22 July 2005
MEDIA RELEASE
ICPAS TO ISSUE PUBLICATION ON GUIDELINES ON
ROLES & RESPONSIBILITIES OF AN AUDIT COMMITTEE
The Institute of Certified Public Accountants of Singapore through its Corporate Governance Committee will be issuing a publication that will provide guidelines on the roles and responsibilities of an audit committee with the view to enhance its members’ knowledge, the corporate community’s understanding and the public’s appreciation of the role and responsibilities of the audit committee. This publication is designed to assist audit committees to go beyond mere compliance with audit committee requirements and code standards so that they can be more effective in discharging their roles and responsibilities. This is pertinent especially in the light of recent corporate scandals both internationally and in Singapore.
Corporate governance matters because the interests of shareholders and management may not be aligned. Further, in companies with concentrated shareholdings, there is an additional need to ensure that the interests of minority shareholders are adequately protected. Good corporate governance can help increase shareholder value by safeguarding all shareholders’ interests and enhancing corporate performance. However, for corporate governance to be effective in safeguarding shareholders’ interests and enhancing corporate performance, boards, management and other players in the corporate environment must ensure that they do not adopt a mindset of merely complying with the ‘letter’ of corporate governance codes and rules – rather they should embrace the spirit of good corporate governance. This requires them to pay careful attention as to how corporate governance practices and processes are actually implemented rather than follow a box-ticking approach designed to meet minimal standards of compliance. We would like to reiterate the roles and duties of the various players in the corporate environment and the need for all to take their roles and duties seriously in order for corporate governance to deliver increased shareholder value.
The many players in corporate governance include the board of directors, audit committees, internal auditors and external auditors, amongst others. A company’s financial statements are the responsibility of its directors and management. The primary responsibility for the prevention and detection of fraud and error also rests with those charged with governance and the management of the company. Management, with the oversight of those charged with governance, needs to set the proper tone, create and maintain a culture of integrity and sound ethics, and establish appropriate controls to prevent and detect fraud and error within the company.
Management is responsible for providing the board with complete, accurate and timely information. However, in discharging their responsibilities, directors must be pro-active in seeking information and questioning management rather than relying solely on information offered by management.
The board’s stewardship responsibility in, for example, reviewing and approving corporate strategies, budgets and financial plans, monitoring organisational performance and achievement of strategic objectives, ensuring that an appropriate risk management system is in place, reviewing the integrity and adequacy of internal controls and reporting to shareholders, is undoubtedly a heavy one. The Board, when it may not have the expertise to do so, is empowered by the law to seek professional or expert advice from external sources. However, the ultimate judgment in decision-making has to be exercised in good faith and the directors are not absolved from asking further questions where such inquiry is warranted in the circumstances.
Listed companies are required under the Listing Rules of the Singapore Exchange to describe in their annual reports their corporate governance practices and make references to the principles of the Code of Corporate Governance. Any deviation from the code has to be disclosed and explained. Directors of companies have the responsibility to ensure that the requirement is properly complied with and that the disclosures in the corporate governance report reflect accurately the corporate governance practices of the company.
Legislation, for example, the Companies Act and other regulations, like the Listing Rules of the Singapore Exchange, contain sanctions for breaches of the law or rules. The Institute applauds the efforts of the regulators in undertaking swift investigations and taking enforcement actions against directors and management for serious breaches in recent corporate scandals. However, it is imperative that directors and other corporate players be held to a standard of accountability that requires them to properly discharge their duty of diligence and care. We believe that sanctions like disqualifying directors from being directors for breaching regulations like the Listing Rules and their duty of diligence and care, should be considered. This will strengthen corporate governance and will make directors, both independent or otherwise, more alert in terms of their responsibility in general and their duty of care to the company in particular. For example, with the threat of disqualification, directors may be prompted to ask appropriate questions on matters that may involve circumvention of internal controls or they may seek more information from management on matters which they may not fully comprehend.
Members of the audit committee play an important role in the corporate governance framework of companies and should take a proactive approach in the performance of their duties. The auditor’s role is to express an opinion on the financial statements based on conclusions drawn from the audit evidence obtained during the audit. He is required to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion and to consider the risk of material misstatement in the financial statements arising from fraud error. The internal audit function plays an important part in monitoring key controls and procedures and is an integral part of a company’s internal control system.
The Institute of Certified Public Accountants of Singapore views the integrity and professionalism of directors, management, auditors and other intermediaries as paramount in ensuring good corporate governance. The Institute would like to categorically state that the accountancy profession in Singapore does not condone the making of misleading information by the directors of companies and expects its members to exercise the highest standards of integrity, skills and care in discharging their responsibilities.
The Institute is a strong advocate of best corporate governance practices and this is normally achieved through the activities of its Corporate Governance Committee. The Corporate Governance Committee aims to draw on the experience of auditors, accountants, consultants and business people working in different fields to take a proactive role in the development, implementation and promotion of sound corporate governance and its terms of reference include reviewing matters relating to corporate governance, conducting relevant research and consultation on corporate governance in a proactive manner, drafting of consultative papers and other legislative and regulatory proposals, and guidelines to members in the form of study reports, proposing changes to the Listing Rules and the Code of Corporate Governance and other related laws and regulations as appropriate and exchanging views with government, regulatory bodies, professional bodies and other relevant organisations on matters relating to corporate governance.
The Institute of Certified Public Accountants of Singapore (ICPAS) is the national organisation for the accountancy profession in Singapore. With a membership of more than 17,000 members, ICPAS’ mission is to develop, support and enhance the integrity, status and interests of the accountancy profession in Singapore.
For further information, please call:
Ms Rosalind Wong
Institute of Certified Public Accountants of Singapore
Tel: 6749 8060 ext. 813
Fax: 6749 8061
Email: rosalind.wong@icpas.org.sg