources. These
challenges may be related to the prevalent operating model of small audit firms in the segment,
where the majority of the practices are one-partner setups, staffed with very junior officers, and
which operate on a high volume/low fee practice model. Such a practice model would pose
tremendous challenges to a public accountant in terms of devoting adequate time and
resources to ensuring high quality audit.
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ACRA will continue to work closely with the profession, including the Institute of Certified Public
Accountants of Singapore (ICPAS), to address the key findings identified from the PMP to raise
the overall quality of the Singapore profession in its work as statutory auditors. In carrying out its
regulatory function, ACRA will continue to take firm regulatory actions to ensure that the
Singapore public accountancy profession continues to uphold the highest professional
standards and quality in its work as statutory auditors.
Further background information on regulation of accounting entities and public
accountants
Singapore’s public accountants and accounting entities, through the provision of audit reports,
play a key fiduciary role in preserving and strengthening confidence in Singapore’s business
and financial markets. The profession must therefore aim for the highest professional standards
to uphold Singapore’s reputation as an international financial and business centre.
To safeguard the interest of the public and investors in the work of Singapore’s statutory
auditors, ACRA carries out rigorous regulatory oversight of the public accountancy profession
that is benchmarked to international regulatory practices and standards.
ACRA takes a proactive approach to the regulatory oversight of Singapore’s auditors. One of
ACRA’s key regulatory activities is to carry out regular and cyclical reviews of public
accountancy firms and public accountants registered with ACRA. ACRA also closely monitors
events and carries out other regulatory oversight activities on the work and independence of
statutory auditors when required. The Public Accountants Oversight Committee (PAOC),
established by ACRA under the Accountant’s Act, is empowered to take action in response to
the outcomes of audit inspections carried out by ACRA inspectors. For example, the PAOC
requires public accountants who have failed to meet the expected professional standards to
take necessary remedial actions. When warranted, the PAOC issues orders to protect the public
interest by restricting a public accountant’s practice.
At the conclusion of its inspections ACRA advises public accountants and accounting entities of
areas that ACRA expects to be improved. ACRA also monitors common findings and the overall
standard across the profession.
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ACRA’s International Benchmarks
ACRA is a founding member of the International Forum of Independent Audit Regulators (IFIAR)
established in 2006 and has participated in various IFIAR audit inspection workshops on
international best practices in audit inspection methodology and processes. ACRA has
conducted joint audit inspections with its US counterpart, the US Public Company Accounting
Oversight Board (PCAOB), on Singapore audit firms that are registered in both Singapore and
the US. ACRA has also been elected to the six-member Advisory Council of IFIAR in October
2008 to assist and advise IFIAR’s office bearers.
About ACRA’s Practice Monitoring Programme and Reviews of Accounting Entities
The PMP, conducted for all public accountants that provide public accountancy services in
Singapore, is calibrated in scope and intensity according to the nature and complexity of the
public accountancy services provided.
Public accountants in accounting entities that audit public interest entities are subjected to a
review process that considers the accounting entities’ systems of quality control and the
effectiveness of the implementation of and/or compliance with the firms’ policies (known as firmlevel reviews), in addition to detailed reviews of public accountants’ individual engagement files.
ACRA’s firm-level review of audit firms that audit public interest entities is carried out in line with
Singapore Standard on Quality Control 1 (SSQC1). The review involves an assessment of an
accounting entity’s systems of quality control (including practices, policies, and procedures) in
the following areas identified in SSQC1:
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Leadership responsibilities for quality within the firm;
Independence and ethical requirements (which include the Code of Professional
Conduct and Ethics set out in the 4th schedule to the Accountants (Public Accountants)
Rules);
Acceptance and continuance of client relationships and specific engagements;
Human Resources;
Engagement performance; and
Monitoring.
ACRA’s review covers both the design and effectiveness of policies and procedures (inputbased quality indicators) and engagement performance (output-based quality indicators).
