Knowledge gap, lack of action behind failure to follow accounting standards: ACRA

There were 23 non-compliance cases in 12 financial statements reviewed.

Knowledge gap, insufficient due diligence, and lack of action on issues were the main root causes behind the 23 material non-compliance with accounting rules flagged in over 12 financial statements (FS), Accounting and Corporate Regulatory Authority (ACRA) said in its latest report.

It reviewed 33 sets of FS, comprising 27 listed companies and six non-listed firms, between 1 April 2020 to 31 March 2022.

Specifically, ACRA said there was a knowledge gap within finance teams, chief financial officers (CFOs), and audit committees (ACs). There was also insufficient due diligence by the teams, ACs, and CFOs on transactions that were not complex and did not require judgement.

ACRA also identified that there was failure to act upon the areas qualified or disclaimed by the “statutory auditors and accepting modified audit reports in consecutive years, instead of taking the appropriate steps to rectify the issues and resolve non-compliances with the accounting standards.”

Most of the failures in compliances hit the firm’s key financial measures, ACRA pointed out. There was also decisions to adjust consolidated pre-tax profits or losses and net assets of firms ranged from 13% to 576%, and 3% to 32% respectively; some operating cash flows changed from positive to negative, or vice versa.

ACRA warned that such misstatements could impact the decision-making of users of these financial statements.

What can financial teams do

To avoid misstatements, ACRA advised training and upskilling as well as seeking expert advice on complex matters.

Statutory auditors can assist with emphasising accounting and auditing issues and the board should review and approve financial statements (FS) to make sure there is fairness on the firm’s financial position and performance.

The accounting implications of climate change should also be considered, ACRA also said. Financial reporting value chain efforts should be focused on providing reliable and meaningful financial information to investors and stakeholders, it added.

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