Audit Committee Seminar 2015: Jointly organised by:

Audit Adjustments Matter: Upholding Financial Reporting Quality

Themin Suwardy

60 Stamford Road (+65) 6828-0399 Singapore 178900 tsuwardy@smu.edu.sg

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