Companies should invest in training to equip and upskill the finance teams, including CFOs and audit committees to bridge any competency gaps.
Singapore's Accounting and Corporate Regulatory Authority (ACRA) has issued its fourth Financial Reporting Surveillance Programme (FRSP) report, which has identified that knowledge gaps and insufficient due diligence remain the main root causes contributing to material non-compliance with accounting standards. Another root cause was the lack of action taken on issues raised by auditors.
In obtaining the findings of the report, ACRA reviews the financial statements (FS) of Singapore-incorporated companies for compliance with the accounting standards in Singapore, and publishes the findings to help companies avoid common pitfalls and improve their financial reporting. This latest FRSP report covers the FS reviewed between 1 April 2020 to 31 March 2022. Of the 33 sets of FS reviewed, ACRA found a total of 23 material non-compliances with accounting standards in 12 FS.
The 23 material non-compliances were in areas such as business valuations, impairment assessments, presentation in cash flow statements, consolidation, and equity accounting. The nature of the non-compliances can be categorised as follows:
Through engagements with the companies, ACRA observed that the material non-compliances were due to the following factors:
- Knowledge gap within the finance teams, chief financial officers (CFOs) and audit committees (ACs), resulting in incorrect application of accounting standards;
- Insufficient due diligence by the finance teams, CFOs and ACs, on transactions that were neither complex nor required judgement, and
- Lack of action taken on issues raised by auditors. This includes failure to act upon the areas qualified or disclaimed by the statutory auditors and accepting modified audit reports in consecutive years, instead of taking the appropriate steps to rectify the issues and resolve non-compliances with the accounting standards.
Beyond efforts made to recruit qualified persons, more can be done to strengthen the competency of the financial reporting team. As ACRA points out, with evolving business models and more complex transactions, it is critical for preparers to understand the substance of the transactions and the principles behind the accounting standards in order to correctly apply the relevant accounting standards to the transactions.
On the skills front, ACRA affirmed that companies should invest in training to equip and upskill the finance teams, including CFOs and ACs, to bridge any competency gaps. Where necessary, the board can support them by providing access to experts and consultants for advice on more complex matters.
Statutory auditors play an important role in financial reporting - they can assist the ACs, CFOs and finance teams by highlighting accounting and auditing issues early. In such situations, the ACs may guide the CFOs and finance teams to resolve the statutory auditor’s concerns, so as to avoid the issuance of modified audit reports.
The board should also apply rigour in reviewing and approving the FS, to ensure that the FS provides a true and fair view of the financial position and performance of the company.
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