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ACRA uses the review findings, and the accounting entity’s action plan to address these
findings, to assess the quality of internal controls of the firms. ACRA uses this assessment to
determine the degree to which ACRA should take into account the firms’ controls in future
regulatory oversight. In making these assessments ACRA uses internal benchmarks that
compare particular areas in accounting entities within similar segments of the industry. ACRA
will confidentially share the benchmark data with each firm. The purpose of this is to provide
firms with objective information as a basis and incentive for improvement.
In addition to the detailed engagement file reviews, an average of 15 – 25 engagement files are
tested for particular characteristics over a 6 – 8 weeks onsite inspection process as part of the
review of the system of quality control.
For public accountants in accounting entities that do not audit public interest entities, the focus
is primarily on engagement file reviews, with an average of three engagement files reviewed for
each public accountant. The PMP for public accountants of accounting entities that audit nonpublic interest entities continues with the assistance of ICPAS under the direct oversight of
ACRA during the year.
Further details of the PMP process are provided in the inaugural edition of the PMP report which
can be viewed at ACRA’s website at http://www.acra.gov.sg.
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FACT SHEET TWO: SURVEY ON THE OVERSIGHT OF EXTERNAL AUDITORS BY AUDIT
COMMITTEES
The survey assesses current practice in the market and provides a base to consider the
important areas that the audit profession and Audit Committees can work together on to
strengthen corporate governance and investor confidence.
The survey objective sought responses on areas such as:
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What factors matter in auditor appointment decisions?
What factors matter in auditor change decisions?
What are the important Audit Committee oversight activities, in the eyes of Audit
Committee chairmen?
Who amongst the responsible groups in a company has the greatest influence in the
audit process?
The survey findings show that amongst Audit Committees, there is a high degree of awareness
and consensus on the important factors in appointing and overseeing auditors, the top of which
include the auditor’s independence and ability to communicate audit risks, and the involvement
of the audit partner in the audit. The findings are in line with the Guide Book for Audit
Committees in Singapore issued by the Audit Committee Guidance Committee.
The key observations arising from the survey findings include:
Audit Committees Value Open and Candid Communication from Auditors
Audit Committee chairpersons expressed that an external auditor's candidness and
effectiveness in communicating key audit issues matters to a great extent and is a significant
factor in appointment and reappointment decisions.
Audit Committees Value Close and Independent Access to Auditors
The survey results indicate that Audit Committees place high importance on their responsibilities
to oversee the audit process and work with the External auditor. Audit Committee chairpersons
said the oversight activities that matter to a great extent, in addition to the core work of
reviewing significant audit findings are: (a) close access with the External auditor; (b) meeting
independently of management and (c) reviewing management responses to issues that arise
during the external audit.
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Involvement of the Audit Partner is a Significant Consideration
Audit Committee chairpersons value the involvement of the audit partners to a great extent in
making appointments and the partner’s attributes are also important in change of auditor
decisions. This finding could imply that Audit Committees value the Audit partner's involvement
in the audit as a key driver of audit quality.
A Range of Factors are Important to Change of Auditor Decisions, with Communication,
Cost Sensitivity and Audit Partner Knowledge Being the Top Factors
Audit Committee chairpersons considered a range of factors to be important in change
decisions. The survey results indicate that there is less consensus on what the important factors
are in change of auditor decisions. Compared to the results for initial appointment decisions, the
factors did not score highly in terms of importance. This might suggest that more guidance
about when the external auditor should, or should not, be changed could be valuable to audit
committees. The top ranked factors were: (a) insufficient communication of major issues to the
audit committees; (b) cost-sensitivity and (c) the audit partner's knowledge of the industry as
well as the company.
Within Companies, Audit Committees have the Strongest Influence over the Audit
Process, while Management Participates as well
The survey found that Audit Committees and their chairpersons are the most influential in the
companies throughout the audit decision-making process. Management does participate in the
process and this participation is most evident in the process of setting the audit fee. Audit
Committees will need to continue to strike the right balance between ensuring that they perform
their roles independently and facilitating the positive involvement of those in the company’s
financial reporting value chain.
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