PwC’s second year report on the implementation of enhanced auditor reporting in Singapore, titled “Time to Step Up: Building momentum for progress”, revealed that while there was an increase in audit committees (ACs) providing commentaries on significant financial reporting matters in the annual reports, the quality of the commentaries could be further improved.
According to the report, the proportion of annual reports of listed companies on the Singapore Exchange with an AC commentary increased from 40% in the inaugural edition of the report issued in 2017 (Year 1) to 60% in the current report published in 2018 (Year 2). This is an encouraging sign given that it is not compulsory in Singapore to have an AC commentary.
However, the report also noted that the descriptions in the AC commentaries were generally short and fairly generic. Often, they provided information similar to the key audit matters (KAMs) in the auditor’s reports and did not give insights into the ACs’ assessment and decision-making processes. The report further suggested that ACs may be sensitive about providing too much information in the AC commentary. This mindset will hamper the effectiveness of the AC commentary as a communication tool and prevent the ACs from using it to showcase the robustness of the work that they have done.
In addition, the report highlighted that early signs of predictability in the number and topics of KAMs may be surfacing. Overall, the average number of KAMs in Year 1 was 2.3 whereas the average in Year 2 dropped slightly to 2.2. Across industries, the average number of KAMs also did not differ much from Year 1 (2.3 to 3.8) to Year 2 (1.9 to 3.7). Likewise, the topics reported in KAMs did not change much. The top five KAMs in Year 2 were the same as in Year 1, except for the sequence – valuation of receivables; valuation of property, plant and equipment; impairment of goodwill and intangible assets; revenue recognition (non-fraud), and valuation of investment properties (Figure 1).
Figure 1 Top 10 topics reported in KAMs as a proportion of all KAMs reported in Singapore in Year 2
Source: Time to Step Up: Building momentum for progress, PwC
For the full report and other findings, please visit the PwC website.