Capturing the Spectacular

CAPTURING THE SPECTACULAR

Telling a story on film is not just about recording the action. It is also about how the images are captured. Setting up the scene before the shoot – positioning the camera and choosing between lenses, film stock and lighting – enables the director’s vision to become reality. This creative vision holds the entire film together.

ISCA similarly works to ensure that all the technical and practical elements are in place for the profession to shine, with a slew of initiatives in the areas of Audit & Assurance, Financial Reporting, Sustainability Reporting, and Ethics. These initiatives keep the profession up to date with new standards, help companies on their sustainability reporting journey, and provide guidance on emerging topical issues. This helps the profession to evolve to meet the needs of its stakeholders.

Audit & Assurance
Quality Assurance Framework

Guided by the ISCA Quality Assurance Framework, the Institute drives quality, productivity and innovation, as well as upskilling and internationalisation of the audit practices in Singapore. The framework has four pillars to achieve ISCA’s vision of high-quality audit practices: Quality Assurance, Digital Capability, Knowledge Circle, and Opportunities Creation.

Quality Assurance Review (QAR)

The voluntary programme aims to help participating public accountants raise the quality of their audit practices and audit engagements. It covers the review of signed-off engagement files, firm-level quality control system and/or policies, procedures and controls on anti-money laundering and countering the financing of terrorism (AML/CFT).

Customised Training

ISCA offers customised technical training for small and medium practices that aims to bridge the knowledge gap and help audit staff relate what they have learnt to their work. The scope of the training includes ISCA audit manuals, Ethics Pronouncement 200 and other audit-related topics.

Audit Manuals

ISCA publishes audit manuals to assist audit professionals in conducting audits of both standalone entities and group entities. Updated annually, the audit manuals supplement the Singapore Standards on Auditing, applicable Singapore Financial Reporting Standards (FRS) and any other regulatory requirements that are deemed relevant.

Illustrative Financial Statements (IFS)

IFS is a guide for Singapore-incorporated private limited companies, whose financial statements are prepared in accordance with the FRS and Singapore Companies Act. The 2019 edition includes sample new disclosures required under FRS 116 Leases, which is effective for annual periods beginning on or after 1 January 2019.

Professional Development for Practitioners

ISCA’s Practitioner’s Package (PP) facilitates professional development in public accounting firms and provides technical support through ISCA’s quality assurance initiatives.

The PP comprises four components: Continuing Professional Education (CPE) bundle, a 15% discount on CPE courses for practitioners and their staff, Quality Assurance Diagnostics and Technical Call Helpdesk.

Advocating for the Profession

Amid recent corporate failures, there have been increased focus on the responsibilities of auditors and a perception that auditors are responsible for avoiding corporate failures and fraud prevention. To help dispel some of these misconceptions, ISCA contributed a commentary to the Business Times to provide clarification and insight into the roles and responsibilities shared by the various stakeholders, including the auditor, in the corporate governance ecosystem. The commentary published on 26 July 2019 also provided insight into the auditor’s responsibilities in assessing going concern and fraud detection.

The commentary highlighted that businesses fail due to a variety of reasons, sometimes arising from poor business decisions, at other times from changes in the business environment, and that an unqualified audit opinion does not assure the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs of the entity. The commentary also highlighted the value of an independent audit opinion, which is relied upon by stakeholders to obtain assurance that a set of financial statements can be relied upon for decision making.

Brydon Review

On 28 May 2019, ISCA hosted a roundtable co-chaired by ISCA President Kon Yin Tong, and a Global Public Policy Committee (GPPC) representative, Ms Julia Tay, Partner, Asia-Pacific Public Policy Leader at EY, to provide views from a Singapore and ASEAN perspective to the Brydon Review, which was being carried out on the quality and effectiveness of audit in the UK.

The developments in the UK will have influence around the world where capital markets depend on robust and high-quality independent audits. Singapore, being a global financial centre, similarly requires an effective audit industry to underpin confidence in the financial reporting by companies.

The Roundtable was well attended by a diverse range of stakeholders including management, directors and audit committee members, auditors, investors, regulators and academics.

The participants of the Roundtable affirmed that the current audit product is still valued as audit reports are referred to as a starting point to draw high-level conclusions of companies. However, there were views that the communicative value of audit reports could be increased by including an assessment on the effectiveness of internal controls, risks, early warning signs on going concern and assessment of corporate culture. The participants also recognised that auditors are not the sole guardians of public interest and a robust corporate reporting ecosystem is the shared esponsibility of all stakeholders.

Views from the Roundtable were provided to the Brydon Review committee through the GPPC. An article on the salient points discussed was published in the October 2019 issue of the IS Chartered Accountant Journal.

