The Future of Auditor Reporting Forum, held by Institute of Singapore Chartered Accountants Sharing from Mr Shariq Barmaky, Deputy Chairman, ISCA Auditing and Assurance Standards Committee; Partner, Deloitte & Touche LLP

1. The Future of Auditor Reporting –
Shaping Communication and What It
Means for You
Wednesday, 23 October 2013
9.00 am
1

2. A Case Study
Shariq Barmaky
Partner
Deloitte & Touche LLP
2

3. In partnership with PRICEWATERHOUSECOOPERS LLP
Important disclaimer
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company
limited by guarantee, and its network of member firms, each of which is a legally separate
and independent entity. Please see www.deloitte.com/sg/about for a detailed description of
the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private
clients spanning multiple industries. With a globally connected network of member firms in
more than 150 countries, Deloitte brings world-class capabilities and high-quality service to
clients, delivering the insights they need to address their most complex business challenges.
Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of
excellence.
Disclaimer
This publication contains general information only, and none of Deloitte Touche Tohmatsu
Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by
means of this publication, rendering professional advice or services. Before making any
decision or taking any action that may affect your finances or your business, you should
consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible
for any loss whatsoever sustained by any person who relies on this publication.
Deloitte & Touche LLP (Unique entity number: T08LL0721A) is an accounting limited liability
partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter
163A).
© 2013 Deloitte & Touche LLP
3

4. What we will cover
• Simulated auditor’s report of a Singapore listed entity assuming the
proposed new requirements are already effective
• Walkthrough the preparation of the auditor’s report
• Examples of Key Audit Matters and Going Concern statements in the
auditor’s report
• Highlight auditor’s internal implementation challenges
• Potential practical challenges/ implications from perspective of
management and those charged with governance (TCWG)
In partnership with Deloitte & Touche LLP
4

5. Background of Entity
• Singapore company listed on the SGX Mainboard
• A conglomerate in various businesses and industries
In partnership with Deloitte & Touche LLP
5

6. What was the auditor’s internal process to
draft the new auditor’s report?
Identify
key audit
matters
(KAM)
Agree with
Quality
Control
team
In partnership with Deloitte & Touche LLP
6
Describe
KAM
Internal
review of
KAM
description
Draft
auditor’s
report

7. Identify KAM
How to identify KAM?
Starting
Point
Matters are
prescribed by
ISA 260
 consistency
Selected a smaller number of matters from
matters communicated with those charged with
governance (TCWG)
KAM?
KAM?
KAM?
Key Audit Matters
In partnership with Deloitte & Touche LLP
7

8. Identify KAM
Applying the requirements…
Starting Point
Matters communicated with TCWG
Significant risks (SR)
1) Provisions (foreseeable
losses, warranty, claims)
2) Revenue recognition (project
accounting)
3) Management override of control
4) Impairment of assets
5) Valuation of investment
properties
6) Accounting for financial
instruments
7) Accounting for deferred tax
recovery of underlying assets
In partnership with Deloitte & Touche LLP
8
Focus areas (non SR)
1) New investments and
disposals
2) Adoption of new accounting
standard
3) Litigation and claims
4) Properties held for sale (cost
capitalisation and realisable
value)
5) Debt arrangements
6) Income tax exposures
7) Construction of plant

9. Identify KAM
How to “shortlist”?
ISA 701 requirements
and guidance
Disclosures in
financial statements
• Significant
management judgment
• Critical accounting
estimates, disclosures
• Significant, unusual
transactions
Significant
risk /
auditor
judgment
Significant
modification
of audit
plan
• Revision to risk
assessment/ audit
procedures due to
significant deficiency
in internal controls
Areas of significant auditor
attention
• Limitations on group
audit, auditing critical
estimates
• Extensive unexpected
effort
In partnership with Deloitte & Touche LLP
9
Significant
difficulty
during audit
Others
• Industry, recent
significant economic,
regulatory accounting,
developments
• Written
representations

10. Identify KAM
How to “shortlist”?
ISA 701 requirements
and guidance
Number of
KAM
( KAM
useful)
Robust
dialogue with
TCWG
Extent of audit
effort
Areas of
significant
auditor
attention
Consultation
on
difficult, conte
ntious matters
In partnership with Deloitte & Touche LLP
10
KAM in prior
year
Matters
consulted with
EQCR

11. Identify KAM
How to “shortlist”?
Critical judgments and key sources of estimation uncertainty disclosed in the
entity’s financial statements [Note x]
1) Impairment of loans and receivables
2) Impairment of available-for-sale investments
3) Impairment of non-financial assets
4) Revenue recognition
5) Income taxes
6) Claims, litigations and reviews
In partnership with Deloitte & Touche LLP
11

12. Identify KAM
KAM identified: Preliminary
Selected a smaller number of matters from matters communicated with TCWG
Items selected
1) Provisions (foreseeable
losses, warranty, claims)
2) Revenue recognition (project
accounting) [Note x]
3) Impairment of assets
4) Valuation of investment
properties
5) New investments and disposals
In partnership with Deloitte & Touche LLP
12
Items not selected
1) Management override of control
2) Accounting for financial
instruments
3) Accounting for deferred tax
recovery of underlying assets
4) Adoption of new accounting
standards
5) Litigation and claims
6) Properties held for sale (cost
capitalisation and realisable
value)
7) Debt arrangements
8) Income tax exposures
9) Construction of plant

