The Singapore Exchange Limited (“SGX”) has stepped up engagement with listed companies and market professionals since September 2008 in response to global financial turbulence and the challenging market environment. We have urged Boards and Audit Committees to heighten their vigilance in identifying, addressing and managing risks that may have a material impact on the financial statements and operations of companies. Closer attention should be paid to liquidity, financing or refinancing, collection of receivables and other risks faced by companies.
Checks and Validation
Boards and Audit Committees play a critical role in ensuring the integrity of information disseminated to investors. They do so through instituting good internal controls, ensuring the competence and adequate resourcing of the finance function and supporting effective audits. Auditors complement directors and management to assure integrity of corporate governance and financial reporting.
We have recently communicated to Boards, Audit Committees and audit professionals of listed companies, possible areas of heightened risks. Some of these areas include safeguarding of cash, impairment of account receivables and assessment of off-balance sheet items. The key risk areas observed by the Exchange are consistent with the broader list set out by the Accounting and Corporate Regulatory Authority in its Audit Practice Bulletin of 16 March 2009.
Audit Committees and audit professionals should review identified risk areas, for example, where the infrastructure and local environment pose higher risks to the company. Where necessary, further checks and more detailed validation should be conducted. If additional validation is conducted, listed companies should disclose promptly to shareholders the scope of work done and outcome of the exercise. This is beneficial to companies as it reinforces investor confidence in the financial reporting process.
We expect listed companies, being mindful of current economic and financial uncertainties, to be responsive to our communication and take prompt action as necessary.
Timely Disclosure of Material Information
Other than monitoring and managing identified risks, Boards and management should be vigilant in providing shareholders with timely and meaningful information if significant trends, uncertainties and risks have or may cause reported financial information not to be indicative of future operating results or of future financial conditions. To comply with the continuing disclosure obligations, care should be taken so that clear, concise and meaningful information is provided. Boilerplate statements and disclosure that is imprecise or could be misconstrued should be avoided as they do not meet the standards required.
Adequacy of Internal Controls
Companies should review regularly the adequacy and effectiveness of internal controls. Weaknesses or lapses in internal control systems pose significant risks to companies’ assets and business. The Code of Corporate Governance advocates annual review of the adequacy of the company’s internal controls. Audit Committees may wish to engage external professionals to assist them in making the assessment.
Efforts to Enhance Understanding of Boards’ Responsibilities
We will continue to raise awareness of risk areas arising from the current environment, and collaborate closely with the Singapore Institute of Directors and other professionals in developing and conducting relevant programmes.
The Exchange will continue to actively engage listed companies and professionals to provide guidance on regulatory compliance and other related matters where appropriate.
