The state of the smaller audit firms in Singapore
An annual inspection conducted by the Singapore industry regulator, The Accounting and Corporate Regulatory Authority (ACRA) found small audit firms working on non-listed companies wanting, noting that there was an overall improvement in the audit of listed companies.
Larger audit firms were found to have placed a greater emphasis on audit quality along with greater 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.
As per ACRA, a root cause of the problem was incorrect identification of audit risks at the outset. This is primarily due to the low involvement of the audit partners in the review process and insufficient technical knowledge.
Commenting on the findings, ACRA chief executive Kenneth Yap said that “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.”
On the finding that recurrent audit deficiencies were found in smaller audit firms auditing non-listed companies,
The Public Accountants Overseas Committee (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.
One of the way forward for the smaller auditing firms to avoid these deficiencies would be to embrace the growing ecosystem that is developing, starting from XBRL Compliance reporting preparation service providers to cloud-based accounting solution providers. This would enable smaller firms to take up additional work without compromising on the quality of deliverables.