13. Identify KAM
Key Challenge: Why were some items NOT
selected?
Items not selected
1) Management override of control (SR)
2) Accounting for financial instruments
(SR)
3) Accounting for deferred tax recovery
of underlying assets (SR)
4) Litigation and claims
5) Properties held for sale (cost
capitalisation and realisable value)
6) Debt arrangements
7) Income tax exposures
8) Adoption of new accounting
standards
9) Construction of plant
In partnership with Deloitte & Touche LLP
13
KAM
useful
 Cannot include all

14. Identify KAM
Key Challenge: Why were some items NOT
selected?
Items not selected
1) Management override of control (SR)
2) Accounting for financial instruments
(SR)
3) Accounting for deferred tax recovery
of underlying assets (SR)
4) Litigation and claims
5) Properties held for sale (cost
capitalisation and realisable value)
6) Debt arrangements
7) Income tax exposures
8) Adoption of new accounting
standards
9) Construction of plant
In partnership with Deloitte & Touche LLP
14
Greater consideration to
significant risks specifically
identified in the context of
entity, rather than to those
presumed in the auditing
standards to be significant
risks.

15. Identify KAM
Key Challenge: Why were some items NOT
selected?
Items not selected
1) Management override of control (SR)
2) Accounting for financial instruments
(SR)
3) Accounting for deferred tax recovery
of underlying assets (SR)
4) Litigation and claims
5) Properties held for sale (cost
capitalisation and realisable value)
6) Debt arrangements
7) Income tax exposures
8) Adoption of new accounting
standards
9) Construction of plant
In partnership with Deloitte & Touche LLP
15
Issues brought forward from
prior year
 Communicated with TCWG
in current year to provide
updates or conclusions

16. Identify KAM
Key Challenge: Why were some items NOT
selected?
Items not selected
1) Management override of control (SR)
2) Accounting for financial instruments
(SR)
3) Accounting for deferred tax recovery
of underlying assets (SR)
4) Litigation and claims
5) Properties held for sale (cost
capitalisation and realisable value)
6) Debt arrangements
7) Income tax exposures
8) Adoption of new accounting
standards
9) Construction of plant
In partnership with Deloitte & Touche LLP
16
Current year issues but of less
significance:
 Only one new amendment
to accounting standard
 Similar transactions in the
past with no significant
issues identified

17. Agree with QC
Queries raised by Quality Control (QC)
Independent challenge of judgment made by engagement team to select KAM
Items selected
1) Provisions (foreseeable
losses, warranty, claims)
2) Revenue recognition (project
accounting) [Note x]
3) Impairment of assets
4) Valuation of investment
properties
5) New investments and disposals
In partnership with Deloitte & Touche LLP
17
Query 1: To further understand why
this is a KAM
 Team did not encounter significant
issues in procedures (e.g. competency
of valuers, assumptions used in
valuation reports)
Query 2: Entity had several
acquisitions/ disposals
during the year. To further
pinpoint to the specific
transaction that required
most significant audit effort.

18. Agree with QC
Queries raised by Quality Control (QC)
Independent challenge of judgment made by engagement team to select KAM
Items not selected
1) Management override of control (SR)
2) Accounting for financial instruments
(SR)
3) Accounting for deferred tax recovery
of underlying assets (SR)
4) Litigation and claims
5) Properties held for sale (cost
capitalisation and realisable value)
6) Debt arrangements
7) Income tax exposures
8) Adoption of new accounting
standards
9) Construction of plant
In partnership with Deloitte & Touche LLP
18
Query 3: To further understand
why this is not a KAM
 Entity operates in various
jurisdictions
 Also identified by management
and disclosed in FS as
significant judgment area

19. Agree with QC
Responding to QC Queries
Items selected
1) Provisions (foreseeable
losses, warranty, claims)
2) Revenue recognition (project
accounting) [Note x]
3) Impairment of assets
4) Valuation of investment
properties
5) New investments and disposals
In partnership with Deloitte & Touche LLP
19
Query 1
Team’s response:
 Fair value (FV) changes of
investment properties (IP) have
direct impact on P/L (2011: FV gain
$30 million; 2012: FV gain $3
million)
 Acquisitions of new IP during the
year
 Work mainly done by component
auditor
Concurred
by QC

20. Agree with QC
Responding to QC Queries
Items selected
1) Provisions (foreseeable
losses, warranty, claims)
2) Revenue recognition (project
accounting) [Note x]
3) Impairment of assets
4) Valuation of investment
properties
5) New investments and disposals
In partnership with Deloitte & Touche LLP
20
Query 2
Team’s response:
 Agree with QC to pinpoint
specific transaction
 Most effort spent on
acquisition of XX as Entity
entered into complex
derivatives arrangement as
part of the acquisition
 Need to ensure appropriate
accounting treatment for the
derivatives
Concurred
by QC

