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SGX to tighten auditing of listed firms with two new rules

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Regulator to conduct public consultation on proposals

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

First, 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, 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 that they did not do enough to protect minority investors as the Noble saga unfolded.

Singapore Exchange 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 a 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, saying: "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'd just appoint a special auditor to look into that area."

He said 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, and what it expects the audit to cover and to discuss in the key audit matters of the annual report. The latter must include matters the regulator has been constantly querying the firm about.

He also said 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 STRAITS TIMES