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Thursday 11 February 2010
Review of audit exemption cap could shrink client pool
The $5 million audit exemption threshold is under review. The outcome could mean cost savings for small businesses, but also a reduced client pool for small and medium accounting practices.
Review of audit exemption cap could shrink client pool
By ANNA TEO 09 February 2010
(SINGAPORE) The $5 million audit exemption threshold is under review. The outcome could mean cost savings for small businesses, but also a reduced client pool for small and medium accounting practices.
Among its proposals for Singapore to become a leading centre for high value professional accountancy services, the Committee to Develop the Accountancy Sector (CDAS) has called for a review of the turnover threshold for audit exemption.
At the current $5 million turnover threshold, a good number of Singapore’s small and medium enterprises (SMEs) - some 130,000 ‘micro enterprises’, for instance - are spared the statutory audit, which serves to ensure that a firm’s financial statements are free from material mis-statements and fraud, and show a true and fair view of its state of affairs.
The 14-member CDAS, formed by the Ministry of Finance in December 2008, believes that a review is timely, so as to inject greater market discipline and raise the quality of audit services.
The underlying principle behind the audit exemption framework - introduced here in 2002 - is that the market itself is in the best position to determine the need and the value it places on audit.
‘The more value the market places on a statutory audit or other assurance product, the more likely it will be performed to a high quality,’ says CDAS in a preliminary report for public comment. ‘If the stakeholders regard it as a compliance cost with no value, lower quality will be tolerated and this only endangers the overall integrity of statutory audit reporting.’
A higher audit exemption threshold could lead to cost savings for small businesses and enable them to obtain higher-value services from the small and medium audit practices (SMPs), the report says.
While SMPs would be affected, they now already face ‘extreme downward fee pressures’ in the statutory audit market for SMEs, it notes.
‘The CDAS thus proposes that efforts be directed towards helping the SMP segment focus its resources on moving up the value chain, to provide higher value-adding services that are in demand by Singapore’s SMEs.’
CDAS also wants, among its 10 proposals, to encourage the some 500 SMPs here to merge and consolidate, and to join international networks.
Responding to CDAS and reflecting the concerns of member firms, the Institute of Certified Public Accountants of Singapore (ICPAS) hopes there will be no change in the exemption threshold, saying that there is value in an audit.
While a higher threshold may provide some business savings, it ‘might inevitably affect the quality of financial reports submitted to or used by interested stakeholders, such as IRAS, banks, suppliers’, it says.
Feedback from SMPs indicates that the current threshold is ‘optimal’, ICPAS adds.
Noting that the current $5 million exemption threshold has been in place since 2004, CDAS chairman Bobby Chin says the review is to bring the Singapore threshold in line with developments in jurisdictions such as Australia, New Zealand and the United Kingdom.
Apart from lowering regulatory compliance costs for smaller companies, a review would also enhance the value proposition and quality of the statutory audit, he said.
It would also allow SMPs to focus their resources on building up capacity and capabilities in niche areas other than statutory audit. ‘I understand that the Companies Act Review Steering Committee plans to conduct a public consultation on Companies Act-related proposals, including that relating to audit exemption, towards the end of this year,’ he told BT.
Another CDAS proposal seeks to further liberalise ownership rules so as to allow more non-public accountant professionals to own and become part of public accounting firms.
Currently, at least two-thirds of the owners of a public accounting firm must be public accountants. CDAS has proposed that the requirement be eased to just a simple majority of public accountants.
‘Yes, we are facilitating the growth of ‘multi-disciplinary’ accountancy practices,’ Mr. Chin told BT. ‘That said, the move towards multi-disciplinary set-ups is not new for many jurisdictions. Other professions in Singapore such as engineering and architecture have also progressed towards multi-disciplinary practices. What the CDAS seeks to do is to encourage vibrancy in the breadth and depth of services provided by accountancy practices.’
CDAS also proposes that international practical experience be recognised in qualifying to become a public accountant. Currently, those who wish to become one must have acquired three years of practical experience in a locally-registered public accounting firm.
ICPAS has also suggested that the incentives to anchor global professional expertise here and to spur the export of accountancy services out of Singapore include both fiscal and non-fiscal measures.
CDAS, which completed its review in November 2009, received feedback in December from a broad spectrum of parties, including CFOs, to its report. The committee - which comprises senior representatives from the accountancy profession; business, academic and public sectors - is reviewing the feedback and fine tuning its proposals for the final report, said Mr. Chin.
