BE132 Systems Accounting and Modeling

The Statement of Auditing Practice 3 (SAP3) – Audit of Listed Companies, paragraph 28, highlighted the following: “The audit committee should review their findings with the internal and external auditors to evaluate the listed issuer’s internal controls system. The review would assist the board of directors in developing policies that would enhance the listed issuer’s controls and operating systems.” Required: Evaluate the role of internal auditors within public listed companies. Critically discuss the factors that the external auditor should consider before relying on the internal audit work

An internal auditor is a company employee who is independently involved in evaluation of operation of company. The basic purpose of auditor is to gather relevant information about the organization. They generally serve the purpose of eye and ear of organization senior leadership and board of directors. (Isaac Clarke (PARTNER | CPA, 2019).The basic difference between the internal and external auditor is that internal auditor is hired basically by the company while the external auditor of company is appointed through vote by shareholders of company.

Internal auditor provides assurance by assessing and reporting on the governance effectiveness, risk management and process of control which is designed in order to help the corporates to achieve strategic, operational, financial and involved compliance objective involved. (Vu Thi Phuong Lien, Academy of Finance , 2020)

Internal auditor is helpful to recommend changes if any in order to improve processes and also follows up on their execution.

Internal auditor of company provides a deep insight by acting as a catalyst for the management and also the board to have a very deep understanding of process of governance and structure involved. At the same time, it inspires confidence of organization and also help in competent and informed decision making.

Internal auditor add value to the organization by providing advisory and consulting services, which is intended to improve governance, risk management and also control processes, so long it is assumed by the internal auditor that there is no responsibility of management. This is very much important to maintain objective of internal audit and also avoiding conflict of interest.

The principal  role involved is to assess any prevailing risk within the organisation and internal control which need to be in place within the company .At the same time internal auditor of company also ensures that the company and its employees comply with all the federal and state laws and regulations involved .They suggest as what is required to be done in order to rectify a failed audit or issues that are identified as a problematic during the course of audit .It also identify the involved problems and correct the same before the same is identified by the external auditor of company.

External auditor of the company can rely upon the work of internal auditor after performing the assessment of the involved first two factors when determining whether the internal auditor can provide direct assistance in the first instance. If the evidence obtained is less persuasive with respect to internal auditor objectivity and competency involved, the more restrictive the nature and work extent that can be allocated.

It is very much important that the external auditor should consider the value of judgement which is required in planning and performing the required audit procedure involved and also evaluating the audit evidence gathered. The greater the judgement level required, the narrower the scope of work involved that can be allocated to internal auditor.

For any relevant account balance involved, or any class of transaction involved or disclosure for same, the external auditor of company has to take into consideration the involved assessed risk of material misstatement when ascertaining the nature and extent of work that is involved that is proposed to assigned to internal auditor of company. The more or higher the assessed risk involved ,the more restricted or the extent and nature of work that should be allocated to internal auditor of company .Therefore ,it is important in order to reduce the audit risk to a very low level ,it is very much desired that the external auditor of company has generally need to perform various other procedure involved directly and also need to place very much reliance on assistance involved which is provided by internal auditor of company when collecting appropriate evidence

If external auditor uses any work of internal auditor, written agreement has to be obtained from an authorised representative involved and also from internal auditor of company which states that auditor will follow instruction of external auditor and matters will be kept confidential. (accaglobal.com, 2020)

Under the Singapore Accountants Act, Section 10(1), “Any person who (a) has attained the age of 21 years; and (b) satisfies the prescribed requirements relating to qualifications; practical experience; and membership in any professional accountancy body or organisation shall be entitled, on payment of the prescribed fee, to be registered as a public accountant.”

ACRA (Accounting and Corporate Regulatory Authority) is the accounting body in Singapore which registers public accountant, monitors the work of the public accountant, publish information regarding the quality of the audit and also work in alignment with partners in the profession along with business community for the purpose of strengthening the financial reporting eco-system. The regulation of the ACRA is administered under Accountant Act by the Public Accountants Oversight Committee (PAOC). The members of the PAOC are experienced professionals form the public service, the business community and the audit profession. For the purpose of ensuring independence majority of members of PAOC are not public accountants.

