Reference no: EM132450529

Question 1: For a decade, audit firm KPMG had stamped Hyflux's annual reports with a clean bill of health, attesting to the water treatment company's ability to continue to operate.

• But with the company now facing the possibility of liquidation after a scuppered restructuring deal on Thursday, its shareholders and investors are asking why auditors failed to flag the risk of Hyflux spiralling into heavy debt.

• The Accounting and Corporate Regulatory Authority (ACRA), which enforces Singapore's strict auditing and accounting laws and standards, said in a statement that it will also "assess if further action is warranted".

• Corporate governance experts believe the accounting and auditing issue is likely to centre on Hyflux's 2017 books, which the company released in March last year and carry the unqualified opinion of the auditors. It had slipped into the red for the first time in 2017 since its listing in 2001.

• Yet two months later in May, Hyflux shocked investors when it filed for bankruptcy protection. Its financial statements were prepared on the basis of going concern - an accounting method that assumes the company will remain solvent and operational indefinitely until proven otherwise.

(Adapted from The Straits Times, 6 April 2019)

Required

Question 1 : In recent years, we have witnessed the sudden collapse of large corporations such as Hyflux in Singapore and Carillion in the U.K. Some investors and analysts have attributed this phenomenon to ethical threats impairing auditors' independence and objectivity. Critically discuss the extent that external auditors are truly independent from their clients.