During the Singapore Accountancy Convention 2016 (SAC) on August 25, Julia Tay, then-Deputy Chief Executive, Accounting and Corporate Regulatory Authority (ACRA), had shared, “When we talk about extended auditor’s reports, foreign brands like Rolls Royce and Vodafone come to mind. Today, we can say that our local brands are part of that list, including CapitaLand, Singtel and Singapore Airlines.”


It is encouraging to note that there are already 10 early adopters in Singapore (Figure 1) of the enhanced auditor’s report as at end-August 2016, despite the new and revised auditor reporting standards coming into effect only at the end of 2016.


… the value of such a (free-form auditor’s) report is not in what is communicated, but how it is communicated. It has to be clear, concise and easily understood.


In each of these enhanced auditor’s reports, the four most commonly featured key audit matters (KAMs) are:

  • Business combinations
  • Impairment of goodwill and intangible assets
  • Valuation of investment properties
  • Valuation of financial instruments and derivatives



The key to the enhanced auditor’s report is in adding value and not volume. This change in reporting standards was spurred by users of the auditor’s report calling for it to be more informative and relevant.


Tham Sai Choy, Managing Partner, KPMG Singapore and Chairman, KPMG Asia Pacific, highlighted, “The whole point of the audit exercise is to reach out to stakeholders. Communicating the value of what auditors do and how it fits into the whole financial reporting process must be conveyed through the auditor’s report.”


Similar requirements have already been rolled out in the UK in 2012 and the Netherlands in 2014. A follow-up post-implementation study published by UK’s Financial Reporting Council (FRC) in January 2016 reported, “The reports which have earned the greatest praise from investors this year are carefully structured with the end-user in mind, and signpost key information. They also include clear, concise and transparent disclosures about risk… as well as the critical areas where professional judgement and assumptions have been addressed”.


With robust discussions externally with the management and the AC and internally among the engagement team, KAMs should be entity-specific, more in-depth and congruent with the financial statements.



Most auditors communicate with people at all levels of the company, from the Board of Directors to front-line accounts clerks. But communicating entity-specific KAMs to the public is new to the profession and requires a different skill set.


The current auditor’s report is boilerplate; the only time auditors have to write a free-form report is when there is a modified audit opinion or an emphasis of matter, which are generally uncommon and usually once-off. When that happens, typically, the audit firm’s technical and quality assurance resources will assist the audit engagement partner to draft the report.


Moving forward, writing a free-form auditor’s report is the responsibility of all audit engagement partners every year. Writing the new report will be a challenge, as the skill required to write it is completely different. After all, the value of such a report is not in what is communicated, but how it is communicated. It has to be clear, concise and easily understood.



Figure 2 is a framework to guide auditors on this journey into uncharted waters. It is based on experiences gathered from early adopters, the views of the panellists at the “Enhanced Auditor Reporting: An Early Adopter’s Experience” session at the Singapore Accountancy Convention, and inputs from KPMG LLP and PricewaterhouseCoopers LLP.


(1) Early and regular engagement with management and AC


Most of the early adopters agree that early engagement with management and the Audit Committee (AC) is a critical success factor. This includes explaining the intent behind the reporting of KAMs, committing all parties involved in the process, and agreeing on what the KAMs would eventually be.


Gautam Banerjee, Chairman, Blackstone Singapore Pte Ltd, who chairs several ACs, explained the merits of early engagements with the AC. “If the company goes through the audit process in a methodical and robust manner, the AC should have met the auditor every quarter, and the auditor would have done their reviews and communicated the areas they would focus on. These are the areas of judgement and accounting estimates… and would form the basis of key audit matters.”


With robust discussions externally with the management and the AC and internally among the engagement team, KAMs should be entity-specific, more in-depth and congruent with the financial statements.


(2) Training, consultation and independent reviews


Some of the early adopters drew inspiration from the auditor’s reports published in the UK and reflected on the areas of improvement from the UK experience. Similarly, auditors in Singapore can also make reference to the abundance of published reports in the UK.


To prepare the audit team for change, it is important to inculcate the right mindset in auditors at all levels, as well as train senior members on how to draft KAMs. The technical and quality review teams may also need to be better equipped to support the engagement teams.