21. Agree with QC
Queries raised by Quality Control team
Independent challenge of judgment made by engagement team to select KAM
Items not selected
1) Management override of control (SR)
2) Accounting for financial instruments
(SR)
3) Accounting for deferred tax recovery
of underlying assets (SR)
4) Litigation and claims
5) Properties held for sale (cost
capitalisation and realisable value)
6) Debt arrangements
7) Income tax exposures
8) Adoption of new accounting
standards
9) Construction of plant
In partnership with Deloitte & Touche LLP
21
Query 3
Team’s response:
 Material exposure only in PRC
on Land Appreciation Tax
 No significant issues
encountered in current year or
prior audits
Concurred
by QC

22. Describe KAM
Final List of KAM
Items selected
1) Provisions (foreseeable losses, warranty and claims)
2) Revenue recognition (project accounting)
3) Impairment of assets
4) Valuation of investment properties
5) Acquisition of XX
In partnership with Deloitte & Touche LLP
22

23. Describe KAM
KAM #1
Provisions
As disclosed in the respective notes to the financial statements, the Group
recognises the following provisions totalling $10 million:
•
•
•
•
Provision for foreseeable losses on contracts in progress amounting to $0.5
million [Note a and Note b];
Provision for properties held for sale amounting to $2.5 million [Note a and Note
b];
Provision for warranties amounting to $5 million [Note c and Note d]; and
Provision for claims amounting to $2 million [Note c and Note d].
There was significant audit effort in this area as we assessed the
reasonableness of the provisions and reversals made during the period to
determine if they were in accordance with accounting
standards, challenged management’s basis for the provisions and
compared the provisions against historical trends.
In partnership with Deloitte & Touche LLP
23

24. Describe KAM
KAM #1: Breaking it down
Provisions
As disclosed in the respective notes to the financial statements, the Group
recognises the following provisions totalling $10 million:
•
•
•
•
Provision for foreseeable losses on contracts in progress amounting to $0.5
million [Note a and Note b];
Provision for properties held for sale amounting to $2.5 million [Note a and Note
b];
Provision for warranties amounting to $5 million [Note c and Note d]; and
Provision for claims amounting to $2 million [Note c and Note d].
There was significant audit effort in this area as we assessed the
reasonableness of the provisions and reversals made are dispersed
FS disclosures during the period to
determine if they were in accordance withAdd value by aggregating provisions
 accounting standards,
challenged management’s basis for the provisionstotal impact on financial
to show and compared the
provisions against historical trends.
statements as a whole
 Pinpoint to specific notes
In partnership with Deloitte & Touche LLP
24

25. Describe KAM
KAM #1: Breaking it down
Provisions
As disclosed in the respective notes to the financial statements, the Group
• Allow users to understand why this
recognises the following provisions totalling $10 million:
matter is significant to audit
•
•
•
•
Provision for foreseeable losses on contracts in progress amounting to $0.5
• Summarise audit procedures
million [Note a and Note b];
performed in simple language (e.g.
Provision for properties held for sale amounting to $2.5 million [Note a and Note
“compare against historical trend”
b];
instead of c and Note d]; reviews”)
Provision for warranties amounting to $5 million [Note“retrospective and
Provision for claims amounting to $2 million [Note c and Note d].
There was significant audit effort in this area as we assessed the
reasonableness of the provisions and reversals made during the period to
determine if they were in accordance with accounting
standards, challenged management’s basis for the provisions and
compared the provisions against historical trends.
In partnership with Deloitte & Touche LLP
25

26. Describe KAM
KAM #2
Recognition of Revenue from Long-Term Construction
Contracts (“contract revenue”)
As disclosed in Note a and Note x to the financial statements, the Group
recognises contract revenue based on the percentage of completion
method in proportion to the stage of completion. This is an area of audit
focus as significant management assumptions are required in determining
the stage of completion, the contract cost incurred, the estimated total
contract revenue and contract cost and the recoverability of the contracts.
In addition, contract revenue amounted to $700 million which comprises
60% of the Group’s revenue. We are satisfied with the results of the audit
procedures performed, which include checking the internal engineers’
estimates of the physical completion of the projects, obtaining
confirmations from customers and deriving an independent estimate of the
revenue using cost-to-cost method.
In partnership with Deloitte & Touche LLP
26

27. Describe KAM
KAM #2: Breaking it down
Recognition of Revenue from Long-Term Construction
Contracts (“contract revenue”)
As disclosed in Note a and Note x to the financial statements, the Group
recognises contract revenue based on the percentage of completion
method in proportion to the stage of completion. This is an area of audit
focus as significant management assumptions are required in determining
the stage of completion, the contract cost incurred, the estimated total
• Draw recoverability of the contracts.
contract revenue and contract cost and theattention to all relevant notes
In addition, contract revenue amounted to $700 million which comprises
• satisfied significant aspect the audit
60% of the Group’s revenue. We are Highlight with the results of of the
procedures performed, which includerevenue recognition policy to
checking the internal engineers’
estimates of the physical completion demonstrate that it is not straightof the projects, obtaining
forward
confirmations from customers and deriving an independent estimate of the
revenue using cost-to-cost method.
In partnership with Deloitte & Touche LLP
27

