A slew of new initiatives targeted at Singapore's audit committees ("ACs") were launched at the 3rd annual audit committee seminar ("AC Seminar"), which was jointly organised by Singapore's Accounting and Corporate Regulatory Authority ("ACRA"), the Singapore Exchange ("SGX") and the Singapore Institute of Directors ("SID"), on 13 January 2017, which included:
- A new Audit Committee Guide, produced by SID with the support of ACRA, SGX and the Monetary Authority of Singapore ("MAS"), which covers key concepts, principles and approaches relating to the duties and responsibilities of ACs, and leading practices for ACs.
- A 2017 edition of the Mini-Guide for Audit Committees produced by ACRA, SID and PricewaterhouseCoopers LLP Singapore, that provides a quick reference to current and upcoming regulatory developments, such as the enhanced auditor's report and new accounting standards.
- An Audit Committee Chapter ("AC Chapter") to be established by SID. The AC Chapter aims to provide a platform for the active discussion of issues relevant to ACs, develop thought leadership for ACs through articles, contribute to the professional development of ACs through courses and seminars, and advocate issues relevant to ACs. It is envisaged that the AC Chapter will create a community of AC chairmen and members, management personnel who provide support to or interact closely with ACs, and professionals who provide support to ACs.
Revised regulatory approach
Financial Reporting Surveillance Program
ACRA had announced at the AC Seminar that it would make certain key revisions to its Financial Reporting Surveillance Program ("FRSP") with effect from 1 April 2017:
- Serious breach – the company must restate, re-audit and re-file past years' financial statements and restate comparatives in the current year's financial statements.
- Less serious breach – the company must restate comparatives or enhance disclosures in the current year's financial statements.
- Sanctions against directors – will now only be considered in egregious cases or if the company refuses to comply. Sanctions may include warnings, fines by offers of composition or prosecution leading to fines and/or imprisonment.
- Court orders – if the company fails to comply with ACRA's order, ACRA will be able to apply to court to compel the company to restate financial statements where necessary.
- Early indication of
- Serious breach – a closing meeting will be held with directors before the regulatory outcome is finalised.
- Less serious breach – remedial actions will be indicated in enquiry letters where practicable.
- Selected serious breaches – auditors and specialists will be formally involved.
- Press notices – If the company does not restate or announce within the prescribed time for breaches that materially affect key line items in financial statements, entity-specific press notices will be issued to keep investors informed on a timely basis.
Details of the above revisions can be found in the FRSP Operating Procedures, which is expected to be issued by ACRA in the first quarter of 2017.
ACs to take the lead to drive financial reporting quality
To complement the enforcement measures, ACRA also noted that ACs should take the lead to set the bar for sustainable improvement in financial reporting quality, and suggested certain approaches for ACs to consider, which included:
- Self-assessment by ACs and
Audit Quality Indicators
ACRA referred to its Audit Quality Indicators ("AQI") disclosure framework, which was launched in 2015 to help audit committees of listed firms better evaluate and select auditors, and suggested that ACs consider developing indicators to self-assess the adequacy and competency of companies' finance functions.
- AC commentary on Key Audit
ACRA also urged ACs to consider providing commentaries on how significant financial reporting matters were being addressed, to complement auditors' commentary on Key Audit Matters. In a recent joint study by ACRA, the Institute of Singapore Chartered Accountants ("ISCA") and the National University of Singapore, 100% of institutional investors and 95% of retail investors surveyed wanted AC commentaries. However, ACRA indicated that the AC commentary will not be mandatory.
These new initiatives will serve to further bolster Singapore's top position in regional corporate governance rankings and hopefully drive greater investor activity and interest. The launches of new guidebooks for audit committees, including the more easily digestible "mini-guide", should provide clear assistance to AC chairmen and personnel and would serve to raise standards even further.
It is also heartening to see that Singapore's regulators are taking a pragmatic stance by requiring rectification of financial statements, thereby addressing issues directly, rather than the old way of imposing fines, etc, and that they are looking to more flexible, streamlined methods of dealing with management and directors, including involving specialists if required.
Audit committees may expect to play an expanding role in corporate governance matters and financial reporting, given ACRA's emphasis on self-assessment via the Audit Quality Indicators framework, and the exhortation for ACs to provide commentaries on Key Audit Matters.
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