SGX's latest proposal addresses foreign audit concerns: analysts

Singapore

THE Singapore Exchange Regulation's (SGX RegCo) proposal to strengthen oversight of audits will address lingering concerns in the market over the audits of foreign companies by foreign auditors, according to market watchers The Business Times spoke to.

The stock market watchdog announced on Thursday that it 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.

There are now 15 listed companies that do not have a Singapore- based auditor, and these companies are all incorporated overseas.

Foreign issuers which do not have a Singapore-registered auditor could raise concerns surrounding accountability and responsibility without Acra's regulatory oversight, according to Shariq Barmaky, regional managing partner, audit and assurance at Deloitte South-east Asia and Singapore.

"Our audit quality regulatory regime with Acra is well known and respected, so extending the rule of having an Acra-registered auditor for foreign issuers gives confidence to the investing public," he said.

This comes amid corporate scandals surfacing globally. SGX RegCo's proposal will therefore help allay concerns and restore confidence among investors, according to Mr Barmaky.

Christopher Wong, head of assurance at Ernst & Young Singapore shared similar sentiments.

"The proposed regulation to require an Acra-registered accountant to sign off the accounts will bring some control within the SGX RegCo's purview and ultimately, enforcement," said Mr Wong.

He added: "Any concerns around the audit quality of foreign companies should somewhat be negated with the proposed regulation."

However, this will only work if the Singapore-registered auditor is of good quality, corporate governance advocate Mak Yuen Teen pointed out.

"Smaller local audit firms, such as lower mid-tier or lower, may face audit quality issues and may not have foreign affiliates auditing overseas subsidiaries," he said.

Larger firms may also face the same challenges if they do not have full access to the working papers for audits for foreign subsidiaries.

But Deloitte's Mr Barmaky said that the onus is on auditing firms to ensure that they are able to carry out quality audits before accepting clients.

While an additional Singapore-registered auditor may raise costs for foreign issuers, Tham Tuck Seng, capital markets leader at PwC Singapore said that this will not deter foreign listings.

"Foreign companies come to list here for a variety of reasons and any audit cost increase is unlikely to be a significant factor in deciding on the listing destination," said Mr Tham.

"On the other hand, local auditors can give more timely and better guidance to companies in complying with local listing requirements," he added.

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

But some market watchers have their reservations about the effectiveness of having a second auditor.

"SGX acknowledged that even when a second opinion is eventually issued, a different opinion between the first and second auditor does not necessarily mean the first opinion was incorrect. I think this is going to confuse the market even more," said Themin Suwardy, associate professor of accounting practice at Singapore Management University

"I think SGX is better off 'directing' current auditors to reaffirm their opinion based on new developments or information," he felt.

Furthermore, the time difference between the first and second audit could affect the auditing outcome.

"A full-scope general purpose audit is done at a particular point in time with judgements being made and information that is available then," said Mr Barmaky.

Hence, there needs to be careful consideration put into the situations that call for a second audit.

On possible circumstances that warrant a second audit, Prof Mak made the following suggestions: companies with a lot of key audit matters but a clean opinion, firms with frequent restatements or those with large variances between unaudited and audited numbers

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