Directors affirmed the value of audit and are aware of the importance of differentiating auditors based on quality rather than price.
Online PR News – 02-August-2012 – 2 August 2012/Singapore – Singapore Institute of Directors (SID) and the Association of Chartered Certified Accountants (ACCA) organised two high-level roundtable discussions in March and April 2012 to consolidate the views of Board Directors from various industries on the attributes, competencies, and deliverables expected from external auditors. The report, “Enhancing the Value of Audit – Board Directors’ Perspective,” was released today at a press conference organised by SID and ACCA.
The directors believed that the informative value of communications from auditors can be enhanced. Specifically, they would like to seek more subjective statements from the auditors including their assessments of the overall control environment and the ‘tone at the top.’ In terms of auditors’ communications to external stakeholders such as investors, it was felt that any extension will need to be implemented with corresponding education of users to prevent information being interpreted out of the proper context.
The directors at the roundtables viewed auditors not only as financial professionals but also specialists in other related areas and were keen to draw on their knowledge and skills if faced with future complexities of new businesses. In this context, some of the directors raised concerns about one of the proposals put up by the European Commissioner (EC) to distil the bigger audit firms into ‘pure audit’ outfits, arguing that such narrow-based firms may lack the multitude of skill sets needed to fully understand and address the issues associated with complex businesses today, and to conduct the audit in a comprehensive manner.
A few directors conceded that a key concern in Singapore is with how auditors are not able to allocate and spend sufficient time to fully comprehend audit issues and address them properly given the lower audit fees level. The directors clarified that boards are aware of the importance of differentiating auditors based on quality rather than price, and that they are not out to seek the lowest audit fees, but relevant experience, a good-fit and demonstrable values from the auditors.
Wilson Woo, President of ACCA Singapore branch said, “It is very important for the lines of communication between external auditors and the board be kept open and transparent. Both parties need to work closely together to ensure that information that is communicated to stakeholders is fully understood. Where there are areas for improvements, these should not be viewed as negative or alarming but seen as necessary recommendations to take in order to improve business practices and productivity.”
Other key conclusions in the report include:
• The directors unanimously confirmed the value of an audit to directors, including the way it enhances integrity and credibility of the financial statements. Moreover, audit provides management and the finance team with added impetus to ‘keep the house in order.’
• Directors will need to drive the external auditors’ involvement in the business based on their own understanding of the key operating and financial risks. On a related note, it was felt that external auditors should collaborate more extensively with internal auditors to achieve better efficiencies in overlapping areas of their work.
• Some directors at the roundtables sensed that auditors were not communicating freely due to liability concerns. In line with the discussion around expanding auditors’ roles and communications, the directors deliberated the need to review the auditors’ liability regime.
• It was felt that mandatory rotation of auditors, which has been deliberated in the US and by the EC to reinforce auditors’ independence, would be costly and its effectiveness questionable for Singapore. The directors appreciate that it is important to continuously evaluate the quality of auditors, with some suggesting instituting mandatory tendering process to regularly screen for auditors with the best ‘fit.’
• Independent directors at the roundtable acknowledged the importance of their role in balancing the power in boards and providing a governance check, which includes facilitating the work of the independent external auditors.
John Lim, President, SID said, “External auditors have been and will continue to be one of the key outside professionals that directors rely on in discharging their fiduciary duties. This is not just in the area of statutory audit but also in many other specialised services that accounting firms can provide. Given their many areas of expertise, there is much more that auditors can contribute to stakeholders. One such area is in communicating to them other useful information that the auditors have acquired during the course of the statutory audit. This is one of the several key findings from the two round table discussions that SID jointly organised with ACCA in March and April this year. We would like to thank ACCA for engaging SID in this important initiative and we hope that this will lead to improved corporate reporting and transparency.”
More details of the report “Enhancing the Value of Audit – Board Directors’ Perspective” can be found on the SID website and ACCA website at, http://www.singapore.accaglobal.com/about/public_affairs_old/releases/singapore/ and http://www.sid.org.sg/uploads/Enhancing_the_VOA-SID.pdf.