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

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Presentation on theme: "Essentials for Public Accountants 16 March 2006 Practice Monitoring Programme -Presentation by Mr Derek How Head, Financial Review Division Accounting."— Presentation transcript:

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

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

3 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

4 CountryWho 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.

5 CountryWho Regulates?Inspection Programme? Public Reports? ItalyCONSOB (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 USAPublic 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.

6 Countr y Who Regulates?Inspection Rrogramme? Public Reports? UKProfessional 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 CanadaCanadian 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

7 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

8 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

9 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

10 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

11 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

12 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

13 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

14 Due Process Provisions in the Accountants Act (“AA”) with effect 1 st 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

15 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)

16 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)

17 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

18 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;

19 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

20 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

21 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)

22 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; Due Process

23 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;

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

25 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)), — Due Process

26 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 Due Process

27 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 Due Process

28 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

29 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

30 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

31 Expectations from ACRA Administrative Extend fullest cooperation with PAOC, PMSC and ACRA’s 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

32 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) Expectations from ACRA

33 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)

34 Expectations from ACRA Auditing Standards and Pronouncements  Singapore Related Services Practice Statements (SRSP) Documentation – comply with SSA 230 Documentation

35 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

36 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

37 Common Findings Test of Controls “Test of controls” performed appeared to be largely substantive in nature Reliance of controls without testing effectiveness

38 Common Findings Impairment of Fixed Assets Assessment of impairment of fixed assets not performed Reasonableness of client’s estimate on recoverable value of assets not ascertained

39 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

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

41 Common Findings Inventories Stock-take not attended Audit work to ascertain valuation of stocks not performed

42 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

43 Common Findings Investments No assessment / inadequate assessment on impairment of investments performed No work performed to corroborate management’s representation or review basis of profit forecast

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

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


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