S'pore banks to rotate audit firms under new rules

S'pore banks to rotate audit firms under new rules

Agencies, Singapore

All banks incorporated in Singapore will be required to change
their audit firms every five years under new rules announced
Wednesday aimed at reducing the risk of auditors compromising
their objectivity.

The Monetary Authority of Singapore (MAS) said the requirement
was part of an ongoing effort to "enhance the independence and
effectiveness" of external auditors.

"MAS will require banks incorporated in Singapore to change
their audit firms every five years," Ravi Menon, the MAS
executive director, supervisory policy department and banking
department, said.

The action comes in the wake of the Enron debacle in the
United States but the MAS said the new requirement is an
extension of similar Singapore initiatives in recent years.

He told the Retail Finance Asia-Pacific Conference here that
banks which currently have had the same audit company for more
than five consecutive years should change the auditor as soon as
practicable and no later than 2006.

"Mandatory audit firm rotation will help prevent audit firms
from having an excessive focus on maintaining long-term
commercial relationships with the banks they audit," he said.

"Such long-term relationships could, in reality or be
perceived to, make the audit firm too committed or beholden to
the bank, thereby undermining its independence, compromising its
objectivity, and reducing its effectiveness."

Menon said that with an extended relationship, auditor firms
ran the risk of getting too close to the management of the banks
they audit and the rule change would help maintain "the requisite
skepticism" required in their work.

"Even if an audit firm with a long-term relationship maintains
its objectivity and skepticism, its ability to maintain a sharp
eye for control weaknesses could diminish over time," he said.

"The audit process could become an uncritical routine repeat
of earlier engagements, thereby reducing the auditor's alertness
to subtle but important changes in the banks circumstances."

Menon said it would also become mandatory for all banks
incorporated in Singapore to have an audit committee of non-
executive directors and that the majority, including the
committee chairman, be independent.

The new ruling is set to break the stranglehold
PricewaterhouseCoopers (PwC) has on providing audit services to
the big three local banks.

The move should benefit the other big international auditors
operating in the city-state, namely KPMG, Ernst & Young, Deloitte
Touche Tohmatsu and Arthur Andersen -- the embattled auditor for
Enron, which collapsed last December when it filed for the
largest bankruptcy in U.S. history.

"The banks would be a nice-to-have business for the other big
global accounting firms, which would have the expertise and
resources to handle the accounts," said a director with one of
the Big Five accounting firms, who declined to be identified.

PwC officials were not immediately available for comment.

The move could cost the firm millions of dollars. For example,
PwC collected some S$4.0 million ($2.2 million) in fees from OCBC
Bank group in 2001, which included work done for its acquisition
of Keppel Capital. PriceWaterhouse has been OCBC's auditors for
18 years.

Accounting sources said PwC's monopoly on the auditing of
domestic banks was based partly on historical factors, including
the fact that it merged with United Overseas Bank's accounting
firm Coopers Lybrand in the late 1990s.

Banking consolidation last year, which saw five Singapore
banking groups shrink to three, also benefited PwC. Keppel was
audited by KPMG until it was acquired by OCBC.