Enhanced

auditor’s report
Survey of first year experience in Singapore

www.pwc.com/sg
2 Enhanced auditor’s report: Survey of first year experience in Singapore
Contents
Foreword 4

Introduction 5

The Key Changes 6

Our observations of first year experience

Survey Scope 7
Key Audit Matters 8
Additional Observations 17
Other Information 18

Commentary by Audit Committees 20

Looking Ahead 22

Contacts 23

Enhanced auditor’s report: Survey of first year experience in Singapore 3

Foreword

The independent auditor’s report on the financial statements has

always been brief. The implementation of enhanced auditor reporting
standards in the last reporting season highlights a notable milestone in
the history of audit in Singapore.

Addressing the key concerns that, ultimately, previous report on

the financial statements of a bank was no different from that of a
manufacturing company, the new and revised auditor reporting
standards mark a distinct move towards reports that are more
informative and insightful. With the increased transparency introduced
by the enhanced reporting standards, auditors can now communicate
the most significant matters in their audits of the financial statements.

After being on this journey for a year, we take the opportunity in this Marcus Lam
report to reflect and share our observations from a survey of the longer, Assurance Leader
more informative auditor’s reports issued in Singapore. We believe that PwC Singapore
the results echo the call for greater clarity in financial reporting and
corporate governance in Singapore.

4 Enhanced auditor’s report: Survey of first year experience in Singapore

Introduction

In the aftermath of the financial The Financial Reporting Council Following the IAASB’s action, the
crisis and with growing complexity (“FRC”) in the United Kingdom standard-setting bodies in a number
in financial reporting, investor (“UK”) responded first, introducing of countries released their own
demands for more informative new requirements for auditors local equivalents. In Singapore, the
auditor’s reports increased. of companies subject to the UK Institute of Singapore Chartered
Corporate Governance Code for Accountants (“ISCA”) published
The auditing profession has had periods commencing from the enhanced auditor reporting
to respond to investors around the 1 October 20121. The International standards in mid-2015 based on the
world who expressed dissatisfaction Auditing and Assurance Standards international standards2.
over the auditor’s report – a simple Board (“IAASB”) later released its
‘true and fair’ opinion was no new auditor reporting standards This publication presents the
longer good enough. Beyond the effective for audits of financial observations from our survey of
auditor’s pass/fail opinion on the statements for periods ending on auditor’s reports issued in the first
financial statements, the remainder or after 15 December 2016. The year of implementing the enhanced
of the report contained mostly new auditor’s report under these auditor reporting standards in
standardised wording. standards looks different. Singapore. Comparisons have also
been made, where appropriate,
There was a demand for more The section on the auditor’s against the first year experience
informative and insightful reports, opinion is placed first, and in the UK, the forerunner in
not only when the auditor’s opinion standardised wording relating to implementing the longer,
was other than an unqualified one. the responsibilities of the auditor informative auditor’s reports,
The auditor’s opinion needed to is placed towards the end of the as well as Hong Kong (“HK”),
be supplemented with bespoke report. The topic on going concern another Asian country where
descriptions of important audit is also given greater prominence the profession has adopted the
judgements. That is not an in the new auditor’s report. When enhanced standards based on the
unreasonable expectation. After there is a material uncertainty international standards for the same
all, even when collecting your car about the entity’s ability to effective period as in Singapore3.
from its regular service routine, you continue as a going concern, it
would want to know what work the will be highlighted in a clearly
mechanic has done – giving you a identified section of the report.
greater degree of comfort and the
mechanic a greater degree of credit
for his work.

1 There are some differences in auditor reporting requirements between standards in the UK and the international standards issued by the IAASB.
The UK standards require an explanation of how the auditor applied the concept of materiality as well as a summary of the audit scope; these are
currently not required under the international standards.
2 The standards issued in Singapore are based on the international standards with such amendments as were considered appropriate for local adoption.
3 The observations in this document relating to the UK are based on the information in “Extended auditor’s reports – A review of experience in the first
year” published in March 2015 by the FRC in the UK and those relating to HK are based on the information in “Enhanced auditor’s report – Review of
first year experience in Hong Kong” published in July 2017 by PricewaterhouseCoopers Hong Kong.