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Review of audit exemption cap could shrink client pool
By ANNA TEO
09 February 2010
(SINGAPORE) The $5 million audit exemption threshold is under review. The outcome could mean cost savings for small businesses, but also a reduced client pool for small and medium accounting practices.
Among its proposals for Singapore to become a leading centre for high value professional accountancy services, the Committee to Develop the Accountancy Sector (CDAS) has called for a review of the turnover threshold for audit exemption.
At the current $5 million turnover threshold, a good number of Singapore’s small and medium enterprises (SMEs) - some 130,000 ‘micro enterprises’, for instance - are spared the statutory audit, which serves to ensure that a firm’s financial statements are free from material mis-statements and fraud, and show a true and fair view of its state of affairs.
The 14-member CDAS, formed by the Ministry of Finance in December 2008, believes that a review is timely, so as to inject greater market discipline and raise the quality of audit services.
The underlying principle behind the audit exemption framework - introduced here in 2002 - is that the market itself is in the best position to determine the need and the value it places on audit.
‘The more value the market places on a statutory audit or other assurance product, the more likely it will be performed to a high quality,’ says CDAS in a preliminary report for public comment. ‘If the stakeholders regard it as a compliance cost with no value, lower quality will be tolerated and this only endangers the overall integrity of statutory audit reporting.’
A higher audit exemption threshold could lead to cost savings for small businesses and enable them to obtain higher-value services from the small and medium audit practices (SMPs), the report says.
While SMPs would be affected, they now already face ‘extreme downward fee pressures’ in the statutory audit market for SMEs, it notes.
‘The CDAS thus proposes that efforts be directed towards helping the SMP segment focus its resources on moving up the value chain, to provide higher value-adding services that are in demand by Singapore’s SMEs.’
CDAS also wants, among its 10 proposals, to encourage the some 500 SMPs here to merge and consolidate, and to join international networks.
Responding to CDAS and reflecting the concerns of member firms, the Institute of Certified Public Accountants of Singapore (ICPAS) hopes there will be no change in the exemption threshold, saying that there is value in an audit.
While a higher threshold may provide some business savings, it ‘might inevitably affect the quality of financial reports submitted to or used by interested stakeholders, such as IRAS, banks, suppliers’, it says.
Feedback from SMPs indicates that the current threshold is ‘optimal’, ICPAS adds.
Noting that the current $5 million exemption threshold has been in place since 2004, CDAS chairman Bobby Chin says the review is to bring the Singapore threshold in line with developments in jurisdictions such as Australia, New Zealand and the United Kingdom.
Apart from lowering regulatory compliance costs for smaller companies, a review would also enhance the value proposition and quality of the statutory audit, he said.
It would also allow SMPs to focus their resources on building up capacity and capabilities in niche areas other than statutory audit. ‘I understand that the Companies Act Review Steering Committee plans to conduct a public consultation on Companies Act-related proposals, including that relating to audit exemption, towards the end of this year,’ he told BT.
Another CDAS proposal seeks to further liberalise ownership rules so as to allow more non-public accountant professionals to own and become part of public accounting firms.
Currently, at least two-thirds of the owners of a public accounting firm must be public accountants. CDAS has proposed that the requirement be eased to just a simple majority of public accountants.
‘Yes, we are facilitating the growth of ‘multi-disciplinary’ accountancy practices,’ Mr. Chin told BT. ‘That said, the move towards multi-disciplinary set-ups is not new for many jurisdictions. Other professions in Singapore such as engineering and architecture have also progressed towards multi-disciplinary practices. What the CDAS seeks to do is to encourage vibrancy in the breadth and depth of services provided by accountancy practices.’
CDAS also proposes that international practical experience be recognised in qualifying to become a public accountant. Currently, those who wish to become one must have acquired three years of practical experience in a locally-registered public accounting firm.
ICPAS has also suggested that the incentives to anchor global professional expertise here and to spur the export of accountancy services out of Singapore include both fiscal and non-fiscal measures.
CDAS, which completed its review in November 2009, received feedback in December from a broad spectrum of parties, including CFOs, to its report. The committee - which comprises senior representatives from the accountancy profession; business, academic and public sectors - is reviewing the feedback and fine tuning its proposals for the final report, said Mr. Chin.
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