28. Describe KAM
KAM #2: Breaking it down
Recognition of Revenue from Long-Term Construction
Contracts (“contract revenue”)
As disclosed in Note a and Note x to the financial statements, the Group
recognises contract revenue based on the percentage of completion
method in proportion to the stage of completion. This is an area of audit
focus as significant management assumptions are required in determining
the stage of completion, the contract cost incurred, the estimated total
contract revenue and contract cost and the recoverability of the contracts.
In addition, contract revenue amounted to $700 million which comprises
60% of the Group’s revenue. We are satisfied with the results of the audit
procedures performed, which include checking the internal engineers’
• Allow users to understand why this matter is
estimates of the physical completion of the projects, obtaining
significant to audit
confirmations from customers and deriving an independent estimate of the
revenue using cost-to-cost method.
• Add value by quantifying % contribution of this
stream of revenue to total revenue
In partnership with Deloitte & Touche LLP
28

29. Describe KAM
KAM #2: Breaking it down
Recognition of Revenue from Long-Term Construction
Contracts (“contract revenue”)
• Succinctly summarised key audit
As disclosed in Note a and Note x to the financial statements, the Group
procedures performed
recognises contract revenue based on the Provided closure on audit
• percentage of completion
method in proportion to the stage of completion. This is an area of audit
procedures performed to avoid
focus as significant management assumptions are required in determining
uncertainty to users
the stage of completion, the contract cost incurred, the estimated total
contract revenue and contract cost and the recoverability of the contracts.
In addition, contract revenue amounted to $700 million which comprises
60% of the Group’s revenue. We are satisfied with the results of the audit
procedures performed, which include checking the internal engineers’
estimates of the physical completion of the projects, obtaining
confirmations from customers and deriving an independent estimate of the
revenue using cost-to-cost method.
In partnership with Deloitte & Touche LLP
29

30. Describe KAM
KAM #3
Impairment of Assets
As disclosed in Note e to the financial statements, the Group has
investment in associates (including advances) amounting to $50 million.
These associates are held by a subsidiary of the Group, which is audited
by another firm of auditors. We focused on this area as the assessment of
impairment in associates required significant management estimates and
is material to the financial statements. We reviewed the audit procedures
performed by the component auditor which included using valuation
experts to evaluate the assumptions and methodologies used by
management, in particular, the forecasted revenue growth, profit margin
and discount rate.
In partnership with Deloitte & Touche LLP
30

31. Describe KAM
KAM #3: Breaking it down
Impairment of Assets
As disclosed in Note e to the financial statements, the Group has
investment in associates (including advances) amounting to $50 million.
These associates are held by a subsidiary of the Group, which is audited
by another firm of auditors. We focused on this area as the assessment of
impairment in associates required significant management estimates and
is material to the financial statements. We reviewed the audit procedures
performed by the component auditor which included using valuation
experts to evaluate the assumptions and methodologies used by
management, in particular, the forecasted revenue to understand margin
• Allow users growth, profit why this
and discount rate.
matter is significant to audit
• Provided insight to users by stating
that this aspect was audited by a
component auditor
In partnership with Deloitte & Touche LLP
31

32. Describe KAM
KAM #3: Breaking it down
Impairment of Assets
As disclosed in Note e to the financial statements, the Group has
investment in associates (including advances) amounting to $50 million.
These associates are held by a subsidiary of the Group, which is audited
by another firm of auditors. We focused on this area as the assessment of
impairment in associates required significant management estimates and
is material to the financial statements. We reviewed the audit procedures
performed by the component auditor which included using valuation
experts to evaluate the assumptions and methodologies used by
management, in particular, the forecasted revenue growth, profit margin
and discount rate.
.
• Provided insight to users on audit
procedures performed by both group
auditor and component auditor
In partnership with Deloitte & Touche LLP
32

33. Describe KAM
KAM #4
Valuation of Investment Properties
The Group’s disclosures about its investment properties are included in
Note f to the financial statements. They represent 40% of the Group’s noncurrent assets are located in both Singapore and overseas. The
investment properties are stated based on the valuations by various
independent firms of professional valuers as at 31 December 2012. The
Group had also made material acquisition and disposal of investment
properties during the year. These investment properties were held by
subsidiaries and associates and audited by other firm of auditors.
In partnership with Deloitte & Touche LLP
33

34. Describe KAM
KAM #4 (cont’d)
Valuation of Investment Properties
There is significant measurement uncertainty involved in the valuation
because different valuation approaches and valuation methodologies (e.g.
direct comparison and investment methods and / or discounted cash flow
methods) were adopted to determine the market value of these investment
properties. For investment properties under construction, the valuation
methodologies used include the direct comparison and residual
methods, excluding profit element. Due to the above reasons, the valuation
of these investment properties was significant to our audit. We have
obtained satisfactory explanations from the Group and reviewed the
component auditors’ work regarding the bases and methods as well as key
assumptions used by the independent firms of professional valuers to
determine the fair values for the investment properties.
In partnership with Deloitte & Touche LLP
34

