Deficiencies found in fair value measure: audit survey

Singapore

SINGAPORE'S Accounting and Corporate Regulatory Authority (ACRA) on Monday raised an alert on "common and persistent deficiencies" relating to fair value measurements, internal control testing and revenue recognition among public company audits.

ACRA was referring to the latest global survey of audit inspections by the International Forum of Independent Audit Regulators (IFIAR) - which Singapore is a founding member of - that has found recurring and high levels of deficiencies in key areas of public company audits. The results of the third-annual survey were released in London on March 3.

In a statement, IFIAR called on the auditing industry to enhance "the professional scepticism of practitioners".

"We continue to see high levels of inspection deficiencies in vital areas of public company audits," said Lewis H Ferguson, IFIAR chair, and board member of the US Public Company Accounting Oversight Board. "This is a problem for investors and stakeholders around the world."

The IFIAR inspection report comprises key findings of significant audit firms, and their inspections of 948 company audits of listed public interest entities, systemically important financial institutions and the overall quality control systems in place within the audit firms. Most of these findings are consistent with the results of IFIAR's prior surveys.

Looking at the areas of audit which had a high rate of deficiencies - as a percentage of all inspected audits for these areas - the highest was for internal control testing, which stood at 24 per cent. This was followed by fair value measurement at 20 per cent, and revenue recognition at 14 per cent.

Critically, for audits of systemically important financial institutions - which would include global banks and insurers - the survey found the highest number of deficiencies related to auditing of allowance for loan losses and loan impairments, internal control testing, and auditing the valuation of investments and securities.

Meanwhile, audit firms' own quality control systems brought out the highest number of inspection findings in terms of engagement performance; independence and ethics requirements; and human resources.

Based on reports from IFIAR members on whether audit quality in their jurisdictions had changed, almost half of the respondents noted no significant overall changes.

In a statement, ACRA's chief executive Kenneth Yap said: "Singapore has maintained a consistently high quality of audit, although some of the deficiencies observed by IFIAR's survey do feature in our own inspection finding.

"Nevertheless, audit quality is constantly a work-in-progress, and we will continue to take all necessary steps to further raise the quality of audit. One upcoming initiative is to have audit firms share their audit quality indicators as a gauge to assess improvements in audit quality amongst firms in Singapore."

There are 29 IFIAR member countries, including several in South-east Asia such as Malaysia and Indonesia. Other members include the United States, the United Kingdom, and Switzerland.