Enhanced auditor’s report: Survey of first year experience in Singapore 5

The Key Changes

Key Audit Matters (a) Areas of higher assessed risk Other Information
of material misstatement,
While the enhanced standards or significant risks. Significant developments in
introduced a number of changes (b) Significant auditor corporate reporting, as well as the
to the auditor’s report, the judgements relating to areas increasing importance ascribed by
most important change was the in the financial statements users to the information included
reporting of Key Audit Matters that involved significant by companies in their annual
(“KAMs”) for listed entities. management judgement, reports, have led to changes to the
including accounting estimates auditor’s responsibilities relating to
Singapore Standard on Auditing that have been identified other information.
(“SSA”) 701, Communicating Key as having high estimation
Audit Matters in the Independent uncertainty. The revised SSA 720, The Auditor’s
Auditor’s Report, deals with Responsibilities Relating to Other
(c) The effect on the audit
the auditor’s responsibility Information, requires the auditor
of significant events or
to communicate KAMs in the to read the other information
transactions that occurred
auditor’s report. (i.e. financial or non-financial
during the period.
information included in an entity’s
According to SSA 701, KAMs annual report) and to conclude
are matters of most significance SSA 701 also stipulates the form and whether there is a material
in the audit of the financial content of the report – a separate inconsistency:
statements and have to be section should set out the KAMs, • between the other information
determined from the matters each with reference to the related (“OI”) and the financial
communicated with those disclosure(s), if any, in the financial statements; and
charged with governance statements, and should set out why
• between the OI and the auditor’s
(i.e. the Audit Committee). the matter was determined to be
knowledge obtained in the audit,
SSA 701 requires the auditor to a KAM; and how the matter was
in the context of audit evidence
take into account the following addressed in the audit.
obtained and conclusions
in the determination of KAMs: reached in the audit.

A separate OI section in the

auditor’s report is now required
when the auditor has obtained
some or all of the OI as of the
date of the auditor’s report.
Additionally, for listed entities, a
separate OI section is required even
when the auditor expects to obtain
OI after the date of the auditor’s
report (i.e. when none of the OI has
been obtained as of the date of the
auditor’s report).

6 Enhanced auditor’s report: Survey of first year experience in Singapore

Our observations of
first year experience
Survey Scope
Our observations are based on our Report, prohibits the inclusion of a Analyses of the reports reviewed
survey of the auditor’s reports issued KAM section or an OI section in the by market capitalisation category,
by auditors in Singapore that were auditor’s report when the auditor industry segment and financial year-
included in the first set of annual disclaims an opinion on the financial end are presented in Diagram 1.
reports of entities listed on the statements. The survey also did not 25 of these reports relate to entities
Singapore Exchange (“SGX”) after cover annual reports that were made that are among the top 30 entities
the enhanced auditor reporting available on the website of SGX after whose performance is tracked as
standards became effective. 31 August 2017. part of the Straits Times Index.

Auditor’s reports with disclaimer of A total of 499 auditor’s reports, that

opinion have been excluded from our presented 1,163 KAMs in total, were
survey as SSA 705, Modifications to the reviewed as part of the survey.
Opinion in the Independent Auditor’s

Diagram 1: Analyses of reports reviewed

By market capitalisation By industry segment By financial year-end

3% 3% 4% 1%

8% 7%
13% 8% 1% 17%

17% <1%

28%

33% 43% 13%

15% 5% 80%

Less than $10m Banks & Financial Services 31 Dec 2016

$10m to $100m Construction 31 Jan 2017
$100m to $1b Manufacturing 28 Feb 2017
$1b to $10b Natural resources 31 Mar 2017
> $10b Real Estate 30 Apr 2017
Retail & Trading
Services
Transportation
Others

Enhanced auditor’s report: Survey of first year experience in Singapore 7

 The average number
of KAMs reported in
Singapore of 2.3 per
entity compares very
closely to the average
of 2.2 in HK.
Key Audit Matters
Number of KAMs
Diagram 2: Number of KAMs and proportion of reports