A Public accountant is required to be registered with ACRA as he is responsible for the issuance of audit opinions and this responsibility encompass an assurance regarding the compliance of the audit in alignment with the Singapore Standards on Auditing (SAA) and other requirements. As the role of the accountant is pivot in maintaining and strengthening the financial system, monitoring of the activities of the public accountant becomes essential to ensure or reduce accounting manipulation and fraud. (acra.gov.sg, 2021)

Further, as per accounting standards Singapore has made it mandatory for registered business to hold annual general meetings, file annual financial statements and those financial statements to be audited. Further, these financial statements are circulated to general public who relying on these decisions take critical decisions encompassing investment, lending funds to the company etc. Thus, in case the above financials are not audited properly or there is manipulation of data, the financial statement shall depict inaccurate results which shall lead to investors to take inaccurate decision and there can be huge loss to general public and fraud like Enron, Wire card etc may repeat.

As per the Singapore Accounting Board, the role of the auditor is to report whether the financial statements of the company comply with the relevant financial reporting standards and to provide the objective analysis of the financial performance of the company

Accordingly, a public accountant regulating body helps to keep the work of an auditor in check and ensures compliance with the Singapore auditing standards. It acts as a moral yardstick for public accountant which evaluates the behaviour of accountant and conduct tests and programs for ensuring that auditors are having the required knowledge to work in a professional manner and in compliance with the regulatory standards of the country.

Further, ACRA has the power to cancel the membership in case of any inappropriate behaviour of misconduct is found on part of the member. Thus, it supervises the activity of the auditor so as to prevent them from engaging in any fraudulent activity or any kickbacks which may hamper the image of the profession in which the accountant is involved in.

Further, standards of code of conduct have been established for professional behaviour of public accounts and every public accountant is expected to adhere to the same so as to promote a healthy profession. These written codes provide clarity regarding the expectation and behaviour which provides as guidelines for actions of auditor. Thus, regulation is required to promote a desired behaviour and practice. Also, there has been a standard set for conducting audit and presentation of financial to ensure uniformity in presentation. The regulation body ensures that the auditors conduct audit in accountant with these laws established in Singapore so that there is uniformity in auditing and presentation of financial statement.

Based on above discussion, it may be inferred that appropriate regulating body is necessary to ensure compliant behaviour among public accountant as the entire business environment relies on the financial statement which has been audited by the public accountant and provides assurance of the same. In case there is manipulation of data it may result in inappropriate results. Such audit failures have routinely implicated the employments, deposits and livelihood of individuals. These failures have also challenged the reliability of the system and its strength to prevent frauds. Further, monitoring also provides benefits of uniformity in presentation of financial statement and auditing standards. Thus, regulation is an important aspect of maintain order in the business world and obtain appropriate uniformity in auditing and presentation.

References

accaglobal.com, 2020. Using the work of internal auditors. [Online]
Available at: https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/internal-auditors.html
[Accessed 2 June 2021].

acra.gov.sg, 2021. Audit Regulation in Singapore. [Online]
Available at: https://www.acra.gov.sg/public-accountants/audit-regulation/audit-regulation-in-singapore
[Accessed 2 June 2021].

Isaac Clarke (PARTNER | CPA, C. C., 2019. What Is An Internal Auditor & Why Should You Hire One?. [Online]
Available at: https://linfordco.com/blog/what-is-an-internal-auditor/
[Accessed 2 June 2021].

Vu Thi Phuong Lien, Academy of Finance , 2020. Strengthening Internal Audit at Public Companies to Improve the Quality of Financial Statements: A Case Study of Hanoi Stock Exchange, Vietnam. Academy of Strategic Management Journal, 19(6).

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