Essentials for Public Accountants 16 March 2006 Practice Monitoring Programme -Presentation by Mr Derek How Head, Financial Review Division Accounting and Corporate Regulatory Authority

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Essentials for Public Accountants16 March
2006Practice Monitoring Programme-Presentatio
n by Mr Derek HowHead, Financial Review
DivisionAccounting and Corporate Regulatory
Authority
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Agenda

• International Developments
• Revised Practice Monitoring Programme
• Due Process
• Expectations from ACRA
• Common Findings

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International Developments

• Auditor Oversight Roundtable Conference
• Singapore one of two Asian countries
  represented in the conference
• Other countries include US, UK, Canada, France,
  Italy, Germany, Japan, Netherlands, Ireland,
  Australia

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Country Who Regulates? Inspection Programme? Public Reports?
France High Council for statutory auditors created through Financial Security Law Inspection carried out by National Company of Statutory Auditors (CNCC) or Regional Companies of Statutory Auditors (CRCC) CNCC public interest body with legal personality, instituted under Minister of Justice CRCC - public interest body with legal personality, within jurisdiction of each regional Courts of Appeal Yes Provided in law. Inspection of auditors of public listed companies by CNCC with assistance from Financial Markets Authority. Inspection of auditors of non-listed companies CNCC and CRCC Scope- Evaluation of sufficiency of policies and procedures implemented in firms Verification of their application on selected audit engagements Inspections of selected audit engagements Verification of compliance with professional standards, Code of Ethics and independence and standard accounting principles Yes Annual report on results of inspection. Included a results sheet for each inspection file.
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Country Who Regulates? Inspection Programme? Public Reports?
Italy CONSOB (Italian Securities Regulator) and Ministry of Justice Provided by law CONSOB regulates auditors that audit public interest entities. Ministry of Justice regulates auditors that audit other entities Yes. CONSOB carry out inspections either to review individual engagements following emergence of facts or circumstances that require immediate acquisition of information or perform a more general control of quality of firms work and internal procedures. No Reports covered by professional secrecy
USA Public Company Accounting Oversight Board (PCAOB) created by Sarbanes Oxley Act Yes Provided in law. The Act provides inspection to include at least the following three general components- Review of selected audit and review engagements of firms by various associated persons of firm Evaluation of sufficiency of quality control system of firm and manner of documentation and communication of system by that firm Others as deemed appropriate by Board Yes PCAOB will issue a public report to highlight audit deficiencies in selected audit engagement. PCAOB will also issue non-public portion of the report to the firms on quality control issues. If quality control defects are not addressed within 12 months, PCAOB will make those portions of the report public.
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Country Who Regulates? Inspection Rrogramme? Public Reports?
UK Professional Oversight Board for Accountancy (POBA) under Financial Reporting Council (FRC) Yes The Audit Inspection Unit under POBA will review auditors that audit entities whose activities have the greatest potential to impact on financial and economic stability Yes
Canada Canadian Public Accountability Board (CPAB) incorporated under Canadian federal legislation Yes Provided in law. Scope- CPAB looks at both quality controls of firms as well as individual engagements Yes Summary of key findings
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International Developments

• International Trend / Development
• Moving away from self regulation
• Many countries such as US, UK, France, Italy and
  Canada have commenced an equivalent PMP programme
• Other countries are planning to implement such a
  programme
• Auditing standards in Australia legislated as law

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Revised Practice Monitoring Programme

• Practice Monitoring Programme (PMP) governed by
  Part V of Accountants Act
• The programme is designed to ascertain whether a
  public accountant has complied with the
  prescribed standards, methods, procedures and
  other requirements when providing public
  accountancy services

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Revised Practice Monitoring Programme

• Focus on public accountants that audit public
  interest entities
• Public interest entities include-
• -Companies listed on SGX and companies who
  wish to be listed by way of IPOs
• -Companies in regulated industries (eg banks
  and insurance co) and
• -Other entities which raise public funds eg
  charities

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Revised Practice Monitoring Programme

• Revised PMP is in line with international
  development
• Review will focus on
• (i) Quality controls of accounting firms
• (ii) Selected audit engagements
• PMP and findings arising from review are kept
  confidential

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Revised Practice Monitoring Programme

