ISCA Conference 2023: Improving Audit Quality In 2024

In the afternoon segment of the ISCA Conference 2023, two separate tracks ran concurrently, highlighting the different aspects that accounting and audit professionals will be focusing on in 2024. One of these tracks centred on audit quality, fraud, mergers & acquisitions (M&A) challenges, and issues to look out for in 2024.

The first of five sessions in this track was opened by Kuldip Gill, Assistant Chief Executive (Accounting Regulatory and Sustainability Group), Accounting and Corporate Regulatory Authority (ACRA). Following the amendments to the Accountants Act which took effect from 1 July 2023, ACRA had commenced its regulatory quality control inspections of accounting entities, marking crucial advancements in its regulatory regime. The Practice Monitoring Programme (PMP) framework on individual public accountants has also been enhanced.

In her presentation on “Audit Quality Through Quality Management”, Ms Gill highlighted certain key matters from ACRA’s 2023 Audit Regulatory Report, including:

(a) The importance of having a comprehensive root cause analysis in order to devise effective remediation plans

• Generally, training appears to be a common remediation action, which could be a knee-jerk reaction to a wide range of inspection findings. However, without first identifying the actual root cause(s), there is a risk that the lack of training (in itself) may not be the answer. Even when training on technical matters may be the right answer, the knowledge gap may not be the sole root cause, as there could be a range of other behavioural or organisational factors that ought to be considered and addressed.

(b) Areas of emerging concerns, including audit reports – non-consolidation of subsidiaries, going concern and audit documentation

• Auditors ought to consider if there is material/pervasive impact on the financial statements as a result of the non-consolidation of subsidiaries. In doing so, professional judgement is exercised and the audit documentation ought to support the professional judgement and audit opinion.
• On going concern, public accountants are reminded that (i) “Emphasis of Matter” is not a substitute for “Material Uncertainty Related to Going Concern”, and (ii) not to include “Material Uncertainty Related to Going Concern” when there is no such material uncertainty.
• Audit documentation and workpapers form an important part of an audit, therefore public accountants are required to “carry forward” audit documentation and workpapers from an earlier audit and update them as necessary, if they are required for the current audit.

(c) Observations and good practices noted in several firms’ journey in (i) operationalising the Singapore Standards on Quality Management (SSQM) 1 and 2, and (ii) adoption of technological tools in financial statements audit that will be beneficial to the rest of the profession, as:

• A robust system of quality management generates multiple benefits, including improving and supporting the consistent performance of quality engagements.
• Deployment of technological tools is expected to improve audit efficiency and uplift audit quality. In turn, audit clients will derive higher audit value through the insights obtained in using these tools.

Please refer to ACRA’s 2023 Audit Regulatory Report for more details.

Ms Gill also urged the profession to continue investing in quality management systems and developing multidisciplinary teams with the right mix of competencies, so as to seize opportunities that will arise when the demand for assurance on sustainability reports increases.

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AUDIT AND ACCOUNTING ISSUES TO NOTE FOR 2024

In a subsequent session, Yeow Hui Cheng, Chairperson, ISCA Auditing and Assurance Standards Committee and Assurance Partner and Deputy Professional Practice Director of EY, presented “Top 5 Accounting And Audit Issues To Note For Audit Of FY 2023”. In light of macroeconomic and geopolitical developments, as well as evolving business and audit environments, auditors need to be alert to new or heightened risk areas in accounting and auditing.

Ms Yeow listed the five trends as:

• Macroeconomic uncertainties:
  Stubborn inflation and the spectre of economic downturn are set to impact companies in 2024, with repercussions to cashflow forecasts. Highly leveraged companies should perform a robust assessment on going concern, including whether there are difficulties repaying loans for borrowings approaching maturity. Auditors should consider if there is a need for impairment of assets and challenge management assumptions used in going concern assessments if they are sensitive and the headroom is narrow.
  
• Geopolitical uncertainties:
  Escalations in geopolitical uncertainties, such as wars and international sanctions continue to have wide-ranging implications on global trade. These developments could lead to cancelled deliveries or potential breaches in contractual terms. Trade sanctions could also affect credit risk, disruption to production and availability of workforce. Companies should consider the accounting implications of such developments and auditors should assess if they have been adequately incorporated in management’s assessments, such as expected credit loss assessments.
  
• Climate change movement:
  As witnessed in events such as forest fires and typhoons, nature is becoming less predictable due to climate change. Companies, particularly those in energy and agriculture, should recognise the impact these events could have on their business and the risks involved. How would a changing preference towards sustainable products or sourcing affect businesses? Would they disrupt sustainability projects on which sustainability bonds are dependent? The transition to cleaner energy could also bring growth and opportunities, and could have a material impact on the financial performance of companies.
  
• Technology development:
  Such development can result in implications to recognition arising from complex revenue streams, such as the licensing of intellectual property rights. For companies that develop IT assets, another challenging question is whether to capitalise or expense the related costs. Rapid advancements in IT can also change the value and business model of a company. At the same time, auditors have to take into account the cyber risks along with the associated compliance and regulatory risks involved in utilising technology. Auditors should understand critical IT processes, including IT failures that could lead to penalties and costs that impact cashflow.
  
• Updates to standards and regulations:
  On the sustainability front, SGX has undertaken a phased approach to climate reporting for public companies in Singapore, but all companies have to consider their need to do so in the years ahead, and how they can best meet regulatory requirements. The Sustainability Reporting Advisory Committee (SRAC) has released a roadmap for sustainability reporting in Singapore, and it recommends that listed companies report their sustainability efforts by 2025, with other companies expected to follow later.

The ISCA Conference 2023 wrapped up with a presentation on key accounting and auditing updates that could affect entities’ upcoming financial statements by Aylwin How, a member of the ISCA Financial Reporting Committee and Partner at Deloitte. These included:

• SFRS(I)s that are effective on and after 1 January 2023;
• Amendments to SFRS(I) 1-12 on International Tax Reform – Pillar Two Model Rules and possible accounting considerations to take note of;
• IFRS(I) 17 Insurance Contracts, with key focus on the accounting implications for non-insurers;
• SSA 600 (Revised) Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors).

Mr How also provided a quick overview of two of ISCA’s technical guidance issued in 2023, namely FRB 9 (Revised January 2023) Accounting Implications of the Interest Rate Benchmark Reform in Singapore, and FRB 10 Real Property Valuation for Financial Reporting – Fair Value Based on Highest and Best Use. He concluded his presentation with a sharing on mandatory climate reporting in Singapore, the new IFRS Sustainability Disclosure Standards, and the proposed International Standard on Sustainability Assurance 5000 General Requirements for Sustainability Assurance Engagements.

Rehash the excitement of ISCA Conference 2023 in the video here!