SGX to get tougher on auditing of listed companies with proposed new rules

The Singapore Exchange is moving to tighten the auditing of listed companies, with two new rules, in one of its biggest overhauls of accountancy oversight.

First, the SGX is asking for the power to order a listed company to appoint a second auditor, in addition to the existing one, in "exceptional circumstances".

Second, the SGX will propose a change in the listing rules to require all listed companies to appoint a Singapore-based auditor.

The market regulator will be conducting a public consultation on these two proposals.

The move comes in the wake of the near-collapse of Singapore-listed Noble Group, once Asia's biggest commodity trader, which was given a clean bill of health for three years even as an attack on its accounting practices was sending its shares plummeting. The company eventually lost 99 per cent of its market value.

Some market observers were critical of Singapore regulators, saying they did not do enough to protect minority investors as the Noble saga unfolded.

SGX Regulation chief executive officer Tan Boon Gin said in a media briefing: "SGX will be proposing a new power to require the appointment of a second auditor, on top of the existing statutory auditor, but only in exceptional circumstances."

"This will complement SGX's current power to require the appointment of a special auditor, who will typically only look into specific area, whereas the second auditor will jointly sign off on the year-end audit together with the first auditor."

Mr Tan explained the need for a second audit: "There have been clean audit reports over the years and yet if you still suspect something is amiss, that's when this is most useful to us. Whereas if we knew exactly which area to focus on, we just appoint special auditor to look into that area.''

He said the SGX has already met the audit committees and auditors of about 15 listed companies to highlight issues it is concerned about based on the regulator's review of the company, what it expects the audit to cover and discuss the key audit matters of the annual report. The latter must include matters the regulator has been constantly querying the company about.

He also said that auditors need to have the "gumption" to flag areas of concern.

"If they do find something (amiss with the company), they can't hide behind the terms of reference and say, 'This wasn't covered under the terms of reference so I didn't look into it'.

"And they shouldn't phrase the language of the report in a language that is so vague that, frankly speaking, we as an exchange cannot take action on it."

The SGX has also begun to intervene more actively to ask audit committees to change their terms of reference where they are not to its satisfaction and to require the special auditor to report directly or even exclusively to the SGX.

"Those appointed to these roles who fail to carry out their responsibilities in a credible manner may find that we will stop them from being appointed again," Mr Tan warned.

The SGX also plans for all listed companies to appoint either a Singapore-based auditor or, in the case of companies with significant overseas operations with a foreign auditor, to have a Singapore-based auditor jointly sign off on the year-end audit conducted by the foreign auditor.

"This will give us more regulatory traction, access to working papers and accountability. We are formalising this. Going forward, this will become a requirement," Mr Tan said. Currently, some 15 to 20 listed companies do not have Singapore-based auditors.

The SGX is also planning to raise valuation standards for listed companies.

It has signed an agreement with the Institute of Valuers and Appraisers of Singapore so that SGX may approach the institute if it needs advice on valuation concerns of listed companies or those applying to get listed.

"Valuations are very important to a Reit-heavy ecosystem like ours... and also when it comes to valuations of mines," Mr Tan said.

Valuations by some companies have been questioned by minority shareholders in cases like Vard Holdings' delisting and ISR Capital's purchase of a Madagascar mining asset.