In Singapore, audit plays a critical role in ensuring the transparency and reliability of financial information, especially for companies that are mandated to be audited under the Companies Act or those preparing for funding, mergers, or public listing. The audit process is more than just a regulatory requirement—it is a professional service aimed at giving assurance to stakeholders that a company’s financial statements are free from material misstatements and are prepared in accordance with applicable accounting standards.
In this article, we break down the audit process carried out by auditors in Singapore and explain the key steps they take to ensure a robust and effective audit.
1. Understanding the Legal and Regulatory Framework
Before diving into the audit process, it is important to understand the environment in which Singapore auditors operate. The audit profession in Singapore is regulated by:
- Accounting and Corporate Regulatory Authority (ACRA) – the regulator of public accountants and accounting entities.
- Singapore Standards on Auditing (SSAs) – adapted from International Standards on Auditing (ISAs).
- Singapore Financial Reporting Standards (SFRS) – the local accounting framework that guides the preparation of financial statements.
Auditors must be registered public accountants under ACRA and adhere to ethical guidelines established by the Institute of Singapore Chartered Accountants (ISCA), including independence and integrity.
2. Client Acceptance and Engagement
Before beginning any audit, auditors carry out a client acceptance and continuance assessment. This is to evaluate whether the firm should accept or continue working with a client. This includes:
- Assessing the integrity of the company’s management.
- Determining if the audit firm has the resources and expertise to perform the audit.
- Considering independence and potential conflicts of interest.
Once accepted, the auditor issues an engagement letter to outline the scope of the audit, management’s responsibilities, the auditor’s responsibilities, and the expected deliverables.
3. Audit Planning and Risk Assessment
Planning is a vital step in ensuring an effective audit. During this phase, auditors:
a) Gain an Understanding of the Entity
Auditors perform a preliminary review of the client’s business, industry, internal controls, financial systems, and regulatory environment. This helps them identify risks of material misstatement.
b) Perform Risk Assessment Procedures
They evaluate inherent risk, control risk, and detection risk related to the client’s operations and accounting systems. High-risk areas such as revenue recognition, inventory valuation, or complex estimates are flagged for closer scrutiny.
c) Develop an Audit Plan
The audit plan outlines the nature, timing, and extent of audit procedures to be performed. This includes specifying substantive testing and tests of controls, identifying key audit matters, and planning the use of audit tools or specialists.
4. Internal Control Evaluation
Auditors assess the design and effectiveness of internal controls implemented by the company. This step is important to determine:
- Whether reliance can be placed on internal controls.
- The extent of substantive audit procedures required.
For example, if the auditor determines that controls over revenue are weak, they will perform more detailed tests on revenue transactions rather than relying on controls.
5. Substantive Audit Procedures
Substantive procedures are used to detect material misstatements and provide audit evidence. These are usually divided into:
a) Substantive Analytical Procedures
These involve comparing financial ratios, trends, and other data against expectations to identify unusual variances. For example, if gross margin suddenly drops compared to prior years, the auditor investigates the reason.
b) Test of Details
These include sampling and verifying individual transactions, balances, or disclosures. Examples include:
- Confirming bank balances and receivables with third parties.
- Inspecting invoices and contracts.
- Performing inventory counts.
- Recalculating depreciation and provisions.
Auditors also examine accounting estimates and judgmental areas, such as fair value measurements, to ensure they are reasonable.
6. Use of Technology and Data Analytics
Modern auditors in Singapore often utilize audit software and data analytics to enhance audit quality and efficiency. For instance:
- Sampling can be done using algorithms to focus on high-risk transactions.
- Entire ledgers can be scanned for unusual patterns or anomalies.
- Journal entry testing can be automated to detect red flags.
This helps the auditor perform more comprehensive analyses while maintaining efficiency.
7. Review of Related Parties and Fraud Risk
Auditors must identify related party transactions and assess whether they are conducted at arm’s length. This is important to detect possible manipulation or misappropriation of assets.
Fraud risk is another critical area. Auditors are required to:
- Perform professional skepticism throughout the audit.
- Assess fraud risk factors.
- Design audit procedures to respond to fraud risks.
They must also maintain open lines of communication with management and those charged with governance (e.g., directors or audit committees).
8. Final Review and Evaluation
As the audit nears completion, the auditor performs final evaluations:
a) Going Concern Assessment
Auditors assess whether the company can continue as a going concern for at least 12 months after the reporting period. If there are doubts, additional disclosures or a qualified opinion may be necessary.
b) Subsequent Events
They review events after the balance sheet date to determine if any adjustments or disclosures are required.
c) Audit Documentation
All work performed must be documented thoroughly to support the audit opinion and comply with SSAs.
9. Forming the Audit Opinion
Based on the audit evidence gathered, the auditor forms an opinion on the financial statements:
- Unqualified Opinion – Financial statements are true and fair.
- Qualified Opinion – Financial statements are true and fair, except for certain matters.
- Adverse Opinion – Financial statements are materially misstated.
- Disclaimer of Opinion – The auditor is unable to form an opinion due to limitations.
The opinion is presented in the Independent Auditor’s Report, which is attached to the company’s financial statements.
10. Communication with Management and Stakeholders
After the audit, the auditor presents findings and recommendations in a management letter. This may include:
- Control weaknesses identified.
- Suggestions for improving processes.
- Accounting treatment observations.
For listed companies or those with audit committees, the auditor may be required to present key findings in board meetings.
Conclusion
The audit process in Singapore is a structured and rigorous exercise governed by professional standards, ethics, and statutory requirements. From planning and risk assessment to fieldwork and final reporting, each stage is designed to ensure that auditors provide reliable assurance on the financial health and reporting accuracy of a company.
With rising expectations for transparency and accountability, auditors are now playing an even greater role—not just as watchdogs, but as value-added advisors who help enhance corporate governance and trust. Whether you’re a business owner, investor, or regulator, understanding how auditors perform their work in Singapore helps you better appreciate the integrity of financial reporting in today’s business environment.