35. Describe KAM
KAM #4: Breaking it down
Valuation of Investment Properties
The Group’s disclosures about its investment properties are included in
Note f to the financial statements. They represent 40% of the Group’s noncurrent assets are located in both Singapore and overseas. The
investment properties are stated based on the valuations by various
independent firms of professional valuers as at 31 December 2012. The
Group had also made material acquisition and disposal of investment
properties during the year. These investment properties were held by
subsidiaries and associates and audited by other firm of auditors.
• Provided an overview of the Group’s investment
properties and disclosures in Note f
• Provided insight to users about the audit by
stating that this aspect was audited by a
component auditor
In partnership with Deloitte & Touche LLP
35

36. Describe KAM
KAM #4: Breaking it down
Valuation of Investment Properties
There is significant measurement uncertainty involved in the valuation
because different valuation approaches and valuation methodologies (e.g.
direct comparison and investment methods and / or discounted cash flow
methods) were adopted to determine the market value of these investment
properties. For investment properties under construction, the valuation
methodologies used include the direct comparison and residual
methods, excluding profit element. Due to the above reasons, the valuation
of these investment properties was significant to our audit. We have
obtained satisfactory explanations from the Group and reviewed the
• Allow users bases and methods as well as key
component auditors’ work regarding the to understand why this matter is
significant firms of
assumptions used by the independent to audit professional valuers to
determine the fair values •forAdd value by providing more details about
the investment properties.
valuation methodologies to enable users to
understand the “valuation” blackbox.
In partnership with Deloitte & Touche LLP
36

37. Describe KAM
KAM #4: Breaking it down
Valuation of Investment Properties
There is significant measurement uncertainty involved in the valuation
because different valuation approaches and valuation methodologies (e.g.
direct comparison and investment methods and / or discounted cash flow
Briefly described audit procedures performed as
methods) were adoptedGroup auditors, which subtly provided closure on
to determine the market value of these investment
properties. For investment properties under construction, the valuation
the matter
methodologies used include the direct comparison and residual
methods, excluding profit element. Due to the above reasons, the valuation
of these investment properties was significant to our audit. We have
obtained satisfactory explanations from the Group and reviewed the
component auditors’ work regarding the bases and methods as well as key
assumptions used by the independent firms of professional valuers to
determine the fair values for the investment properties.
In partnership with Deloitte & Touche LLP
37

38. Describe KAM
KAM #5
Acquisition of XX
As described in Note g to the financial statements, in July 2012, the Group
acquired a y% equity interest in XX for a net purchase consideration of $11
million. In relation to the acquisition, the Group entered into transactions
involving complex derivatives. Management has computed the fair value of
the complex derivatives using a valuation model and has not recorded the
fair value of the derivatives as it is not material. We focused on this
transaction because it involves significant assumptions by the Group on
the complex derivatives. Our audit procedures included, among
others, evaluating the assumptions and methodologies used by the Group
in its computation of the fair value of the complex derivatives and we are
satisfied with the results of the valuation.
In partnership with Deloitte & Touche LLP
38

39. Describe KAM
KAM #5: Breaking it down
Acquisition of XX
As described in Note g to the financial statements, in July 2012, the Group
acquired a y% equity interest in XX for a net purchase consideration of $11
million. In relation to the acquisition, the Group entered into transactions
involving complex derivatives. Management has computed the fair value of
the complex derivatives using a valuation model and has not recorded the
fair value of the derivatives as it is not material. We focused on this
transaction because it involves significant assumptions by the Group on
the complex derivatives. Our audit procedures included, among
others, evaluatingProvided original information not disclosed by financial
• the assumptions and methodologies used in the Group
in its computation statements.
of the fair value of the complex derivatives and we are
satisfied with the results of the valuation. made aware of significant terms of
• Add value as users are
acquisition which has no material accounting impact
• At the same time, users can understand why management
did not disclose this information (not material rather than
intentional omission)
In partnership with Deloitte & Touche LLP
39

40. Describe KAM
KAM #5: Breaking it down
Acquisition of XX
As described in Note g to the financial statements, in July 2012, the Group
acquired a y% equity interest in XX for a net purchase consideration of $11
• Allow users to understand why this matter is significant to
million. In relation to the acquisition, the Group entered into transactions
audit (valuation of options rather than the acquisition itself)
involving complex derivatives. Management has computed the fair value of
• Described key audit procedures and provided conclusion
the complex derivatives using a valuation model and has not recorded the
fair value of the derivatives as it is not material. We focused on this
transaction because it involves significant assumptions by the Group on
the complex derivatives. Our audit procedures included, among others,
evaluating the assumptions and methodologies used by the Group in its
computation of the fair value of the complex derivatives and we are
satisfied with the results of the valuation.
In partnership with Deloitte & Touche LLP
40

41. Describe KAM
What are the challenges?
No or lack of
disclosures in
financial
statements
To conclude or
not to conclude?
Limit use of
highly technical
auditing terms
Explain why auditor
considered matter
to be one of most
significance in
audit and refer to
disclosure in FS
Group audit
considerations
In partnership with Deloitte & Touche LLP
41
Summarize
procedures
performed in a
succinct way
Avoid providing
original
information
about entity
Sensitive
matters