Diagram 2 shows the distribution

42%
of the number of KAMs across
the 499 reports in Singapore in 36%
comparison to HK.
25% 25% 25%
24%
It is worth noting that the reports
issued in the UK presented an
average of 4.2 KAMs in the first
9%
year and 3.9 KAMs in the second 7%
year of the extended audit 1% <1%
2% <2% 2%
<1%
reporting.
0 1 2 3 4 5 6 to 8
Singapore Hong Kong
The experience of a relatively
higher number of KAMs reported
in the UK may be attributable to
the following reasons: Diagram 3: Number of KAMs by market capitalisation
• In the UK, audit committees
(“ACs”) of companies with 9
a premium listing of equity 8
shares are required to report 7
on the significant issues that 6
they considered in relation to 5
the financial statements; and 4 4.0
the auditors have aligned their 3
2.4 2.4
reporting of KAMs with the 2 2.2
1.8
reporting by ACs. 1
• The companies with a premium 0
Less than $10m $10m to $100m $100m to $1b $1b to $10b >$10b
listing of equity shares were
Lowest Average Highest
mostly from the FTSE 250
market, which are relatively
larger and more complex than
those in this region. expectation of more KAMs in respect had explained that the reason for
of larger, more complex businesses. why no KAMs were being reported
A further analysis of the number is because the entity is regarded as
of KAMs by market capitalisation, There were also five reports which a cash company. We believe that the
seen in Diagram 3, shows an reported nil KAMs – two in the auditor’s explanation in this situation
increasing average number of “less than $10m” group and three is helpful to the reader although
KAMs with increase in market in the “$10m to $100m” group. there is no explicit requirement for
capitalisation. This is in line with In three of these reports, the auditor this in the standards.

8 Enhanced auditor’s report: Survey of first year experience in Singapore

 There was no
specific industry
with a significantly
higher number of
KAMs per entity.
Key Audit Matters
One may be tempted to draw a
Diagram 4: Number of KAMs by industry segment
conclusion about the influence
of the industry on the KAMs
– whether the number of KAMs Overall • 2.3
for certain industries was
necessarily higher than others.
However, Diagram 4 indicates Banks & Financial Services • 2.5

that the nature of the industries

did not influence the number
Construction • 2.4
of KAMs. This is consistent with
the fact that the number of
KAMs is dependent on auditor Healthcare • 2.6
judgement.

Diagram 4 also shows that Manufacturing • 2.9

there can be differences in the
number of KAMs reported even
for entities within the same Natural resources • 2.5

industry.
Real Estate • 2.5
We expect that the number of
KAMs will evolve over time to
reflect the relative risk profile Retail & Trading • 2.9
of the industries. This was also
reported in the FRC’s report
on the second year experience Services • 2.3
in the UK. It was observed in
the FRC’s analysis of changes
in the number of risks that, on Technology • 3.8

average, the number of risks

being reported has increased the Telecommunication • 3.3
most in the Utilities sector in the
second year and decreased the
most in the Oil & Gas sector; this Transportation • 2.7
reflected the fact that in the first
year, these sectors were at the
opposite ends of the spectrum in Utilities • 3.2

terms of the average number of

reported risks.
Multi Industries • 6.2

0 1 2 3 4 5 6 7 8 9

Lowest Average Highest

Enhanced auditor’s report: Survey of first year experience in Singapore 9

Key Audit Matters
Topics Reported in KAMs In the UK, the “management The effect of this clarification
override of controls” and “fraud was evident in the auditor’s
The top 10 topics covered by the in revenue recognition” featured reports issued in the second
KAMs reported in the first year among the top common areas year; the “standard risks” were
in each of the three countries, reported in the first year. These included only where they
Singapore, HK and the UK, are presumed risks under the clearly had an impact on the
shown in Diagram 5. auditing standards were reported audit strategy.
by the auditor on the basis that
It can be seen that the most they are significant risks although However, the nature of the
commonly reported topics considered as “standard risks”. topics in the reported KAMs
in all three countries have The FRC subsequently clarified appear to reflect the nature of
been around valuation and that the intent of the new auditor the industry as seen in Diagram
impairment assessments, which reporting requirement is to 6 on the top three KAMs
typically involve significant discuss those risks which had reported by entities in each
management judgement, as the greatest effect on the audit selected industry.
well as revenue recognition. strategy, resources and effort.

10 Enhanced auditor’s report: Survey of first year experience in Singapore

Key Audit Matters

Diagram 5: Top 10 topics reported in KAMs as a proportion of all KAMs reported

Singapore
Valuation of loans and receivables 16%

Revenue recognition (non-fraud) 10%

Impairment of goodwill and intangible assets 10%

Valuation of property, plant and equipment 10%

Valuation of investment properties 9%

Valuation of inventories 9%
Valuation of development properties 5%
Valuation of financial instruments 4%
Taxation 3%
Interests in other entities 3%

