Majority of retail investors find value in audit and use audited financial statements to guide their investment decisions, according to a survey conducted by the Association of Chartered Certified Accountants (ACCA) and Securities Investors Association (Singapore) (SIAS).
Out of 390 respondents, 90% felt that the external audit brings value to them and 80% indicated that audited financial statements was an important source of information to guide their investment decisions. However, more than 75% of respondents agreed that the scope of audit should be extended to enhance the value of audit.
The two main extensions that investors asked for was specific assurance on a company’s internal controls and a report on the adequacy and effectiveness of a company’s risk management programme. They also felt that the provision of non-financial information (on matters such as corporate governance practices and corporate social responsibilities) would serve their decision making process.
Besides the survey, a focus group discussion was conducted as part of the research project.
Several participants of this focus group commented that some of the suggested extensions to the scope of external audit would be better provided by internal rather than external audit. The review of internal controls and risk management frameworks are core activities of internal audit in many organisations.
In extending the scope of external audit, therefore, it was acknowledged that special attention must also be placed on the work of internal audit and how it interfaces with external audit.
Findings from the research project are published in the report ‘Value of Audit: Views from Retail (Private) Investors’.
“Most retail investors lack the experience of financial professionals so we hope this report sheds some light on the type of information required to support the investor’s decision making process and contribute to enhancements to audit that will inspire confidence,” says Darryl Wee, country head of ACCA Singapore.
“As revealed in this survey, respondents want to be able to piece together sufficient information to put financial numbers in context," says David Gerald, president & CEO of SIAS.
Gerald adds that respondents would like further assurance that a company’s internal controls and risk management processes are sound before making an investment decision.
"We believe that external auditors can work with internal auditors more closely to further enhance the value of audit to retail investors.”
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