42. Review KAM
Internal reviews of KAM descriptions
Does description accurately
reflect the actual audit
procedures performed?
How to conclude in a manner
that will avoid giving
impression of “piecemeal”
opinion?
Was appropriate reference made to respective
notes where KAM is in relation to items already
disclosed in the financial statements?
Item 5: Providing original information
 What level of detail should description be?
 Careful not to reveal detailed transaction terms
as may lead to “competitive disadvantage
In partnership with Deloitte & Touche LLP
42

43. Auditor’s Report
Draft the auditor’s report
Opinion
Basis for
opinion
Key Audit
Matters
Going
Concern
Other
information (KIV)
In partnership with Deloitte & Touche LLP
43
Responsibilities of
preparers
Responsibilities of
auditors

44. Auditor’s Report
Opinion
In our opinion, the accompanying consolidated financial statements of ABC Limited (the
“Company”) and its subsidiaries (the “Group”) and the statement of financial position and
statement of changes in equity of the Company are properly drawn up in accordance with
the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore
Financial Reporting Standards so as to give a true and fair view of the state of affairs of
the Group and of the Company as at 31 December 2012, and of the results, changes in
equity and cash flows of the Group and changes in equity of the Company for the year
ended on that date.
We have audited the accompanying financial statements, which comprise the
consolidated statement of financial position of the Group and the statement of financial
position of the Company as at 31 December 2012, and the consolidated statement of
comprehensive income, statement of changes in equity and statement of cash flows of
the Group and statement of changes in equity of the Company for the year then ended
, and a summary of significant accounting policies and other explanatory information.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
44
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

45. Auditor’s Report
Basis for Opinion
We conducted our audit in accordance with Singapore Standards on Auditing (SSAs).
Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements section of our
report. We are independent of the Group within the meaning of the independence
requirements set out in the Code of Professional Conduct and Ethics of the
Accountants (Public Accountants) (Amendment) Rules 2009 and have fulfilled our
other responsibilities under those ethical requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
45
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

46. Auditor’s Report
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the consolidated financial statements. Key audit matters are
selected from the matters communicated with those charged with governance, but are
not intended to represent all matters that were discussed with them. Our audit
procedures relating to these matters were designed in the context of our audit of the
consolidated financial statements as a whole. Our opinion on the consolidated financial
statements is not modified with respect to any of the key audit matters described below,
and we do not express an opinion on these individual matters.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
46
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

47. Auditor’s Report
Key Audit Matters
Provisions
As disclosed in the respective notes to the financial statements, the Group recognises the
following provisions totalling $10 million:
• Provision for foreseeable losses on contracts in progress amounting to $0.5 million
[Note a and Note b];
• Provision for properties held for sale amounting to $2.5 million [Note a and Note b];
• Provision for warranties amounting to $5 million [Note c and Note d]; and
• Provision for claims amounting to $2 million [Note c and Note d].
There was significant audit effort in this area as we assessed the reasonableness of the
provisions and reversals made during the period to determine if they were in accordance
with accounting standards, challenged management’s basis for the provisions and
compared the provisions against historical trends.
In partnership with Deloitte & Touche LLP
47

48. Auditor’s Report
Key Audit Matters
Recognition of Revenue from Long-Term Construction Contracts (“contract
revenue”)
As disclosed in Note a and Note x to the financial statements, the Group recognises
contract revenue based on the percentage of completion method in proportion to the
stage of completion. This is an area of audit focus as significant management
assumptions are required in determining the stage of completion, the contract cost
incurred, the estimated total contract revenue and contract cost and the recoverability of
the contracts. In addition, contract revenue amounted to $700 million which comprises
60% of the Group’s revenue. We are satisfied with the results of the audit procedures
performed, which include checking the internal engineers’ estimates of the physical
completion of the projects, obtaining confirmations from customers and deriving an
independent estimate of the revenue using cost-to-cost method.
In partnership with Deloitte & Touche LLP
48

49. Auditor’s Report
Key Audit Matters
Impairment of Assets
As disclosed in Note e to the financial statements, the Group has investment in
associates (including advances) amounting to $50 million. These associates are held by
a subsidiary of the Group, which is audited by another firm of auditors. We focused on
this area as the assessment of impairment in associates required significant
management estimates and is material to the financial statements. We reviewed the audit
procedures performed by the component auditor which included using valuation experts
to evaluate the assumptions and methodologies used by management, in particular, the
forecasted revenue growth, profit margin and discount rate.
In partnership with Deloitte & Touche LLP
49

50. Auditor’s Report
Key Audit Matters
Valuation of Investment Properties
The Group’s disclosures about its investment properties are included in Note f to the
financial statements. They represent 40% of the Group’s non-current assets and are
located in both Singapore and overseas. The investment properties are stated based on
the valuations by various independent firms of professional valuers as at 31 December
2012. The Group had also made material acquisition and disposal of investment
properties during the year. These investment properties were held by subsidiaries and
associates and audited by other firm of auditors. There is significant measurement
uncertainty involved in the valuation because different valuation approaches and
valuation methodologies (e.g. direct comparison and investment methods and / or
discounted cash flow methods) were adopted to determine the market value of these
investment properties. For investment properties under construction, the valuation
methodologies used include the direct comparison and residual methods, excluding profit
element. Due to the above reasons, the valuation of these investment properties was
significant to our audit. We have obtained satisfactory explanations from the Group and
reviewed the component auditors’ work regarding the bases and methods as well as key
assumptions used by the independent firms of professional valuers to determine the fair
values for the investment properties.
In partnership with Deloitte & Touche LLP
50

