SEC preps penalties for errant auditors

SEC preps penalties for errant auditors

The Securities and Exchange Commission (SEC) is preparing a fine for auditing firms that make errors, aiming for quality internal control for auditors and a quality external audit process for listed companies.

The move will require capital market auditing firms to register with the SEC Office.

Both issues are part of a review of the Securities and Exchange Act of 1992. The revision of a new draft is expected to be addressed at a meeting of the Finance Ministry within the second quarter of next year.

SEC assistant secretary-general Thawatchai Kiatkwankul said the fines will encourage internal supervision and provide checks and balances within the auditing firms.

"We need the measures that lead to removing, improving or changing parts of the internal management process of auditing companies," he said. "The fine creates a direct impact on the auditing firm's net profit and also impacts all auditor partners who get a share of the firm's profit. They need to do self-monitoring and warn each other if they see someone doing something that could create risk to the firm."

The SEC has only two penalties now for violations by capital market auditors and auditing firms: revocation of the auditor licence and/or closing of the firm.

During 2017-19, the SEC gave warnings to two auditors and suspended the licence of another. The SEC also processed civil sanctions against three former assistant auditors who worked for an SEC-approved auditor firm, citing insider trading.

The assistants allegedly used audited information but did not disclose it in drafted financial statements of the listed clients for securities and derivatives trading.

Still, no capital market auditing firms have been closed under the law.

Mr Thawatchai said closing auditing firms could create a broader impact on the capital market due to the small number of auditing firms approved by the SEC to audit financial reports of listed companies. Each auditing firm is responsible for many listed companies.

At the end of 2019 there were 251 certified public accountants working with 29 auditing firms approved by the SEC to audit 725 listed companies in Thai capital markets -- or a ratio of 2.88 listed companies per CPA.

Account auditing is an oligopoly. At the end of 2019, the big four audit and consulting firms controlled 62% of market share in terms of total listed companies, which contribute 95% of the market cap.

Firms other than the big four controlled 38% in terms of the listed companies' numbers (or about 275 companies), sharing 5% of the market cap value.

Mr Thawatchai said the SEC must pay attention to the audit system and quality of mid-sized and small auditing firms, as the auditor has a key role to help investors inspect companies.

"The mid-sized and small auditing firms have mostly no foreign networks and have disadvantages in terms of cost and technology," he said. "We encourage them to join together to form a club to provide technical assistance among each other, such as jointly developing a manual for the practice of auditing, joint training and the use of data analytics and AI in joint auditing like with the big four firms."

The SEC also plans to set clear guidelines for auditors to comply with the Securities and Exchange Act, which requires auditors to notify a company's audit committee when finding suspected unethical behaviour of a listed company.

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