The accounting watchdog's latest round of inspections has unearthed "recurring deficiencies" made by some smaller audit firms when crunching the numbers at non-listed companies.
The flaws have cropped up in areas such as revenue recognition, fair value measurements and construction contracts, according to the Accounting and Corporate Regulatory Authority (Acra) yesterday.
"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," said Professor Tan Cheng Han, chairman of the Public Accountants Oversight Committee, which conducts inspections of audit firms. Acra will pay "particular attention" to such deficiencies and step up enforcement actions, he said in a report out yesterday. Among other measures, the authority is considering naming names by making public the outcomes of its monitoring programme.
One of the root causes of these recurring deficiencies is 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, and/or insufficient technical knowledge," said the report.
Acra also surveyed 300 employees in the Big Four accounting firms to understand the effects of the lack of involvement by partners and managers on the staff.
Notably, the results showed that the actual coaching received by junior auditors lagged behind what they would have liked to have received during their fieldwork.
HIGH QUALITY OVERALL
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... firms auditing non-listed companies need to do better and adopt best practices.
ACRA CHIEF EXECUTIVE KENNETH YAP
Partners and managers need to close this "expectation gap" by ensuring that they are on site at the audit fieldwork to provide sufficient and timely coaching to staff, suggested Acra.
Overall, Acra's latest findings point to a "general improvement" in the audits of listed companies.
Larger audit firms were found to have placed greater emphasis on quality, and there was also greater involvement of partners in the process, said Acra.
Acra chief executive Kenneth Yap noted: "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."
Acra is the national regulator of business entities and public accountants in Singapore.