New Auditing and Assurance Standards

ISCA issued several new auditing and assurance standards in 2019:

  • AGS 9 (Revised), Opinion on Receipts, Expenditure, Investment of Moneys and the Acquisition and Disposal of Assets by Statutory Boards, has been updated with the requirements of the Public Sector (Governance) Act 2018 (PSG Act).
  • AGS 1, Sample Independent Auditor’s Reports, has been updated to include sample reports of financial institutions and government incentive schemes.
  • SAP 2 (Revised), Auditors and Public Offering Documents, now includes guidance on what reporting auditors should comment on in their private reports on profit forecast.
  • SSA 540 (Revised), Auditing Accounting Estimates and Related Disclosures, arising from ISA 540 (Revised). The main updates to the extant standard include enhanced risk assessment, scalable requirements and more emphasis on professional scepticism.
Contributing Towards Global Standard-Setting Process

Quality Management in Professional Accountancy Firms

An effective system of quality control provides the foundation to achieving consistent engagement quality. The extant quality control standards require firms to establish and maintain a system of quality control and specifies the policies and procedures that firms are required to establish as part of the system of quality control.

Questions have arisen about whether the extant quality control standards remain fit for purpose, given the evolving environment in which firms operate, the intensifying focus on quality and the increasing expectations of firms’ stakeholders. Furthermore, inspection findings and ongoing outreach have suggested that several aspects of the extant quality control standards could be more robust, and that additional action is needed to address the proportional application of the standard by SMPs.

Recognising these issues, the IAASB proposed a new approach to quality control at the firm level that emphasises the responsibility of firm leadership for proactively managing quality, while at the same time being scalable to deal with differences in the size of firms and nature of the services they provide. ISCA organised a focus group to solicit inputs on IAASB’s proposed changes and feedback from our focus group showed support for the scalability brought about by the new approach. Potential implementation challenges, especially on how SMPs would apply such scalability to the requirements, were highlighted to the IAASB.

Audits of Less Complex Entities

Recognising the challenges faced by practitioners in applying the International Standards on Auditing (ISAs) for engagements where the entity being audited is less complex, the IAASB sought to understand the challenges identified to date and the possible actions that could be undertaken to address these challenges.

ISCA held a focus group to solicit the views of local practitioners. The challenges faced by auditors and the advantages and disadvantages of a range of possible actions were communicated to the IAASB. In particular, the merits of the development of a separate auditing framework for audits of less complex entities and how it can alleviate some of the challenges faced by auditors were highlighted to the IAASB.

Financial Reporting

The Institute supports accountancy professionals in Singapore in addressing financial reporting challenges through various avenues such as guidance publications, technical bites, technical enquiry service, articles and outreach sessions. The various guidance publications and technical bites focus on emerging topical issues and new standards; and share best practices.

ISCA Financial Reporting Codification Framework

In November 2019, the Institute issued the Financial Reporting Codification Framework, which establishes formalised categorisations, degrees of authority and due process for future issuance of ISCA’s technical content. The framework provides credence to ISCA’s technical content, promulgates ISCA’s views on the application of accounting standards as well as promotes quality, consistency and best practices in financial reporting. The Framework categorises technical contents into three categories:

  • (1) Financial Reporting Practice (FRP)
  • (2) Financial Reporting Guidance (FRG)
  • (3) Financial Reporting Bulletin (FRB)

With the Framework in place, members of the public would have the opportunity to provide comments and feedback upon exposure of technical contents. This due process will facilitate better adoption and application by the financial reporting ecosystem.

FRG 1 “Real Property Valuation for Financial Reporting – Best practices when engaging valuers: Considerations for Scope of Work (SOW) and Valuation Report (VR)”

As real estate assets such as land and buildings are often significant assets of companies, it would be beneficial for the reporting entity, valuer and auditor to have a clear understanding of the real estate valuation process and the requirements of the relevant accounting standards. ISCA issued FRG 1 to bridge the expectation gaps and facilitate a smooth valuation process by stipulating matters to be considered in the SOW and VR and setting out a recommended workflow of the engagement process among the parties involved. It also highlights key considerations relevant to SFRS(I) 13 Fair Value Measurement when determining the SOW and title of standards valuation information to be disclosed in the financial statements.

ISCA Technical Bite-Size Guidance

ISCA develops Technical Bite-Size guidance (Tech Bites) to share with our members technical knowledge and ISCA’s views on accounting issues in an understandable and easy-to-read manner.

In February 2019, a series of five Tech Bites was published on the principles to consider when performing the assessment of whether the contractual cash flow characteristics of a financial asset are solely payments of principal and interest on the principal amount outstanding under SFRS(I) 9 Financial Instruments. Specific Singapore-centric areas discussed include fixed deposit home rate loans, financial assets with prepayment options, Singapore Interbank Offered Rate (SIBOR), Swap Offer Rate (SOR) and bail-in features of bank-issued debt instruments.

In April 2019, ISCA issued a Tech Bite on the finalised Agenda Decision by the IFRS Interpretations Committee (IFRIC) on not allowing the capitalisation of borrowing costs when property developers recognise revenue over time. The Tech Bite also shared ISCA’s view on what is meant by ‘sufficient time’ for entities to implement any changes in accounting policy resulting from this Agenda Decision.