0% 5% 10% 15% 20%

Hong Kong
Valuation of loans and receivables 20%
Impairment of goodwill and intangible assets 18%
Valuation of property, plant and equipment 15%
Revenue recognition (non-fraud) 10%
Valuation of financial instruments 8%
Valuation of inventories 7%
Acquisition or disposals 6%
Interests in other entities 4%
Taxation 3%
Valuation of development properties 1%
0% 5% 10% 15% 20%

United Kingdom
Impairment of assets 13%

Taxation 11%
Impairment of goodwill 10%
Management override of controls 9%
Revenue recognition (fraud risk) 8%
Revenue recognition (non-fraud) 8%
Provisions 6%
Pensions 4%
Valuation of investments 3%
Acquisitions 3%
0% 5% 10% 15% 20%

Enhanced auditor’s report: Survey of first year experience in Singapore 11

Key Audit Matters

Diagram 6: Top three KAMs reported for selected industry segments (% of total number of KAMs in the industry
segment)

Manufacturing Real Estate

41%

22%
19%
14% 14%
8%

Valuation of Valuation of Valuation of Valuation of Valuation of Revenue

receivables property, plant inventories investment development recognition
and equipment properties properties

Retail & Trading Services

26%
23%

15% 14% 14%

9%

Valuation of Valuation of Valuation of Valuation of Valuation of Revenue

receivables inventories property, plant receivables property, plant recognition
and equipment and equipment

12 Enhanced auditor’s report: Survey of first year experience in Singapore

Key Audit Matters

Diagram 6: Top three KAMs reported for selected industry segments (% of total number of KAMs in the industry
segment)

Construction Banks & Financial Services

29%
24%
21% 19%

12%
10%

Valuation of Revenue Construction Valuation Valuation of Valuation of

receivables recognition contracts of financial receivables insurance contract
instruments liabilities

Transportation Natural Resources

22%

12%
10% 9% 9%
7%

Valuation of Revenue Impairment of Impairment of Impairment of Revenue

property, plant recognition goodwill goodwill mining assets recognition
and equipment

Enhanced auditor’s report: Survey of first year experience in Singapore 13

 42% of the KAMs reported
in Singapore included
outcomes or results of the
procedures performed,
providing some insight
on the auditor’s resolution
of the KAMs.
Key Audit Matters
Indication of Outcomes
Diagram 7: % of KAMs with outcomes/results
or Results of Procedures

Including the outcome or results of Singapore Hong Kong

the procedures performed to address
the KAM can reduce uncertainty 58% 42% 73% 27%
about how the auditor resolved the Without With Without With
matter when forming the opinion on outcomes/ outcomes/ outcomes/ outcomes/
the financial statements as a whole. results results results results
In fact, in the Netherlands, where
the enhanced auditor reporting
standards were implemented early on
a pilot basis, Eumedion4 commented
that the description of KAM and
the description of how the audit
addressed the matter should be
“supplemented with the auditor’s
result, observations or conclusion”.

While not an explicit requirement,

the inclusion of outcomes or
results of procedures for each Overall, 42% of the KAMs reported in outcome or results and in the second
KAM seems to be encouraged as Singapore included the outcome or year, about 20%.
set out in the related guidance in results of the procedures performed
SSA 701. This would, of course, be to address them compared with We also observed that auditors in
based on the auditor’s evaluation 27% in HK as seen in Diagram 7. Singapore had adopted different
of the circumstances in the audit On further analysing the details, approaches in describing the
engagement. The amount of detail in we noted that almost half of those outcomes or results of their
describing how a KAM was addressed reports which did not have any procedures as can be seen from the
in the audit is also a matter of the outcome or results of the procedures following examples of statements
auditor’s professional judgement. performed by the auditor (reflected included in some of the auditor’s
as 58% in Diagram 7) were issued reports:
However, there needs to be careful by one audit firm. This could be • “Based on the work performed,
consideration of the wording used a reflection of a stance adopted we considered the methodology
when describing the outcome or by that firm at the global network and assumptions used by
results of the procedures. This is to level. Nevertheless, the proportion management to be appropriate.”
avoid leading a reader to believe of reports with outcomes or results • “We found management to have
that the auditor’s work had been included in Singapore and in HK the relevant controls in place,
planned and performed to provide are significantly higher than the and that the key assumptions
a ‘mini-opinion’ with respect to the experience in the UK where, in applied by management to be
particular financial statement item the first year, only about 2% of the reasonable based on supportable
mentioned in the KAM. auditor’s reports had included the information available.”