• Collaboration with ICPAS to review public
  accountants that do not audit public interest
  entities
• Reviewers from ICPAS will be appointed by Public
  Accountants Oversight Committee

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Revised Practice Monitoring Programme

• ACRA has commenced review of public accountants
  that audit public interest entities in May 2005
• Review of public accountants that do not audit
  public interest entities will commence in April
  2006

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Revised Practice Monitoring Programme

• Frequency of Review
• Public accountants that audit public interest
  entities
• based on internal criteria set by ACRA
• - larger firms likely be reviewed yearly
  although public accountants selected for
  review may or
• may not be the same each year
• Public accountants that do not audit public
  interest entities over a four-year cycle

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Due Process

• Provisions in the Accountants Act (AA)
• with effect 1st April 2004
• Appointment of Practice Monitoring Sub-Committee
  (PMSC)
• Appointment of reviewers
• Practice reviews
• Reviewers to submit report
• Consequence of failure to pass practice reviews

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Due Process

• Appointment of PMSC
• Appointed by PAOC (s34 of AA)
• Composition comprised mainly of practicing public
  accountants representing Big Four accounting
  firms, medium size firms and small firms
• Assist PAOC in designing and implementing PMP
  (s34 of AA)

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Due Process

• Appointment of Reviewers
• The PAOC may appoint any employee of the ACR or
  any other suitably qualified person as a reviewer
  to carry out any practice review under the
  Accountants Act (S35 of AA)

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Due Process

• Practice Reviews
• Practice reviews will be carried out by appointed
  reviewers in accordance with (s36 of AA)
• (a) the relevant provisions of Accountants
  Act
• (b) the practice and procedure as may be
  determined by the PAOC and
• (c) such instructions as may be issued by the
  ACRA or the PAOC

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Due Process
Practice Reviews Any public accountant under
review shall, if required by the reviewer (s36
of AA) (i) Produce to the reviewer or afford
the reviewer access to, any record or
document specified by the reviewer within
such time and at such place as the reviewer
may reasonably require
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Due Process

• Practice Reviews
• (ii) Give to the reviewer such explanation or
  further particulars in respect of anything
  produced in compliance with a requirement under
  sub-paragraph (i) as the reviewer shall specify
  and
• (iii) Give to the reviewer all assistance in
• connection with the practice review which he is
• reasonably able to give

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Due Process

• Practice Reviews
• A reviewer may inspect, examine or make copies
  of, or take any abstract of or extract from any
  record or document relevant to the practice
  review under the Accountants Act (s36 of AA)
• Reviewers will arrange a closing meeting with
  public accountants under review at the end of the
  field visit
• A draft findings report will be forwarded to the
  public accountants for their comments

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Due Process

• Reviewers to submit report
• Reviewers will submit a report including the
  written response from the public accountants to
  the PMSC at the conclusion of the practice review
  (s37 of AA)
• PMSC will review the report as well as the
  written response before making a recommendation
  to the PAOC (s37 of AA)

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Due Process

• Consequences of failing to pass practice review
• Upon receiving the report of the PMSC and
  considering the recommendations therein, the PAOC
  may
• (a) take any one or more of the following
  actions (s38(1)(a))-
• (i) by order impose such conditions as are
  necessary to restrict the provision of public
  accountancy services by the public accountant in
  such manner as the PAOC thinks fit for a period
  not exceeding 2 years

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Due Process

• Consequences of failing to pass practice review
• (ii) require the public accountant to undergo and
  satisfactorily complete such remedial programme
  as may be specified by the PAOC
• (iii) require the public accountant to take other
  steps as may be specified by the PAOC to improve
  the practice of the public accountant or to give
  such undertaking as the PAOC thinks fit

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Due Process

• Consequences of failing to pass practice review
• (iv) make such other order as the PAOC thinks
  necessary or expedient or

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Due Process

• Consequences of failing to pass practice review
• (b) If it is of the opinion that it is contrary
  to the
• public interest or the interest of the profession
  of
• public accountancy for the public accountant to
• continue in practice, or if the public accountant
  has
• failed to comply with any order or requirement of
  
• the PAOC (s38(1)(b)),

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Due Process

• Consequences of failing to pass practice review
• (i) refuse to renew the registration of the
  public accountant concerned
• (ii) suspend the registration of the public
  accountant concerned for a period not exceeding 2
  years or

