SINGAPORE (Jan 17): The Singapore Exchange Regulation (SGX RegCo) is seeking market feedback on several proposals to strengthen the oversight of audits of locally listed companies.
For one, all companies – including those that are foreign-based – must appoint an auditor registered with the Accounting and Corporate Regulatory Authority (ACRA). This proposal aims to overcome problems resulting from jurisdictional barriers as foreign auditors are not subject to ACRA’s supervisory oversight. Auditors registered with ACRA enables SGX RegCo to deal with audit irregularities in a timely and effective manner.
However, foreign-based firms planning to appoint a non ACRA registered auditor can do so but SGX RegCo will only allow this on a “case-by-case basis”. These companies are also expected to appoint an auditor registered with ACRA to act as the joint auditor.
According to Audit Guidance Statement 10 – as issued by the Institute of Singapore Chartered Accountants (ISCA) – a joint auditor is one who is engaged under a joint audit arrangement where two or more audit firms are engaged to audit an entity’s financial statements. They then jointly issue an auditors’ report over which they share responsibility.
Meanwhile, companies with secondary listings on the Singapore Exchange (SGX) may also be required to appoint a joint auditor. SGX RegCo says it will adopt a “risk calibrated” approach, taking into consideration the safeguards available in the jurisdiction of the company’s home exchange.
This measure, however, only applies to companies from non-developed markets. Firms from Western developed countries and territories like Hong Kong, Japan and Israel are exempted as SGX RegCo says they pose “less regulatory risk”. The proposal aims to ensure that audits performed for companies are subject to ACRA’s regulatory oversight.
In addition, SGX RegCo is proposing to exercise its power to appoint an additional auditor to conduct a second audit of a company’s financial statements. This will only be carried out if and when the regulator has “concerns” with the company’s overall audited financial statements.
In such cases, the regulator says that appointing an additional auditor may be more appropriate, compared to a special auditor whose mandate is to focus on a “specific area”. This is because a second independent opinion on the financial statements may provide “sufficient clarity” on the “overall financial impact”.
SGX RegCo is also consulting the market on the need to raise the reporting standards of property valuation by locally listed companies. For example, firms should only engage a property valuer who meets the minimum qualification criteria. This property valuer must have at least five years of relevant experience in the type of property to be valued and must also be a member of the Singapore Institute of Surveyors and Valuers (SISV) or a similar professional body in his home jurisdiction. The property valuer also must not be a sole practitioner, has no adverse compliance track record and is independent of the company he is valuing.
Finally, the regulator is looking into having companies to comply with the Singapore Institute of Surveyors and Valuers (SISV) standards for the valuation of properties in Singapore. This will include compliance with the SISV Practice Guide, which forms part of the SISV Standards. For overseas properties, the valuation may be carried out in accordance with the SISV Standards or International Valuation Standards (IVS), which is set by the IVS Council.
When asked to comment on the proposals, market observers tell The Edge Singapore these are positive developments. Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, acknowledges that costs for companies might increase, but the Singapore market as a whole benefits.
“The audit is the main comfort that investors can get when it comes to a company’s financial and business health. We need to be able to trust the auditors and part of the infrastructure requires that bad or negligent players must be held accountable,” she continues.
Meanwhile, the National University of Singapore Business School’s associate professor of accounting Mak Yuen Teen adds: “We know that valuations are part science and part judgement or art, but they should not be magic (which is the case for some valuations). So, having stricter standards and requiring proper qualifications, and more transparency around valuations, is important.”