4 Eumedion represents institutional investors’ interests in the field of corporate governance and related sustainability performance in the Netherlands.

14 Enhanced auditor’s report: Survey of first year experience in Singapore

Key Audit Matters
• “We found that cautious
Diagram 8: % of KAMs with outcomes/results, by auditor
estimates were made in the
determination of net realisable
values and allowance for Singapore Hong Kong
foreseeable losses.” 99%
97%
• “Our testing did not find
indication of significant
management bias nor deviation
which would have required us
to increase or amend the nature 37%
of scope of our planned detailed 28%
test work. We found that the
assumptions, resulting estimates
applied and disclosures to be PwC Other audit firms PwC Other audit firms
balanced.”

We expect that, while there will We, at PwC, strive to go beyond to address the KAM, where
continue to be differences in the the minimum compliance and this made sense. Some of the
wording used by the auditors, like in embrace the change. This follows other auditors are also taking a
the UK, auditors in this region will be the recognition that users of similar approach as can be seen
able to provide greater insight into financial statements would in Diagram 8.
the audit and include more granular be interested in not only what
descriptions of outcomes or results auditors did but also what they
from their procedures as they gain found. Consequently, we have
more experience in issuing the included the outcome or result
longer reports. of our procedures performed

Enhanced auditor’s report: Survey of first year experience in Singapore 15

Key Audit Matters
Presentation of KAMs
Diagram 9: Distribution of reports with KAM in table and in narrative form
of presentation
While the required contents for
KAMs are set out in SSA 701,
the presentation of the KAMs Singapore Hong Kong
is not. Auditors, therefore,
have the liberty to decide on 54% 46% 12% 88%
the presentation of the KAMs Narrative Table Narrative Table
– whether to use narrative or
tabular style.

In the spirit of enhancing

readability of the auditor’s report,
a number of auditors adopted the
tabular style, presenting the KAM
in the left column (i.e. the ‘what’
and ‘why’ of the KAM) and the
procedures performed to address
the KAM in the right column
(i.e the ‘how’ of the KAM). This
style is particularly helpful when
a lot of information is presented Involvement of management
in the auditor’s report, in helping and audit committees
the reader to ‘remain on track’.
Nevertheless, we observed that Based on our survey of PwC
a few firms had consistently audit teams about their
adopted the narrative style of experience in the first year of
reporting KAMs. applying the enhanced auditor
reporting standards, we note
Diagram 9 reflects the proportion that audit committees were
of reports that had adopted the more interested and engaged
narrative style and those that in conversations with auditors
had adopted the tabular style of about the audit in general
reporting KAMs in Singapore and about KAMs, more than
and in HK. management teams.

16 Enhanced auditor’s report: Survey of first year experience in Singapore

Additional Observations
Our survey also observed that The voluntary disclosures by KAM section; this was seen in
some auditors included additional PwC, for example, included more than 80% of its reports.
descriptions, although not always additional information about This section is intended to refer
in a consistent manner. This is materiality and group scoping readers to the important work
understandable, the auditor having in the reports it provided on the done to address the ever present
to consider situations where a group financial statements of Singapore risk of management override
of listed entities may be audited Exchange Limited and DBS Group of controls and consideration
by more than one audit firm, each Holdings Ltd. These additional of bias that represents a risk
with its own preferences that disclosures are required in the of material misstatement due
are permitted by the standards. UK but are currently not required to fraud and to explain that
These firms may have agreed with in Singapore. certain estimates in the financial
the relevant group management statements are based on
teams to ensure compliance with A more consistently applied subjective judgments which are
the requirements in the auditing voluntary disclosure for PwC’s inherently uncertain, and that
standards and exclude any reports was the inclusion of a this has been factored into the
additional disclosure so as to achieve contextual section on “Our Audit auditor’s risk assessments.
consistency within the wider group. Approach” that precedes the
In PwC, we also changed the
structure of our reports to make
them more focused and user
friendly. The opinion on the
financial statements is placed
right at the top of all our reports.

On the other hand, another

audit firm emphasised fulfilment
of its responsibilities for the
audit of the financial statements,
noting that the results of its
audit procedures provide the
basis for its audit opinion on the
financial statements as a whole.
This additional information was
observed in more than 90% of
its reports.

