How should accountants brace for proposed changes in the Accountants Act?

Hear from the experts some areas in the law which need further review to ensure that Singaporean accountants comply with international standards.

The last significant review of the Accountants Act was in 2004 and so the Accounting and Corporate Regulatory Authority has now deemed it timely to review the Act to ensure that it stays relevant. It is currently conducting public consultation for the proposed changes that must end July 4, 2012.

Here are views from industry experts:

Ong Pang Thye, Head of Audit, KPMG in Singapore

In order for Singapore to attain the status of a global accountancy hub, 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 to occur, the registration processes for public accountants must be clear, consistent and timely. Therein lays the reasoning behind the proposed changes to the practical experience requirements for public accountants to register with ACRA.

Additionally, experience gained in other jurisdictions which have standards and regulations that are comparable to those in Singapore should count as equivalent to Singaporean experience. This facilitates the transfer of skilled professionals from other countries.

There is currently little discussion about the definition of an ‘audit’ and little or no regulation regarding persons or entities that provide other types of assurance reports that may be relied on by third parties, such as service organisation internal controls (ISAE 3402) and greenhouse gas (ED ISAE 3410) reports. Various third parties, including suppliers, customers and their auditors rely on such reports, which may be performed by unregistered and unregulated entities. These unregistered and unregulated entities are not compelled to implement any of the firm wide quality controls under SSQC1. Consequently, such ‘audits’ may adversely affect the quality and legitimacy of financial statement audits, as they become part of the lifecycle of transactions relied upon by public accountants.

Changes in legislation should not place additional requirements on accounting entities with significant infrastructure, controls and processes already in place to enhance audit quality and establish centres of excellence. Instead, reliance should be placed on their existing controls that meet the requirements of Singapore Standard on Quality Control 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.

Tan Seng Choon, Assurance Partner, Ernst & Young LLP

ACRA’s initiative to review the Accountants Act is an opportunity to further enhance audit quality within the Singapore accounting profession. For example, ACRA is proposing to implement pre-requisition conditions for approval of accounting entities that conduct public interest entities (PIE) engagements. One of the conditions includes the requirement for audit firms to have sufficient quality controls under Singapore Standard on Quality Controls 1 (SSQC1). We believe this is a step in the right direction. The new framework for approving accounting entities that conduct PIE engagements will serve as a check point to ensure these accounting entities have an appropriate framework in place to carry out the audit and help to ensure appropriate auditors are appointed on behalf of investors.

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 and those that do not. This will help to avoid the concentration of market for audits of listed companies. At the same time, it helps to achieve the objective of the Pro-Tem Singapore Accountancy Council to transform Singapore into a leading global accountancy hub. Market forces should be allowed to decide on the choice of auditors.

Overall, we believe ACRA’s review will help to promote international recognition of and confidence in Singapore’s public accountants by enhancing audit quality.

Darryl Wee, Country Head, Association of Chartered Certified Accountants (ACCA) - Singapore

ACCA supports the aims of ACRA in working towards ever improving the quality of audit work in Singapore. The various proposed amendments to the Accountants Act are a significant step in this direction. Public expectations of auditors are continually rising in response to a changing and increasingly complex business environment and higher standards of corporate governance and financial reporting. Amendments are therefore required to the Act to take into account these changes. ACCA sees the issuance of the public Consultation Paper as a timely opportunity for ACRA to take stock of rising public expectations and gather feedback on how the Accountants Act can be amended to meet these expectations. ACCA generally supports the amendments, having already given its detailed responses to the numerous proposed amendments in earlier stakeholder consultations. However, we can focus on two or three areas for the purpose of discussion.

We believe all public accountants should be required to maintain Professional Indemnity Insurance (PII) to meet claims which may arise as this best protects the public and various stakeholders in the event of an audit failure. Currently there is no mandatory requirement in Singapore for public accountants practicing on their own account or in an accounting firm, whether as a sole proprietor or partnership, to hold PII. However, the requirement to hold PII is an ongoing condition for ACCA members who wish to hold an ACCA practising certificate with audit qualification. We therefore would welcome any moves by ACRA to consider extending the existing requirement to hold PII as an ongoing condition for all public accountants, whether operating individually, through a corporation, a partnership or an LLP.

We support lay involvement in ACRA’s Complaints and Disciplinary Committees to ensure independence and impartiality. ACCA is a strong advocate for lay involvement in disciplinary and regulatory committees and its own arrangements sees lay (i.e. non-accountant) majorities in these committees. Indeed to ensure independence and impartiality, ACCA Council members and ACCA staff are not permitted to serve on ACCA’s disciplinary and regulatory committees and appointments to such committees are made by an independent appointments committee.

We believe that the proposed amendments intended to reinforce ACRA’s monitoring of firm-wide quality controls and policies, will enhance audit quality and are in line with best practices in the US, UK and Ireland. We observe that such amendments pave the way for a firm/accounting entity licensing scheme although 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. Furthermore, IFAC’s ISQC1 (International Standard on Quality Control 1) and Singapore’s SSQC1 (Singapore Standard on Quality Control 1) recognise that it is firms and not individuals that provide sound quality control policies and procedures that underpin audit quality. 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.