Are there are any other regulations or code, other than those specified in SSA 210 paragraph A24, that might prohibit a practitioner from including a “restriction of the auditor’s liability” clause in the audit client engagement letter?
Based on SSA 210 Agreeing the Terms of Audit Engagements paragraph A24, when relevant, any restriction of the auditor’s liability could be made in the audit engagement letter, when such possibility exists. We are not aware of any other regulations or codes which prohibit the inclusion of such clauses in the engagement letter. However, as each restriction of liability clause is unique in itself, much like the engagements for which the engagement letters are drafted for, you are strongly advised to seek professional legal advice before including the restriction of the auditor’s liability in the engagement letters, especially whether the clause would be enforceable in the Courts of Law in Singapore.
SSA 230 Audit Documentation paragraph 15 states that after the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period.
SSA 230 paragraph A23 further states that SSQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements (or national requirements that are at least as demanding) requires firms to establish policies and procedures for the retention of engagement documentation. The retention period for audit engagements ordinarily is no shorter than five years from the date of the auditor’s report, or, if later, the date of the group auditor’s report.
If an auditor encounters a suspected fraud in the course of an audit engagement, does the auditor have to withdraw from the engagement? Does the auditor have the option to continue with the engagement and issue a modified opinion?
The Singapore Companies Act (the Act) does not appear to dictate whether the auditor – who encounters a suspected fraud in the course of an audit engagement – is required to withdraw or continue with the engagement. The Act does, however, set out the legal obligations of the auditor in the event that he has reason to believe that a fraudulent activity has been committed by a public company or subsidiary of a public company, in paragraphs 9A to 9C of Section 207. We would also like to draw your attention to Section 207(9) of the Act which states that the auditor of a company is required to report to the Registrar of Companies if he is satisfied that there has been a breach or non-observance of any of the provisions of this Act.
Additionally, the auditor would need to consider the implications of fraud on the audit engagement and risk of material misstatements before determining if he would continue with the engagement. Paragraphs 35 to 37 of SSA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements provide guidance for the auditor where there have been indications of fraud.
Further, paragraph A54 of SSA 240 also provides several “examples of exceptional circumstances that may arise and that may bring into question the auditor’s ability to continue performing the audit”.
Hence, the auditor would need to assess his position after considering the guidance above to determine if it is appropriate to withdraw from the audit engagement.
When the auditor decides to continue with the audit engagement after giving due consideration to the above, if the auditor concludes that based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement, the auditor shall modify the opinion in the auditor’s report in accordance with SSA 705 Modifications to the Independent Auditor’s Report.