SINGAPORE - Smaller audit firms in Singapore who work on non-listed companies were found wanting after an annual inspection of their work by the industry's regulator.

The Accounting and Corporate Regulatory Authority (Acra) released on Tuesday (Sept 22) the annual report of its Practice Monitoring Programme which noted an overall general improvement in the audits of listed companies.

Larger audit firms were found to have placed a greater emphasis on audit quality. There was also 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.

Acra said a root problem was the incorrect identification of audit risks at the onset. This was due to the low involvement of the audit partners in the audit review process or 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, Prof Tan Cheng Han, chairman of the Public Accountants Oversight Committee (PAOC) said, "It is untenable that the same audit deficiencies are recurring in the same segment of the industry time and again. It is apparent that some public accountants do not take audit quality sufficiently seriously.

"The 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."