Clients' liquidity, viability top worries for audit committees: poll

Singapore

DIGITALISATION and the Covid-19 pandemic added to the workload of audit committees (ACs) at Singapore-listed companies, according to a review released on Tuesday.

Companies' liquidity and their ability to manage as a going concern were the top worries for ACs, alongside impairment of asset values and internal controls risks, the poll found.

Engagement with management, closer monitoring of internal controls and collaboration with auditors were cited as ways to manage the impact on ACs' work, said the report from the Singapore Institute of Technology.

Some two-thirds of respondents said that workloads increased for the financial year, as firms faced higher risk exposure. For instance, movement and travel curbs limited internal auditors' ability to do fieldwork, especially overseas, while directors could not visit offices abroad.

Meanwhile, some 48 per cent cited going concern and liquidity as their main worry during the pandemic - more than any other concerns - as the review found that "Covid-19 has also changed the focus of the board, AC and management" from long-term growth to short-term survival.

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The pandemic "directs attention on operational and risk management, re-forecast of financial performance, business continuity plan and dividend payout", the report said.

Other major challenges cited by respondents included internal controls risks from changes such as remote working, audit effectiveness, and a potential inability to fulfil certain contractual obligations.

Indeed, digital transformation of operations, systems and processes - a trend accelerated by the pandemic, when employees had to work from home - was another mine field.

Some 43 per cent of survey participants fretted that digitalisation had raised companies' risk levels. The report flagged that ACs may not have weighed the full extent of cybersecurity risks, as this emerging area "presents a steep learning curve".

But respondents noted that working with external consultants, as well as training for directors and internal briefings on technology and cyber-related matters, were avenues that AC members have tapped to keep abreast of digital changes.

Meanwhile, most businesses' AC practices were in line with guidelines for boards, although there was some backsliding in the last five years.

In the wake of the study, companies were urged to continue working towards tighter rules that govern the boards of listed issuers in Singapore.

That's as the share of AC chairmen who have served in the same ACs for more than 10 years rose from 21 per cent in 2015 to 33 per cent in 2020.

The number of longtime AC members also increased, from 18 per cent to 26 per cent over the same period.

Directors who have served more than nine years will be deemed non-independent from 2022, unless their appointments are green-lit through a two-tier shareholder vote, as part of new listing rules meant to strengthen diversity and independence.

Said Ong Chong Tee, deputy managing director of financial supervision at the Monetary Authority of Singapore, in a statement: "With the nine-year independent director rule coming into effect on Jan 1, 2022, I urge companies to take this opportunity to increase the mix of skills, knowledge and experiences when appointing new independent directors.

"This would bring fresh perspectives to board discussions."

Still, the Accounting and Corporate Regulatory Authority, the Institute of Singapore Chartered Accountants, the Singapore Exchange Regulation and Singapore Institute of Directors also said that "the findings in the report are encouraging as they show that ACs are stepping up their game".

The watchdog organisations, which had commissioned the study, noted that most AC members and chairmen sat on only one AC.

The share of chairmen on four or more ACs fell from 5 per cent in 2015 to 4 per cent in 2020, while the share of double-hatting AC members fell from 2 per cent to one per cent.

And the number of executive directors who sat on ACs dropped from 38 in 2015 to 24 in 2020, in an improvement under the Singapore Code of Corporate Governance's recommendation in 2018 that all such committee members be non-executive.

"Together with the new listing rules on the appointment of a second auditor and the mandating of Singapore-registered auditors, this will support the effective functioning of Singapore's capital market and further enhance confidence and trust," the review said.

The study, modelled on similar reviews in 2009, 2011 and 2015, looked at more than 1,500 members of ACs from 650 listed companies in Singapore, and also polled 126 people.