More local companies not getting clean audit opinions: Acra

Acra said a lack of deep knowledge and due care by preparers and directors were root causes behind material non-compliances with accounting standards. PHOTO: LIM YAOHUI

SINGAPORE - There is room for improvement in the quality of financial statements issued by Singapore companies, the Accounting and Corporate Regulatory Authority (Acra) noted on Tuesday (July 14).

The proportion of Singapore-listed companies that did not receive clean audit opinions jumped to 51, or 9 per cent of, annual financial statements filed for 2018, it noted. This was up from 35, or 6 per cent, for 2016 reports.

But the number of companies with five or more areas qualified or disclaimed fell from seven for 2016 to five for 2018. A qualified opinion is issued when the auditor is unable to conduct the audit properly or when there is a disagreement with management on issues such as the application of accounting standards.

A lack of deep knowledge and due care by preparers and directors were root causes behind material non-compliances with accounting standards, Acra said.

"With rising economic uncertainty and the Covid 19 situation, companies are under pressure to ... deliver financial sustainability," it noted.

"It is crucial for the board to put in place a strong culture of corporate governance, and to apply rigour when reviewing and approving financial statements, to ensure that (these) provide an accurate picture of the company's financial standing."

Acra analysed the 2016 financial statements filed by 584 listed companies and found that 94 per cent or 549 firms received clean audit opinions.

It called this an "encouraging sign" as it means most shareholders had access to reliable financial information.

Acra also scrutinised potential material non-compliances identified in selected 2016, 2017 and 2018 financial statements. It found that 35 statements received modified audit reports, with 95 areas qualified or disclaimed by statutory auditors.

Most were related to the impairment of assets, going concern assumptions and limitations imposed on the scope of audits.

A review of 20 financial statements, including 19 listed companies and one non-listed, found that 11 contained a total of 31 material non-compliances with accounting standards.

One-third of these resulted in adjustments to the reported results.

Four listed companies rectified the non-compliances by re-auditing their past years' financial statements. Two other listed companies rectified by making additional disclosures, among other things, in their 2018 and 2019 financial statements.

These rectifications have provided stakeholders with more reliable financial information to make decisions.

Acra found that the non-compliances were due to a "lack of deep knowledge among the finance teams, chief financial officers and audit committees," which led to an incorrect application of accounting standards.

"This becomes more challenging when the accounting matters are complex and involve specialised areas such as business valuations and impairment assessments," it added.

A lack of due care by the finance team, chief financial officers and audit committees was another problem: "There were instances where directors failed to pick up unrealistic operating cash flow figures, which suggested inadequate attention paid to this important statement.

"When appointing the audit committee, the board should ensure there is a right mix of members possessing the appropriate skills in accounting and auditing."

It should also "provide guidance and support to the audit committee, including allowing access to experts and consultants for advice on more complex areas".

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