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Due Process

• Consequences of failing to pass practice review
• (iii) cancel the registration of the public
  accountant concerned.
• The public accountant concerned will be given an
  opportunity to show cause against any of the
  above action proposed in (b) to be taken by the
  PAOC
• ACRA will notify the public accountants on the
  outcome of the reviews

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Flow Chart

• ACRA notifies
• PA of review
• one month in
• advance

Reviewers will send out list of info required
PA to acknowledge receipt of notification
letter
Field review
PMSC reviews report written response makes
recommendation to PAOC
Reviewers submit report written response from
PA to PMSC
Draft findings report forward to PA for
comments
Closing meeting with PA
PAOC decides on courses of action
PA given opportunity to show cause for any
proposed order under s38(1)(b)
ACRA notifies PA on outcome of review bills
PA accordingly
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Administrative Matters

• Notification letter Approximately one month
• List of documents required information provided
  will be kept confidential
• Reviewers will select audit engagements to be
  reviewed and will inform the public accountant on
  the day of review
• Draft findings report 21 days to respond

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Administrative Matters

• PMSC may request further clarifications
• A fee for practice review in accordance with the
  First Schedule of the Accountants (Public
  Accountants) Rules 2004 will be charged based on
  time spent by the reviewers

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Expectations from ACRA

• Administrative
• Extend fullest cooperation with PAOC, PMSC and
  ACRAs appointed reviewers
• Acknowledge on receipt of notification
• Make the necessary arrangement to facilitate the
  review
• Provide reviewers with the full listing of audit
  clients and other information requested

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Expectations from ACRA

• Auditing Standards and Pronouncements
• Comply with the following auditing standards and
  pronouncements-
• Singapore Standards on Auditing (SSA)
• Singapore Standards on Review Engagements
• (SSRE)
• Singapore Standards on Assurance Engagements
  (SSAE)

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Expectations from ACRA

• Auditing Standards and Pronouncements
• Singapore Standards on Related Services (SSRS)
• Singapore Standards on Quality Control (SSQC)
• Singapore Auditing Practice Statements (SAP)
• Singapore Review Engagement Practice Statements
  (SREP)
• Singapore Assurance Engagement Practice
  Statements (SAEP)

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Expectations from ACRA

• Auditing Standards and Pronouncements
• Singapore Related Services Practice Statements
  (SRSP)
• Documentation comply with SSA 230 Documentation

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Common Findings

• Audit Planning
• No audit planning performed for major area
• Audit approach not clear
• No linkage between significant accounts, related
  assertions and actual work done

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Common Findings

• Assessment of Risk and Control
• Inadequate assessment of risk and control
• Update of system notes wrongly construed as
  evaluation of risk and controls performed

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Common Findings

• Test of Controls
• Test of controls performed appeared to be
  largely substantive in nature
• Reliance of controls without testing
  effectiveness

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Common Findings

• Impairment of Fixed Assets
• Assessment of impairment of fixed assets not
  performed
• Reasonableness of clients estimate on
  recoverable value of assets not ascertained

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Common Findings

• Trade Debtors
• Existence of trade debtors balance not
  ascertained
• Fax confirmations received not authenticated
• Confirmations not received directly from debtors
• Collectibility of balances not assessed
• Debtors ageing not tested

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Common Findings

• Bank Balances
• Confirmation requests not sent
• Where confirmation letters not received, no
  follow up work performed

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Common Findings

• Inventories
• Stock-take not attended
• Audit work to ascertain valuation of stocks not
  performed

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Common Findings

• Construction Contracts
• Audit work to ascertain adequacy and
  reasonableness of provision for foreseeable
  losses not performed
• Audit work to ascertain valuation of
  work-in-progress not performed

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Common Findings

• Investments
• No assessment / inadequate assessment on
  impairment of investments performed
• No work performed to corroborate managements
  representation or review basis of profit forecast

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Common Findings

• Consolidation / Group Numbers
• No proper clearance from auditors of
  subsidiaries/associates obtained
• No work performed to assess the impairment of
  goodwill

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Common Findings

• General
• Documentation lacking in many areas
• Appropriate audit evidence not obtained
• Findings similar to those of overseas auditors
  oversight bodies