As he shared his UK auditors’ experiences, Bill Platt, Global Regulatory Leader, Deloitte Touche Tohmatsu Ltd, suggested that proper infrastructure be put in place to support audit engagement teams. These include legal teams to sanitise the language used and independent review teams to review the KAMs before they are issued to the public.


(3) Identify KAMs


The determination of KAMs is very judgemental, and management and AC may not initially agree with the KAMs identified by auditors. However, effective and timely communication should resolve the differences. It also serves as a two-way communication for auditors to assess whether their views of KAMs are consistent with the AC’s concerns.


Mr Tham suggested that the approach in identifying KAMs should start with industry issues, before zooming in to specific issues faced by the entity. He cautioned that KAMs need to be entity-specific as investors are investing in the company, and not in the industry.


Early identification of KAMs will allow the audit team, the management and the AC to focus on critical audit and accounting issues throughout the audit.


(4) Communicate KAMs


Having identified the KAMs, auditors have to decide how best to synthesise and report on overlapping issues to achieve the best communication result. For instance, should issues on the use of a valuation expert and its methodology and impairment of financial assets be communicated as one or two separate KAMs? There is a need to exercise good judgement on how best to aggregate or disaggregate issues to be communicated in KAMs.


SSA 701: Communicating Key Audit Matters in the Independent Auditor’s Report requires KAMs to be determined from the matters communicated with those charged with governance, but the process is not as straightforward as mere cut-and-paste from the reporting of these same issues to the AC. Communicating to the AC is different from communicating to investors at large. The AC has avenues in which it can clarify issues with auditors, and are knowledgeable in financial reporting as well as familiar with technical jargons commonly used in reports. However, to facilitate understanding, such technical jargon should be avoided when communicating to investors.


Mr Platt further shared, “Based on the UK experience, there are, on average, four KAMs in each audit report of about 800 words. It takes an average of 100 hours to write an enhanced auditor’s report. This works out to eight words per hour… Auditors should consider using graphs or charts to complement the texts and provide additional perspectives. After all, a picture paints a thousand words.”


Another challenge noted by an early adopter is how to describe outcomes of audit procedures performed on the KAMs without being seen as providing a separate opinion on each KAM. Care must also be taken to ensure that every procedure and the results of those procedures are consistent with the audit documentation. This concern was noted in the UK FRC’s Audit Quality Reviews. The review noted, “In some instances, the FRC has identified inaccuracies in the auditor’s descriptions of the nature or extent of the audit procedures performed. The FRC has brought these matters to the attention of the relevant audit firms and reminded all the major firms of the importance of ensuring that their auditor’s reports accurately reflect the work performed.”


(5) Measure the outcome


The success of any change is measured by its outcome. Auditors therefore need to measure whether its enhanced auditor’s report has achieved the desired communication outcome. This could be in the form of:

  • Increased communication with the management team and AC on the KAMs that most affect the fair presentation of the financial statements
  • Increased engagement by shareholders at AGM
  • Positive response from the investing community on whether the enhanced auditor’s report has provided value to them from a reader’s perspective

An area of concern is the need to educate investors (particularly retail investors) on what this enhanced auditor’s report is trying to achieve, so that they do not misinterpret KAMs as piecemeal/separate opinions or a modified audit opinion. In this respect, ACRA, ISCA and Securities Investors Association (Singapore) are working on issuing a guide on what investors need to know prior to the 2017 AGM season.


The enhanced auditor’s report is expected to be a game-changer. The early adopters have paved the way for the profession, and the real test in the near future is how the audit profession as a whole can leverage on this momentum and truly rise to the challenge of adding value in an audit and the financial reporting process.



Goh Kia Hong lectures on auditing at Nanyang Business School, Nanyang Technological University. He is currently a member of the ISCA Auditing and Assurance Standards Committee (AASC). The writer would like to thank Shariq Barmaky, Chairman, ISCA AASC and Audit Leader, Deloitte & Touche Singapore and Regional Managing Partner, Assurance & Advisory Services, Deloitte Southeast Asia, for his invaluable input to this article.



The Hong Kong Standards on Auditing is similar to the Singapore Standards on Auditing (SSA), both of which are adopted from the International Standards on Auditing.