Enhanced auditor’s report: Survey of first year experience in Singapore 17

 85% of the
entities surveyed
had provided
all of the OI by
the date of the
auditor’s report.
Other Information
Diagram 10 shows the extent of OI that had been provided to the
auditor as of the date of the auditor’s report:

Diagram 10: OI – All, Partial and None – categories and % of reports in

each category

Singapore Hong Kong

2% 1%
13% None 85% 4% None 95%
Partial All Partial All

More than 80% of the auditor’s in Singapore. While more of the

reports reflected that all of the auditor’s reports in HK, almost
OI was obtained by the date 95%, reflected that all of the OI was
of the report on the financial obtained by the date of the report
statements. Interestingly, about on the financial statements, it is
2% of the auditors appear to have difficult to draw conclusions on
reported that none of the OI was the extent of the entities’ reporting
obtained yet. This may seem odd readiness based on this. This is
especially since the Directors’ because the amount of information
Statement is a common part of presented in the annual report that
OI that is ordinarily prepared and forms OI varies from entity to entity.
dated as of the same date as the
auditor’s report and accompanies In the UK, the full annual report is
the financial statements in the required to be ready at the date of
case of all entities incorporated the auditor’s report.

18 Enhanced auditor’s report: Survey of first year experience in Singapore

 Entities with smaller
market capitalisation
were more likely to
provide all OI by the date
of the auditor’s report.
Other Information
Further examination of the data
Diagram 11: % of entities which had provided all of the OI across market
for Singapore shows that the capitalisation category
smaller entities had provided
all of the OI as of the date of the
100%
auditor’s report as can be seen 94%
in Diagram 11.
82%
Furthermore, the longer the 68%
time taken to finalise the
financial statements, the more
likely the provision of all of the
OI by entities to the auditor by
the date of the auditor’s report, 31%
as can be seen from Diagram 12.

Of the entities that had provided

only part of the OI as of the
date of the auditor’s report, Less than $10m $10m to $100m $100m to $1b $1b to $10b > $10b
two – both banks – had reported
an update in the annual report
that the remaining OI had since
been provided to the auditor and
that the auditor, having read Diagram 12: Timing of auditor’s reports, by number of months after financial
year-end and analysis of level of completeness of OI
the remaining OI, had nothing
to report. Such an update in
3% 1%
the annual report may be an
4% 9%
attempt to reassure investors
about whether the auditors
% of auditor’s reports

reported anything about the OI 42%

provided after the date of the
auditor’s report. 95% 91%

55%

Within 2 months 3rd month 4 months and after

118* 370* 11*
* Number of auditor’s reports

All Partial None

Enhanced auditor’s report: Survey of first year experience in Singapore 19

 Only 40% of the
entities surveyed
included

Commentary by AC commentaries
in their annual

Audit Committees reports.

As the enhanced auditor reporting In Singapore, the Accounting and The joint expectation of the three
standards were first implemented Corporate Regulatory Authority bodies was for each AC to comment
in the UK, it was only natural for (“ACRA”), the Monetary Authority on the significant financial reporting
auditors from the rest of the world of Singapore (“MAS”) and the matters specific to its listed
to look towards the UK for lessons SGX sent a joint letter to ACs of all company, not just what it thought
on implementation. However, the Singapore listed companies asking about the KAMs reported by the
drivers for change that existed in them to consider disclosing the external auditors. Because of the
the UK did not exist everywhere. following in the AC commentary in timing of the communication of the
the Annual Report: expectation (not a requirement),
In the UK, the enhanced auditor’s (a) Significant financial reporting 60% of the ACs did not provide
reports were implemented at matters specific to their listed any commentary on the significant
about the same time as expanded company, including their financial reporting matters as can
AC reporting requirements. perspectives on the key audit be seen in Diagram 13.
The 2012 version of the FRC’s matters reported by the external
Corporate Governance Code auditors.
introduced reporting by the AC,
(b) How they have assessed and
which is sub-set of the Board of Diagram 13: % of annual reports with
concluded on each significant AC commentary
Directors, of “the significant issues
matter, which could include
that the committee considered in
discussions with management,
relation to the financial statements,
auditors and other subject
and how these issues were
matter experts. 60% 40%
addressed”. These complementary
(c) Significant judgement calls Without AC With AC
reporting requirements provided commentary commentary
a shared agenda for auditors and made, which could include
ACs that helps explain in part why assessments of management’s
the first year experience in the UK judgements and estimates,
proved to be as successful as it was. and the sources of assurance
The auditor identifies areas of focus drawn upon as the bases for
and says what procedures were their agreement with the
carried out to audit them; and the management’s conclusion.
AC comments on the judgements
made by management and why it is The letter was sent in early January
comfortable with those judgements. 2017, more than six months after
This follows the long-established the enhanced auditor reporting
principle that the auditor reports on standards were published.
the audit and the directors report
on the company.

