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SGX RegCo seeks tougher standards for audits and property valuations

Public consultation launched; regulator is also reviewing practices on business valuations

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SGX RegCo wants all listed firms to appoint an auditor registered with ACRA, and powers to order an additional auditor under exceptional circumstances. It's also studying new rules for property valuations.

Singapore

AUDITING and property valuation standards are to come under greater scrutiny as the Singapore Exchange Regulation (SGX RegCo) seeks public feedback to enhance the current regulatory regime.

To strengthen oversight of audits, the local bourse is proposing that all listed companies are required to appoint an auditor registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign issuers that wish to appoint foreign auditors would also need to designate an additional ACRA-registered auditor.

If the proposal is implemented, audits performed for all SGX-listed issuers will effectively be subject to ACRA's regulatory oversight, according to SGX RegCo in its press statement.

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In addition, the regulator is proposing a new power to direct the appointment of a second auditor under exceptional circumstances.

"Reliable and informative financial statements are the bedrock of our financial markets," said Tan Boon Gin, chief executive officer of SGX RegCo in a press statement.

"Requiring all listed companies to appoint a Singapore-registered auditor and giving SGX RegCo the power to appoint an additional auditor will also increase the accountability of auditors and improve investor confidence in audits," he said.

The regulator is now seeking feedback on circumstances under which it may be appropriate to direct an issuer to appoint an additional auditor. The second auditor would serve either to provide an independent opinion or act as a joint auditor.

SGX RegCo has put out a consultation for public feedback on the proposals till Feb 14.

These rule enhancements were proposed to raise audit accountability and reinforce SGX's intervention powers to investigate issues when problems arise, according to the consultation paper by SGX.

The collapse of high-profile players threw up questions over whether current audit standards are sufficient to protect investors.

For instance, Noble was given a clean bill of health for three years before its substantial write-down and collapse. Investigations into potential breaches by Nobel only took place in November 2018, more than three years after the first reports of accounting irregularities surfaced.

On property valuation rules, SGX RegCo is looking into ensuring that professionals carrying out valuations of property assets are sufficiently qualified.

SGX RegCo is proposing that valuers must have at least five years of relevant experience for the type of property being valued, and be a member of the Singapore Institute of Surveyors and Valuers (SISV) or a similar professional body.

"The enhancements SGX RegCo is proposing on valuation are aimed at raising standards and ensuring quality disclosures on valuations of real estate, and is the result of our collaboration with the industry," said Mr Tan.

Beyond professional qualifications, the valuer should also be independent of the issuer, and cannot be a sole practitioner or have an adverse compliance track record.

In October 2019, SGX RegCo joined hands with SISV to set standards for property valuation for public companies here in a bid to raise investors' confidence in asset valuation reporting by listed issuers.

To provide investors with a standardised benchmark to compare information, SGX RegCo has also proposed that all issuers and listing applicants are to comply with the SISV standards for the valuation of properties in Singapore.

For overseas properties, valuation may be carried out in accordance with the SISV or the International Valuation Standards (IVS) set by the IVS Council.

Summary property valuation reports that are disclosed must contain information required for prospectus and circulars set out under the SISV Practice Guide.

In the past, stock market investors have raised doubts about the methods of some independent valuers.

In 2017, investors grilled Sabana Reit's independent property valuers over the objectivity and independence of the S$23 million valuation for a building. The figure had been arrived at by three valuation houses: Colliers, Knight Frank and Savills.

Adrian Chan, senior partner and head of the corporate department at law firm Lee & Lee, told The Business Times that the new audit requirements will go a long way to address the need to lift audit quality and audit standards.

"These measures will try to address trust gaps that have been created because of different audit approaches," he said.

On property valuation issues, Mr Chan said: "I think SGX is trying to nip it in the bud, not just for property and real estate valuations but also for business valuation."

SGX is carrying out a separate review of practices on business valuation and will be looking to consult the public on proposed amendments.