51. Auditor’s Report
Key Audit Matters
Acquisition of XX
As described in Note g to the financial statements, the Group acquired a y% equity
interest in XX for a net purchase consideration of $11 million. In relation to the
acquisition, the Group entered into transactions involving complex derivatives.
Management has computed the fair value of the complex derivatives using a valuation
model and has not recorded the fair value of the derivatives as it is not material. We
focused on this transaction because it involves significant assumptions by the Group on
the complex derivatives. Our audit procedures included, among others, evaluating the
assumptions and methodologies used by the Group in its computation of the fair value of
the complex derivatives and we are satisfied with the results of the valuation.
In partnership with Deloitte & Touche LLP
51

52. Auditor’s Report
Going Concern
The consolidated financial statements of the Group have been prepared using the
going concern basis of accounting. The use of this basis of accounting is appropriate
unless management either intends to liquidate the Group or to cease operations, or
has no realistic alternative but to do so. As part of our audit of the consolidated
financial statements, we have concluded that management’s use of the going concern
basis of accounting in the preparation of the Group’s consolidated financial statements
is appropriate.
Management has not identified a material uncertainty that may cast significant doubt
on the Group’s ability to continue as a going concern, and accordingly none is
disclosed in the consolidated financial statements of the Group. Based on our audit of
the consolidated financial statements of the Group, we also have not identified such a
material uncertainty. However, neither management nor the auditor can guarantee the
Group’s ability to continue as a going concern.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
52
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

53. Auditor’s Report
Going Concern Considerations
Entity is a healthy listed company with no going
concern issues
 What does it entail to state the 2 conclusions on
going concern in the auditor’s report?
 Any additional considerations?
What about an entity with going concern issues?
Will there be additional audit procedures required?
In partnership with Deloitte & Touche LLP
53

54. Auditor’s Report
Going Concern Considerations
Evaluate
management’s
assessment
Events or
conditions that
may cast
significant doubt
on the entity’s
ability to
continue as a
going concern?
Yes
1
No
If no other evidence obtained
during the audit that suggests
otherwise, going concern basis of
accounting can be concluded to be
Yes
appropriate
No
Yes
Material
uncertainty
identified?
In partnership with Deloitte & Touche LLP
Yes
Going
concern basis
of accounting
appropriate?
Multiple material
uncertainties that are
significant to the FS
Unmodified
opinion + Going
Concern section
(with 2
subheadings)
[SSA 570:22]
2
Adverse or
Qualified opinion
+ Going Concern
section (with 2
subheadings)
[SSA 570:23]
Yes
Yes
Disclaimer of
opinion but NO
Going Concern
section
54
Unmodified
opinion + Going
Concern section
[SSA 570:20]
No
Adequate
disclosure
about
material
uncertainty
in FS?
FS
prepared
by mgt
based on
going
concern?
No
Yes
No
Adverse
opinion but NO
Going Concern
section
EOM (may)

55. Auditor’s Report
Going Concern Conclusion
1
Auditor concludes that management’s use of the going concern basis of
accounting is appropriate in the circumstances but a material uncertainty has
been identified, with adequate disclosures in the FS:
Disclosures about a Material Uncertainty Identified
We draw attention to Note 6 in the financial statements, which indicates that the Company
incurred a net loss of ZZZ during the year ended 31 December 20XX and, as of that
date, the Company’s current liabilities exceeded its total assets by YYY. As stated in Note
6, these conditions, along with other matters as set forth in Note 6, indicate the existence
of a material uncertainty that may cast significant doubt on the Company’s ability to
continue as a going concern. Our opinion is not modified in respect of this matter.
Going Concern Basis of Accounting
The material uncertainty identified above does not indicate that the going concern basis of
accounting is inappropriate. The Company’s financial statements have been prepared
using the going concern basis of accounting. The use of the going concern basis of
accounting is appropriate unless management either intends to liquidate the Company or
to cease operations, or has no realistic alternative but to do so. As part of our audit of the
financial statements, we have concluded that management’s use of the going concern
basis of accounting in the preparation of the Company’s financial statements is
appropriate.
In partnership with Deloitte & Touche LLP
55

56. Auditor’s Report
Going Concern Conclusion
2
Auditor concludes that management’s use of the going concern basis of
accounting is appropriate in the circumstances but a material uncertainty has
been identified, with inadequate disclosures in the FS:
Inadequate Disclosures about a Material Uncertainty Identified
As described in the Basis for Qualified Opinion section of our report, a material uncertainty
that may cast significant doubt on the Company’s ability to continue as a going concern
has been identified.
This material uncertainty has not been adequately disclosed in the financial statements.
Our opinion is qualified in respect of this matter. OR
This material uncertainty has not been disclosed in the financial statements. We have
expressed an adverse opinion as a result of this matter.
Going Concern Basis of Accounting
The material uncertainty identified above does not indicate that the going concern basis of
accounting is inappropriate. The Company’s financial statements have been prepared
using the going concern basis of accounting. The use of this basis of accounting is
appropriate unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so. As part of our audit of the financial
statements, we have concluded that management’s use of the going concern basis of
accounting in the preparation of the Company’s financial statements is appropriate.
In partnership with Deloitte & Touche LLP
56

