AUDIT firms were urged to further improve the quality of their audits, after the industry regulator's inspection findings turned up mixed results: improvements in some areas, and recurring deficiencies in others.
The annual report by the Accounting and Corporate Regulatory Authority's (Acra) Practice Monitoring Programme (PMP), released on Tuesday, noted overall general improvement in the audits of listed companies. Larger audit firms were also found to have placed a greater emphasis on audit quality, with more involvement of audit partners in the audit process.
However, some smaller audit firms auditing non-listed companies were found to have recurring audit deficiencies in areas such as revenue recognition, fair value measurements and construction contracts. One of the root causes is the incorrect identification of audit risks at the onset. And this was due to the low involvement of the audit partners in the audit review process, and/or insufficient technical knowledge.
Professor Tan Cheng Han, chairman of the Public Accountants Oversight Committee (PAOC), said: "It is untenable that the same audit deficiencies are recurring in the same segment of the industry time and again. It is apparent that some public accountants do not take audit quality sufficiently seriously. The PAOC will be paying particular attention to such deficiencies during its practice review outcomes with public accountants. Acra will also step up its enforcement actions. New measures being explored include public reporting of PMP outcomes."
Kenneth Yap, chief executive of Acra, noted: "The audit profession as a whole continues to maintain a consistently high quality of audit. Internal controls within larger firms dealing with listed companies have improved; however, smaller audit firms auditing non-listed companies need to do better and adopt best practices.
"Some are overstretching themselves by taking on too many clients, thereby spending less time and effort on the audit process. They should set realistic workload benchmarks and ensure that they have sufficient staff-to-client ratios to maintain the quality of their audits."
In recent times, expectations for high-quality audits have grown amid calls for enhanced transparency and disclosure in financial reporting.