As Singapore seeks to become world’s leading financial and business hub, the Accounting and Corporate Regulatory Authority (ACRA) has deemed it timely to review the 8-year old Accountants Act to ensure that it stays relevant.
Amendments were aimed at improving oversight on audit firms and tighten the requirements on accountant registration and were generally accepted by accounting professionals except for some ambiguities particularly in licensing schemes.
How will it particularly improve auditing practices?
According to ACRA, the aim of the proposed revisions can be summarized into three focal points. First is to ensure good quality control frameworks for the audit and review of entities that have a significant public interest. Second is to enhance ACRA’s ability to inspect audit quality controls and policies of audit firms and require audit firms to improve, where necessary.
And last, to make practical experience in key audit functions a core requirement for registration as a public accountant.
KMPG head of audit Ong Pang Thye notes that it is essential that Singapore public accountants have a wide range of skill sets, specific knowledge in a variety of areas, as well as knowledge of various professional standards and practices.
To enable this, the registration processes for public accountants must be clear, consistent and timely and therein lays the reasoning behind the proposed changes to the practical experience requirements for public accountants to register with ACRA.
He also mentioned that the experience gained in other jurisdictions which have standards and regulations that are comparable to those in Singapore should count as equivalent to Singaporean experience.
According to Association of Chartered Certified Accountants (ACCA), one particularly important feature of the proposed changes is the introduction of Professional Indemnity Insurance.
“Currently there is no mandatory requirement for public accountants practicing on their own account or in an accounting firm, whether as a sole proprietor or partnership, to hold PII when it is actually necessary to meet claims which may arise, protecting the public and various stakeholders in the event of an audit failure,” said ACCA country head Darryl Wee.
But here’s the gray area. ACCA supports lay involvement in ACRA’s Complaints and Disciplinary Committees to ensure independence and impartiality. It believes that the proposed amendments intended to reinforce ACRA’s monitoring of firmwide quality controls and policies will enhance audit quality and are in line with best practices in the US, UK and Ireland, except that the specific question relating to firm licensing has not been included or discussed explicitly in the Consultation Paper.
“In most jurisdictions, entities appoint firms as auditors, not individuals; and audit reports are signed in the firm’s name, with all the partners in a firm being jointly and severally liable in respect of any claims arising from defective audit work,” he said.
Lastly, ACCA, based on its experience as a statutory regulator of auditors in the UK and Ireland, believes that licensing firms provides a more effective basis for regulation than licensing individuals.
“More than 95% of accounting entities in Singapore are sole-proprietorships. In these cases, the PMP review of the public accountant and firm review are effectively coterminous. Hence, for most entities, the move to a firm licensing scheme would entail little additional preparation in terms of review and monitoring procedures,” he said.
Ernst & Young Assurance partner echoes the same adding that ACRA may not need to establish a separate licensing for accounting firms that audit public interest entities (PIE) engagements and those that do not.
“While ACRA has decided not to recommend the publication of firm reports as a standard practice after every inspection, we support the objective of publishing or sharing the firm report. We believe the publication of a balanced firm report will help to promote transparency and audit quality as differentiators among audit firms.
If an appropriate process is put in place, we believe there will not be a need for ACRA to establish a separate licensing for accounting firms that audit PIEs. This will help to avoid the concentration of market for audits of listed companies.Market forces should be allowed to decide on the choice of auditors,” he said.
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