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.