Tuesday, 20 March 2018

Audit Documentation Now More Important Than Ever

The introduction of Key Audit Matters (KAMs) in 2016 has resulted in a huge leap in the importance of audit documentation. Writing up KAMs is not a straightforward process, and requires the auditors and those charged with governance to work together closely. One of the best ways to ensure that the documentation is of high quality is by starting work on KAMs early on.

The Accounting and Corporate Regulatory Authority (ACRA) had previously advocated in Audit Practice Bulletin No. 2 of 2016 that the appropriate approach for KAM is to start the process early on and communicate preliminary views about KAMs during the planning of the audit. As such, rather than wait for the actual audit, those charged with governance (TCWG) will be aware of potential KAMs early and this can help facilitate quality two-way communication on the issues.

By communicating early, the final descriptions of KAMs can also be more specific, and, as such, become more useful to TCWG as well as other stakeholders, particularly investors.

Where the auditors are concerned, early communication will lead to stronger audit file documentation, such as the conversations between the auditors and TCWG on each KAM.  This in turn will ease the process for follow-ups by the auditor in subsequent years. Even if there is no KAM identified early on, communication is still necessary as this helps ensure that both the auditors and TCWG are on the same page and aware of the ongoing process..

Together with the Institute Singapore Chartered Accountants, Association of Chartered Certified Accountants and Nanyang Technological University, ACRA did a joint study on Enhanced Auditor’s Reports (EARs) issued in 2016. In it, it was found that 89% of investors were more likely to read the auditor’s report before reading the financial statements, as KAMs had helped investors to identify significant accounting and audit issues to be aware of when reading the financial statements. This illustrates the value of KAM, and, by extension, the EARs as a whole.

There is now more than a year’s worth of existing KAM disclosures that auditors can refer to in respect of public company financial reports, particularly for those preparing enhanced auditor’s reports for the year ending 31 December 2017. Nevertheless, ultimately, KAMs need to address the specific circumstances of each company, and as such any existing KAM disclosures in other company financial reports should be used as reference rather than as a template to writing each KAM.

For annual reports with year ending 2018 onwards, KAMs could now include issues arising from the adoption of FRS 109 Financial Instruments and FRS 115 Revenue from Contracts with Customers, not to mention issues arising for those implementing Singapore Financial Reporting Standards (International) (SFRS(I)s). Due to the likely significant impact of the implementation of the abovementioned standards, quality documentation is paramount to ensure investors are clear on any issues that are likely to arise.


  1. Informative post! Great thanks for sharing the importance of audit document. This will be helpful for the auditors. Waiting for new post.

    Singapore Corporate Tax

  2. But TCWG & auditors may need to foster the practises of significant due diligence exercises for regulators are usually have less time specific matter/ issue.


Recent Updates On Service Tax

This article is written by Lee Hishamuddin and Gledhill (LHAG) and was first published in their SST e-Alert in September 2019. Reproduced...