Audit Committee Seminar 2015: Jointly organised by:
Audit Adjustments Matter: Upholding Financial Reporting Quality
Themin Suwardy
60 Stamford Road (+65) 6828-0399 Singapore 178900 [email protected]
Introduction
Audit
Adjustments
as communicated to those charged with governance
for SGX-listed companies with 31 Dec 2013 year end
Characteristics, nature and extent of audit adjustments
An indication of the gap between financial statements as
prepared by management and what is prescribed in the
accounting standards
Background: Audit Adjustments
Financial
Statements
Directors /
Management Auditors
Audit
Adjustments
Audit
Report DRAFT AUDITED
Audit Adjustments: Less or More ?
Less More
is !
Data Collection
$34b adjustments
7,842 lines
3,222 entries
257 companies
7 audit firms
Manufac-turing 32%
Services 23%
Properties 15%
Commerce 14%
Others 16%
Industry <$100m
40%
$100-500m 32%
$500m-1b 11%
>$1b 17%
Market Cap
(total
$288.3b)
Auditors work hard!
Factual 58% Misclassi-
fication 17%
Judge- mental 20%
Not specified
5%
Proposed
Adjustments
(3,222 entries)
Factual 36%
Misclassi- fication
51%
Judge- mental
9%
Not specified
4%
Proposed
Adjustments
($34 billion)
F&M 75%
F&M 87%
Top 5 Accounts (by lines)
461 lines
690 lines
805 lines
982 lines
2,059 lines
0% 5% 10% 15% 20% 25% 30%
All other assets
Accruals
Payables
Receivables
Expenses 26%
Top 5 Accounts (by amounts)
$1,664m
$2,723m
$3,454m
$7,056m
$8,888m
0% 5% 10% 15% 20% 25% 30%
R/Earnings
All other assets
Expenses
Payables
Receivables47%
$15.9b
Adjustments by Industry
59%
18%
7%
11%
5%
0
5
10
15
20
25
Manufacturing(81=32%)
Services(58=23%)
Properties(39=15%)
Commerce(37=14%)
Others(42=16%)
Pro
po
sed
Ad
justm
en
ts i
n $
bil
lio
n
Not specified
Judgemental
Misclassification
Factual
$6.1b
$13.3b
59%
$20.1b
51% Factual 77% Misclassi-
fication
Majority for minority
126 (49%)
58 (23%)
40 (16%) 33
(13%)
0
20
40
60
80
100
120
140
< 5adjustments
5 to 9adjustments
10 to 19adjustments
> 20adjustments
Nu
mb
er
of
co
mp
an
ies
33 cos for
59%
224 others 41% 3,222
entries
33 cos for
73%
224 others 27%
$33.9
billion
$1.7b $2.6b $4.9b $24.7b
Growing Pains
$4.7b (14%)
$22.0b (65%)
$1.9b (6%)
$5.4b (16%)
0
5
10
15
20
25
<$100m(103=40%)
$100-500m(81=32%)
$500m-1b(29=11%)
>$1b(44=17%)
Pro
po
sed
Ad
justm
en
ts i
n $
bil
lio
n
SGD 21%
USD 17% RMB
60%
Others 2%
$33.9
billion
Passed/Accepted Adjustments
Adjusted 65%
Not adjusted
35% Proposed
Adjustments
(3,222 entries)
Adjusted 89%
Not adjusted
11%
Proposed
Adjustments
($33.9 billion)
Profitable (87%) Loss-making
(97%)
Passed/Accepted Adjustments
83%
99%
49%
92%
0%
25%
50%
75%
100%
Factual($10.1B)
Misclassification($17.1B)
Judgemental($1.6B)
Not specified($1.3B)
Key Findings & Recommendations
Companies must take more responsibility for their financial statements
Companies should pay more attention on expense accounts, receivables and payables
Manufacturing companies should identify and rectify causes of factual misstatements and misclassifications
Companies with many audit adjustments should improve their internal control systems and processes
Growing companies should expand their internal accounting capacity and capabilities
Auditors should continue to uphold their stance on material adjustments
Full report available at ACRA’s website