You are here


Auditors, audit committees should aim to raise their game

THE implementation of Enhanced Auditor Reporting Standards in 2016 has marked a paradigm shift in the way auditor information is presented in financial reports. Standard boilerplate statements have given way to more meaningful disclosures. Yet, auditors can raise the curtain further to give investors a better view of the thinking that feeds into an audit.

Under the Standards, auditors are encouraged to share more information about their approach towards audits and the key issues that have consumed their attention during the process.

Now in the third year of implementation, the Standards provide an opportunity for the audit profession to breed greater trust and confidence among key stakeholders in the integrity of financial statements. But have the expanded requirements pushed new frontiers in elevating transparency?

Findings from Time to step up: building momentum for progress - PwC's enhanced auditor reporting survey on the second year experience in Singapore - reveal that there is room for bolder disclosures and more in-depth insights in both the auditor's report and the voluntary Audit Committee (AC) commentary.

Market voices on:

Covering almost 400 auditor reports, the survey examined how auditors navigated the second year of extended auditor reporting in Singapore. The experience from the first two years (Year 1 and Year 2) shows that although the Standards have spurred change, the profession and ACs are still adjusting to this change.


Under the Standards, auditors have to communicate the Key Audit Matters (KAMs) or critical issues auditors focused most heavily on during the audit. The survey findings reveal that the top five KAMs remained the same for both Year 1 and Year 2, except for their ranking. There was also no material difference in the average number of KAMs disclosed - the Year 2 average declined marginally to 2.2, from 2.3 in Year 1.

This suggests that auditors probably encountered the same key issues during their audits, given that the nature and scale of business operations for most entities would have remained largely the same.

The real value of KAMs lies in providing investors with an "insider's perspective" of the entities' financial health and the assumptions auditors made in arriving at certain conclusions. They also serve as a springboard for further dialogue with the AC and management.

To provide financial statement users with a deeper understanding of how auditors have addressed the KAMs, auditors should perhaps be more precise in their KAM descriptions. Here, providing detailed information that is specific to that audit and the year of audit would be a better approach.

Auditors also need to read financial and non-financial Other Information (OI) and disclose whether the OI is materially inconsistent with the financial statements or their knowledge obtained in the audit. However, they can do this only where they have received the OI before they issue the auditor's report on the financial statements.

The survey revealed that 82 per cent of the auditor's reports in Year 2 indicated that all of the OI had been obtained prior to the date of the auditor's report versus 85 per cent observed in Year 1.

While this is a respectable figure, timeliness can still be improved. The auditor's work in considering the OI against the financial statements or knowledge obtained in the audit instils greater investor confidence. All entities should therefore provide all the OI to the auditors prior to the date of the auditor's report.


ACs play a part in elevating the level of transparency of the information provided to readers. Our survey shows that more ACs are recognising the value of AC commentaries in the annual report. In Year 2, 60 per cent of annual reports included AC commentaries versus 40 per cent in Year 1.

In January 2017, the Accounting and Corporate Regulatory Authority (Acra), the Singapore Exchange (SGX) and the Monetary Authority of Singapore (MAS) asked the ACs of all Singapore-listed entities to consider disclosing the following in the AC commentary: significant financial reporting matters specific to their listed entities, how they assessed those matters, and key judgement calls made.

According to the survey findings, 31 per cent of the AC commentaries in Year 2 met the three-part Acra-MAS-SGX expectation versus 11 per cent in Year 1. This is encouraging given that the practice of disclosing the information is still voluntary in Singapore.

While more ACs should step forward to provide their views, they should arrive at their own conclusions on key issues. Their opinions need not necessarily have to align with the views in the auditor's report as the AC commentary should be independent from the auditor's report.


The profession is heading in the right direction to make auditor reporting more robust, transparent and informative. But there is room to inject greater clarity into the process.

Here, providing more in-depth and detailed entity-specific information will allow key stakeholders to gain better insights into the material issues in the financial statements.

The AC is also in a unique position to ensure accountability on behalf of investors. The ACs can use the KAMs raised by the auditors to engage in meaningful discussions with the auditors and management.

Ultimately, all relevant parties in the financial reporting ecosystem - from the auditors and ACs to the standard setters and regulators - need to make a concerted effort to raise the visibility of the financial reporting process. Only then can they achieve the common goal of delivering value to investors and key stakeholders.

  • The writer is Assurance Leader at PwC Singapore.