MAS allow SGP local banks to re-appoint same auditor amid current turmoil

Reprinted from Business Times

(SINGAPORE, 22 Oct 2008) The Monetary Authority of Singapore (MAS) has given a small concession to the three local banks.

Local banks get reprieve from auditor rule by MAS which dis-allows them to appoint same audit firm beyond 5 years

Amid the financial crisis, they can reappoint the same audit firm beyond five years to have some degree of audit continuity.

Currently, DBS Group Holdings, United Overseas Bank (UOB) and OCBC Bank are not allowed to appoint the same audit firm for more than five consecutive years, except with the approval of MAS.

'Banks are devoting a substantial amount of time and resources towards heightened vigilance during this period of unprecedented stress in the global financial markets,' MAS said.

Temporarily suspending the requirement for the three local banks to change their audit firms after five years will minimise the disruption that could arise when appointing a new audit firm. 'MAS believes the banks would benefit from some degree of audit continuity during these challenging times,' it said.

UOB will benefit immediately from the suspension as current auditor Ernst & Young is in its fifth year.

DBS's auditor PricewaterhouseCoopers (PwC) took over only a year ago while KPMG has been auditing OCBC since 2006.

Not surprisingly, the auditors applauded the suspension.

Ernest Kan, vice-president of the Institute of Certified Public Accountants in Singapore, said the rotation has improved governance of the banks.

'It has made the whole governance process more rigorous,' he said, although he understands the suspension was given because the banks 'have bigger things to tackle'.

'The suspension of the auditors rotation rule for the three local banks is a sensible move by MAS to help banks tackle the challenges in the midst of the global financial and capital market turmoil,' said Winston Ngan, head of financial services, Ernst & Young LLP.

'In these trying times, we would think that the banks would welcome not having to cope with the additional burden of dealing with a change of their auditors. To change the auditors, they would have to divert a fair amount of resources in helping the auditors get up a steep learning curve,' he said.

'From the incoming auditors' standpoint, it would also be a challenge to understand the banks' complex business and deal with additional issues brought about by this financial turmoil,' Mr Ngan added.

Danny Teoh, managing partner, KPMG LLP, also found the move sensible.

'At the end of the day, the auditors still need to do a good job as the banks can change auditors if they want and MAS approves auditors' reappointment every year,' he said.

The rule of mandatory rotation came in the aftermath of the Enron scandal, the biggest US bankruptcy which was blamed on the cosy relationship between the company and its auditor, Andersen.

But Singapore was the only major financial centre to impose the rule on the banks, while in other countries the auditors fought for a less stringent requirement of changing only the audit partner, said Mr Kan.

At the time, some observers noted that a change of auditors was no bad thing for the local banks, which all employed the same firm: PwC. MAS said to avoid concentration risk, no single audit firm would be allowed to undertake the audit of all the local banks at any one time.