Rising to the Challenges of Financial Reporting

Jointly hosted by ISCA’s Financial Reporting Committee (FRC) and the AFA, the ISCA FRC-AFA Financial Reporting & Business Conference 2019 sought to address challenges in financial reporting, particularly those that have arisen with the application of IFRS 9 Financial Instruments and IFRS 16 Leases. Experts shared insights into application challenges arising from IFRS 9 and IFRS 16 as well as updates on areas of review focus and common pitfalls to avoid in financial reporting.

ASC-ISCA-IASB Stakeholder Outreach

In October 2019, the ASC and ISCA jointly organised a stakeholder outreach session in Singapore, with IASB member Mr Darrel Scott. The outreach session was attended by representatives from accounting firms as well as Singapore’s banking and insurance industry. Topics discussed at the stakeholder outreach included IASB’s Dynamic Risk Management project and IFRS 17 Insurance Contracts.

Financial Reporting Surveillance Programme

The Institute continued its collaboration with ACRA on its Financial Reporting Surveillance Programme (FRSP), now in its fifth year. The FRSP guides companies to meet the requirements in the accounting standards, which in turn provides investors with reliable and meaningful financial statements for decision-making.

Sustainability Reporting

Via its initiatives which emphasise the role of accountants in the sustainability of an organisation, ISCA aims to promote and uplift the quality of sustainability reporting in Singapore.

Financial Services Sustainability Roundtable

In 2019, the Institute conducted its inaugural roundtable for sustainability experts from the financial services sector. This enabled industry participants to share their organisations’ sustainability efforts and views on the role of the financial services sector in the sustainability ecosystem. The sector has a unique and significant role in the sustainability ecosystem because of its ability to direct capital towards sustainable development.

Maritime Sustainability Reporting Guide

The Maritime and Port Authority of Singapore (MPA) co-developed the Maritime Sustainability Reporting Guide with ISCA and other partners and launched the Guide in August 2019.

The Guide comprises six chapters to make the sustainability reporting process easier for the maritime industry, along with industry best practices and case studies. The need for the Guide was spurred by industry feedback on the growing need for sustainability reporting guidelines, given that sustainability development practices bring various benefits to businesses.

Ethics
Adoption of NOCLAR Pronouncement in Singapore

ISCA revised its Ethics Pronouncement (EP) 100 Code of Professional Conduct and Ethics to adopt the pronouncement of Responding to Non-Compliance with Laws and Regulations (NOCLAR pronouncement) in December 2019, effective from 1 April 2020.

NOCLAR pronouncement sets outa framework to guide accountancy professionals in deciding how best to act in the public interest when responding to NOCLAR committed by a client or employer. More importantly, it addresses the matter of confidentiality. Accountancy professionals are no longer bound by the principle of confidentiality if it is appropriate to report NOCLAR to an appropriate authority and they are acting in good faith when doing so.

ISCA has deliberated Singapore’s adoption of NOCLAR at the ISCA Ethics Committee, ISCA Public Accounting Practice Committee and the Ethics Sub-Committee (EC) of the Public Accountants Oversight Committee. ISCA has also sought feedback from SMPs via a targeted survey. Following this, the ISCA Ethics Committee examined the various implementation challenges and concerns/comments raised and deliberated on how to address them in Implementation Guidance 3 Frequently Asked Questions on NOCLAR (IG 3). Below are the key areas addressed in the IG 3:

  • addressing conflicts between NOCLAR requirements and existing laws and regulations;
  • what is considered “clearly inconsequential”;
  • the concept of “public interest”;
  • the professional clearance between predecessor and proposed successor auditors with respect to tipping-off;
  • the legal protection available to whistle-blowers; and
  • the disclosure of NOCLAR to an appropriate authority with respect to group audit.
Ethics Seminar

At the annual Ethics Seminar, themed “Serving the Public Interest – Narrowing the Expectation Gap” in 2019, it was highlighted that ‘a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.’

With this in mind, an array of prominent ethics subject matter experts shared their insights on the ethical areas and developments that impact the accountancy profession.

The seminar ended with a Question-and-Answer Session which gave the speakers an opportunity to clarify and address the questions from audience.

A cover story was published in the November 2019 issue of the IS Chartered Accountant Journal to summarise and share the salient matters discussed at the Ethics Seminar.

Promote the Role and Mindset Expected of Professional Accountants

IESBA introduced the concept of an “inquiring mind” which requires all accountancy professionals to consider whether there is a need for critical analysis/evaluation, and this goes beyond the existing requirement to remain alert for new information and to changes in facts and circumstances.

IESBA also proposed to strengthen the fundamental principle of “professional behaviour” by including a requirement that accountancy professionals behave in a manner that is consistent with their responsibility to act in the public interest.

ISCA supported IESBA’s proposals above. However, ISCA communicated to IESBA that given the interplay between ethical requirements and public interest, having a ‘public interest’ framework for the accountancy profession would greatly enhance its clarity.