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Acra to get regulatory teeth to raise audit quality
SINGAPORE'S public accounting firms, such as those providing auditing services, could soon face the prospect of being sanctioned for lapses in audit quality.
The tougher action will come with an impending legislative review that will also grant Singapore's national regulator of public accountants the statutory power to conduct inspections of public accounting firms at the firm level.
These and other impending changes to the accountancy sector were unveiled on Tuesday by Senior Minister of State for Law and Finance Indranee Rajah at the Singapore Accountancy and Audit Convention (SAAC) 2017.
In her keynote address, she said the Ministry of Finance (MOF) and the Accounting and Corporate Regulatory Authority (Acra) have embarked on a much-anticipated review of Singapore's Accountants Act, with a view to improving the quality of audits.
Among other things, the Act controls and regulates the practice of the profession by public accountants, accounting corporations and accounting firms and partnerships.
Ms Rajah said: "We are looking into empowering Acra to conduct firm-level inspections and, where necessary, mete out sanctions for non-compliance through this review. This is in line with the audit regulatory regimes in the United States, the United Kingdom and Australia."
A firm-level inspection will determine whether an audit firm has put in place an effective system of audit quality controls in accordance with Singapore standards. Such inspections would complement the current statutory engagement inspections that review the work of individual public accountants.
Ms Rajah said that although the Asian Corporate Governance Association (an independent non-profit organisation that rates the corporate governance standards of the region's jurisdictions every two years) has described Acra's audit inspection programme as "one of the best in the region", Singapore must continue in its efforts to raise the bar for audit quality.
She added that more details of the review will be released in due course; a public consultation has been scheduled for next year.
Acra now conducts regular audit inspections in its Practice Monitoring Programme (PMP). This year's PMP showed a slight improvement from the previous round of inspections, though Acra said that "improvement in the quality of audits for non-listed companies, while encouraging, needs to be more broad-based for the segment to make long-term sustainable progress".
Commenting on the impending review of the Accountants Act, Tan Cheng Han, chairman of the Public Accountants Oversight Committee (PAOC), said: "The trust that investors place in our markets is due in part to the robust audit oversight we have in place. Such legislative reviews help ensure that high audit quality standards are upheld."
Ms Rajah also announced other changes geared towards improving audit quality and public trust in financial statements here.
Among them is a regulatory change relating to financial reporting for Singapore Exchange-listed Singapore companies. "From financial year 2018, these companies will apply a new financial reporting framework that will allow them to include a statement of compliance with IFRS (International Financial Reporting Standards) in their financial statements.
"This change will place our listed companies on a level playing field with global companies that use IFRS. This will enhance the global comparability of our companies' financial information, and support the internationalisation efforts of these companies," Ms Rajah said.
She also unveiled a comprehensive study on the first-year impact of Enhanced Auditor Reporting (EAR) here. EAR requires companies' financial statements ending on or after Dec 15, 2016 to include a more detailed report by the company's external auditors, which would shed light on the key audit matters (KAMs) encountered during the audit.
The study showed a positive reaction to and the impact of the new requirement, with a sizeable proportion of listed companies discussing in greater depth the areas covered by KAMs. Audit committees were also shown to have proactively reported their views on significant accounting matters.
Investors have cheered the change, saying that EAR has given them deeper insights into how auditors conduct their audits and also greater confidence in audit quality.
"These findings have validated the value of audits," Ms Rajah said.
She also announced the Skills Framework for Accountancy, which will invite individuals to explore career advancement opportunities along or across six identified tracks within the sector, such as assurance, financial accounting and business valuation.
Another initiative is Sapphire for the Accountancy sector, which will help accounting firms adopt the Skills Framework and integrate technology at the workplace.
READ MORE: 'Ear, 'ear for enhanced auditor reports