57. Auditor’s Report
Going Concern: Potential Implications
• More robust, upfront dialogues between auditor, management and TCWG
relating to going concern?
• More “assurance” required by auditors to conclude that there are no
material uncertainties when events or conditions are identified?
 Require more supporting documents and evidence from management
(e.g. budgets, cash flow forecasts)?
• Improve quality of disclosures about material uncertainties in the financial
statements by management?
 Not boiler plate, but more entity-specific plans
• Corresponding improvement in accounting standards
 What is material uncertainty? Significant doubt?
In partnership with Deloitte & Touche LLP
57

58. Auditor’s Report
Other Information
This section is subject to the IAASB’s finalisation of proposed ISA 720 (Revised).
The content of this section may include, among other matters:
(a) a description of the auditor’s responsibilities with respect to other information;
(b) identification of the document(s) available at the date of the auditor’s report that
contain the other information to which the auditor’s responsibilities apply
(c) a statement addressing the outcome of the auditor’s work on the other information;
and
(d) a statement that the auditor has not audited or reviewed the other information
and, accordingly, does not express an audit opinion or a review conclusion on it.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
58
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

59. Auditor’s Report
Responsibilities of Management
for the consolidated financial statements
Management is responsible for the preparation of financial statements that give a true
and fair view in accordance with the provisions of Act and Singapore Financial
Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error. Those charged with governance are
responsible for overseeing the Company’s financial reporting process.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
59
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

60. Auditor’s Report
Auditor’s Responsibilities for the Audit
of the consolidated financial statements
The objectives of our audit are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with SSAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
Opinion
Basis for
opinion
In partnership with Deloitte & Touche LLP
60
Key Audit
Matters
Going
Concern
Other
Information
(KIV)
Responsibilities of
preparers
Responsibilities of
auditors

61. Auditor’s Report
Auditor’s Responsibilities for the Audit
of the consolidated financial statements
As part of an audit in accordance with SSAs, we exercise professional judgment and
maintain professional skepticism throughout the planning and performance of the
audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
•
Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
In partnership with Deloitte & Touche LLP
61

62. Auditor’s Report
Auditor’s Responsibilities for the Audit
of the consolidated financial statements
•
Evaluate the overall presentation, structure and content of the consolidated
financial statements, including the disclosures, and whether the consolidated
financial statements represent the underlying transactions and events in a manner
that achieves fair presentation.
•
Obtain sufficient appropriate audit evidence regarding the financial information of
the entities and business activities within the Group to express an opinion on the
consolidated financial statements. We are responsible for the direction, supervision
and performance of the group audit. We remain solely responsible for our audit
opinion.
We are required to communicate with those charged with governance
regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We are also required to provide those charged with governance with a statement that
we have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
In partnership with Deloitte & Touche LLP
62

63. Auditor’s Challenges
 Buy in from management and TCWG
 Pressure from management to have no
KAM (allowed by ISA 701)
 Blurring of responsibilities (e.g. original
information)
In partnership with Deloitte & Touche LLP
63
Communication with management and
TCWG throughout the process
 Significant judgment to apply ISA 701
(consistency within firm)
 Describe KAM (slide 41)
 Resolve differences of opinion internally
 Additional hours from partners, and costs (esp.
when there are significant developments)
 Incremental audit documentation
 Increase auditor liability

64. Potential implications/challenges from
perspective of management
Impact to the
financial reporting
process
Lengthen audit
process, increase
costs
64
• Increased attention by management to the
disclosures in the financial statements
• Stronger focus on quality of disclosures in the
financial statements
• Indirect improvement to quality of financial
reporting
• Increased communication with auditors on KAM
and GC
• Potential disagreement on KAM identified and
choice of wordings to describe KAM
• Potential disagreement on opinion on GC
• Increased costs, timing

65. Potential implications/challenges from
perspective of management (cont’d)
Concerns over how
different users may
interpret KAM
Incremental valueadd of KAM over
time
65
• Misconception that KAM = problem
• Confused by KAM (e.g. no closure)
• Queries at AGM
• Queries from regulators
• KAM becoming boilerplate
• Comparability and consistency of auditor’s report
when auditors change (partner rotation, change
audit firms)

66. Potential implications/challenges from
perspective of TCWG
More questions from
shareholders at AGM
Growing interest in
enhanced public
reporting by ACs
Enhance audit quality
66
• Shareholders may query the basis of the
selection of matters communicated with the AC
to be disclosed as KAM
• ACs may be encouraged to provide more
information about their activities in order to
increase communication and transparency to
users
• Enhanced communication between auditor and
AC
• Positive benefits to audit quality

67. Next Steps…
2 months after YE in time
for announcement
6-9 months before YE
Earliest
effective
date
In partnership with Deloitte & Touche LLP
67

68. 68