Rising risks cause some audit firms to not take on new clients unless they already know them
By LYNETTE KHOO 20 May 2009
With risks weighing on the minds of auditors, they are likely to be even more stringent in picking up new engagements. Some say that they are not taking on new clients unless they already know them.
Ernst & Young LLP and KPMG LLP, for instance, say they are not inclined to take on completely new audit engagements.
Ernst & Young LLP head of assurance Mak Keat Meng told BT that the firm does not normally accept a new audit engagement unless it audits a substantial portion of the group’s significant entities.
‘Our preference is always to work with our existing clients - those we know best,’ said Tham Sai Choy, regional head of audit at KPMG LLP.
KPMG and its member firms currently audit 117 listed firms here while Ernst & Young member firms audit a lion’s share of 191 listed clients.
Local audit firm RSM Chio Lim said it avoids businesses that it finds too complex in structure or difficult to understand as the risks are heightened in such cases.
‘Where the companies are foreign-based and where it is difficult to ascertain their background, we would avoid taking on such engagements,’ said Teo Cheow Tong, senior partner at RSM Chio Lim.
RSM Chio Lim counts 37 Singapore-listed companies as its clients, of which five are S-chips. They include China Dairy, China Powerplus, Tianjin Zhong Xin Pharmaceutical Group, Zhongguo Jilong - which is working towards trading resumption on SGX after two years of judicial management.
There are slightly more than 10 changes in auditors with the recent annual general meetings.
Mr. Tham noted that interestingly, smaller firms may be more hesitant to change auditors now for fear of sending the wrong market signal.
But he stressed that a change of auditors is not necessarily a sign of disagreements between auditors and their clients on accounting treatment.
At the audit firms, client acceptance procedures typically involve assessing the financial strength of the firm, the background of management and key shareholders and its internal controls.
Where possible, a few senior partners are involved in the decision-making.
Issues of corporate governance and management credibility have also taken on greater gravity in choosing and retaining clients.
Auditors note that the risk of carrying an audit has risen with the current economic crisis and additional audit procedures are required to predict cash flows and working capital requirements.
It is inevitable that some companies may face challenges or fall into trouble during an economic downturn, Mr. Mak of E&Y said. ‘This is where prudent business practices, strong corporate governance culture, and financial position of companies become even more critical.’
Two companies have yet to appoint new auditors. E3 Holdings auditors Deloitte & Touche LLP resigned as statutory auditors of the firm last November.
At NEL Group, external auditors KPMG LLP were removed in an extraordinary general meeting (EGM) in February after a spat. NEL had levelled accusations at KPMG over a perceived conflict of interest in its role as external auditors to NEL and special auditors to Advance Modules.
Horwath First Trust, which has 19 Singapore-listed clients, is the external auditor to Advance Modules. Its disclaimer on the latter’s fiscal 2007 results led to the appointment of special auditors KPMG Advisory Services Pte Ltd, whose findings revealed a fake sale record and attempts to cover up - these attempts had allegedly involved NEL.
While the number of audit qualifications can hardly be an accurate reflection of the quality of auditors’ work, it may well indicate the profile of clients they have and the amount of risks they are ready to bear, Mr. Tham said.
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Client acceptance becomes more stringent
Rising risks cause some audit firms to not take on new clients unless they already know them
By LYNETTE KHOO
20 May 2009
With risks weighing on the minds of auditors, they are likely to be even more stringent in picking up new engagements. Some say that they are not taking on new clients unless they already know them.
Ernst & Young LLP and KPMG LLP, for instance, say they are not inclined to take on completely new audit engagements.
Ernst & Young LLP head of assurance Mak Keat Meng told BT that the firm does not normally accept a new audit engagement unless it audits a substantial portion of the group’s significant entities.
‘Our preference is always to work with our existing clients - those we know best,’ said Tham Sai Choy, regional head of audit at KPMG LLP.
KPMG and its member firms currently audit 117 listed firms here while Ernst & Young member firms audit a lion’s share of 191 listed clients.
Local audit firm RSM Chio Lim said it avoids businesses that it finds too complex in structure or difficult to understand as the risks are heightened in such cases.
‘Where the companies are foreign-based and where it is difficult to ascertain their background, we would avoid taking on such engagements,’ said Teo Cheow Tong, senior partner at RSM Chio Lim.
RSM Chio Lim counts 37 Singapore-listed companies as its clients, of which five are S-chips. They include China Dairy, China Powerplus, Tianjin Zhong Xin Pharmaceutical Group, Zhongguo Jilong - which is working towards trading resumption on SGX after two years of judicial management.
There are slightly more than 10 changes in auditors with the recent annual general meetings.
Mr. Tham noted that interestingly, smaller firms may be more hesitant to change auditors now for fear of sending the wrong market signal.
But he stressed that a change of auditors is not necessarily a sign of disagreements between auditors and their clients on accounting treatment.
At the audit firms, client acceptance procedures typically involve assessing the financial strength of the firm, the background of management and key shareholders and its internal controls.
Where possible, a few senior partners are involved in the decision-making.
Issues of corporate governance and management credibility have also taken on greater gravity in choosing and retaining clients.
Auditors note that the risk of carrying an audit has risen with the current economic crisis and additional audit procedures are required to predict cash flows and working capital requirements.
It is inevitable that some companies may face challenges or fall into trouble during an economic downturn, Mr. Mak of E&Y said. ‘This is where prudent business practices, strong corporate governance culture, and financial position of companies become even more critical.’
Two companies have yet to appoint new auditors. E3 Holdings auditors Deloitte & Touche LLP resigned as statutory auditors of the firm last November.
At NEL Group, external auditors KPMG LLP were removed in an extraordinary general meeting (EGM) in February after a spat. NEL had levelled accusations at KPMG over a perceived conflict of interest in its role as external auditors to NEL and special auditors to Advance Modules.
Horwath First Trust, which has 19 Singapore-listed clients, is the external auditor to Advance Modules. Its disclaimer on the latter’s fiscal 2007 results led to the appointment of special auditors KPMG Advisory Services Pte Ltd, whose findings revealed a fake sale record and attempts to cover up - these attempts had allegedly involved NEL.
While the number of audit qualifications can hardly be an accurate reflection of the quality of auditors’ work, it may well indicate the profile of clients they have and the amount of risks they are ready to bear, Mr. Tham said.
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