20 Enhanced auditor’s report: Survey of first year experience in Singapore

 Only 11% of the
annual reports included
AC commentary in
accordance with the request
from ACRA-MAS-SGX.

ACRA, ISCA and the Securities

Diagram 14: % of annual reports with AC commentary by financial year-end
Investors Association (Singapore)
jointly released a guide just before
47% the season of annual general
meetings (“AGMs”), aimed at
39%
providing basic and practical
guidance for retail investors when
they read auditor’s reports issued
by auditors of companies listed on
the SGX (“the Guide”). The Guide
set out the questions investors
should ask at AGMs, among other
matters related to the enhanced
auditor reporting standards.
We understand that some of the
matters reported as KAMs by the
31 Dec 2016 31 Mar 2017
auditors generated more interest
156* 40* during the AGMs especially when
* Number of annual reports there was little or no related AC
commentary in the annual reports,
and led to more questions rightly
As can be seen from Diagram 14, which should be adopted by the addressed to directors.
the number of annual reports directors.
containing AC commentary is not
necessarily increasing over time. Furthermore, not all of the annual
Given that more time has passed reports reviewed in our survey
since the issuance of the joint-letter had AC commentary that met the Diagram 15: AC commentary making
reference to KAMs vs
in January 2017, we would have three-part expectation in the joint describing significant
expected a much higher proportion letter from ACRA, MAS and SGX; financial reporting matters
of the annual reports relating to the only 11% did. We believe that
financial year ended 31 March 2017 ACs may appreciate clarity and
to contain commentary by the ACs guidance in this respect from the
52% 48%
than the 47% seen in Diagram 14. regulators. Refers to Identifies
KAMs significant
More than half of the ACs that While the intention of getting financial
had provided any commentary ACs to provide commentary in reporting
had commented on the KAMs the annual reports may have been matters
identified by the auditors instead to raise the quality of financial
of commenting on the significant reporting in Singapore, using the
financial reporting matters specific reporting of KAMs by auditors
to their listed company. Only as the driver to push ACs to
48% had identified significant include their commentary on the
financial reporting matters, as significant financial reporting
seen in Diagram 15. It is unclear matters considered could cause
if the thought-process behind the ACs to confine their consideration
determination of the KAMs by the of those matters to only the KAMs
auditors should be the same as that reported by the auditors.

Enhanced auditor’s report: Survey of first year experience in Singapore 21

Looking Ahead

The only constant is change

It has taken many years for the auditor’s report to change to its current
more informative version. We do not believe that the most recent set of
changes is a one-off. With technological advancements leading to faster
information-sharing, investors and other stakeholders can be expected
to provide more prompt feedback to regulators; and regulators can
be expected to respond more quickly towards financial reporting and
corporate governance matters.

Keeping investors in mind

Learning from early adopters, the FRC’s second year survey of extended
auditor’s reports in the UK reaffirmed the need to bear the investors
in mind when developing the auditor’s report. With the call for more
transparency and corporate governance in Singapore, we have heard
anecdotally that investors and other stakeholders in Singapore have
similar views.

Moving forward

Progressing towards an environment of bespoke auditor’s reports is

undoubtedly transforming the long-established culture in the auditing
profession. This significant implementation poses many challenges to
auditors as well as the management of companies and those tasked with
governance. We, at PwC, will continue to keep up with the change and
tackle any challenges ahead, as we strive to go beyond the minimum
compliance to deliver valuable and insightful reports for investors and
other stakeholders.

22 Enhanced auditor’s report: Survey of first year experience in Singapore

Contacts

Marcus Lam
Assurance Leader
+65 6236 3678
marcus.hc.lam@sg.pwc.com

Choo Eng Beng

Partner, Assurance
+65 6236 3848
eng.beng.choo@sg.pwc.com

Hans Koopmans
Partner, Assurance
+65 6236 3158
hans.koopmans@sg.pwc.com

Alima Banu
Associate Director, Assurance Risk & Quality
+65 6236 3314
alima.banu@sg.pwc.com

Enhanced auditor’s report: Survey of first year experience in Singapore 23

© 2017 PricewaterhouseCoopers. All rights reserved.