More auditors raising red flags about listed firms in midst of crisis
By Yang Huiwen 4 April 2009
Investors have to be more vigilant about where they put their cash as the financial crisis exacts its toll on listed companies here.
The Singapore Exchange (SGX) raised the issue yesterday in the wake of a growing number of companies where auditors have flagged concerns over their books.
It outlined what measures it was taking to strengthen corporate governance but warned that greater scrutiny, coupled with the financial crisis may bring more problem cases to light.
‘Inevitably, these additional checks, greater disclosure requirements and emphatic reminders to heighten vigilance will surface undesirable detritus,’ it said.
‘This is not unexpected, given the current hostile economic environment. The (SGX) is prepared to face this squarely.’
Auditors have raised red flags over a dozen companies - particularly China-based firms, or S-chips - in recent months as they step up checks on company books.
The SGX is acutely aware of the risks presented by companies operating in foreign countries, including S-chips, it said, but added: ‘The market needs to distinguish companies that are adversely affected by the current crisis as against those who resort to fraud.’
It said about 142 listed companies have issued profit warnings and guidances since the beginning of last year.
Analysts say the financial crisis has tended to increase the risk of fraud, as fear of losing bank financing could pressure some executives to cook the books.
But many companies are also facing a ‘going concern’ issue where the survival of the firm is at risk.
The SGX said the widespread market uncertainties has meant that there is a pressing need for timely corporate disclosure and compliance with listing rules.
It also stressed that disciplinary action will be taken if companies fail in their duties.
The SGX has stepped up market monitoring as well as communications with the boards and auditors of listed firms, among other things.
Last month, it highlighted high risk areas that auditors should look into - including cash balances, accounts receivable and off-balance sheet items - and urged them to conduct additional verifications.
The proactive stance taken by the SGX ‘augurs well for the investing community’ as some investors have raised concerns about the accounting standards of some companies, said Securities Investors Association of Singapore president David Gerald.
But he added: ‘This will deter to some extent but cannot wipe out misconduct. Investors should not be naive that it will not happen.’
Experts have also highlighted the importance of an effective internal audit committee.
‘Companies need a very enlightened audit committee knowing its roles and responsibilities and asserting its weight fully,’ said KhattarWong’s managing partner, Mr. Tan Chong Huat.
‘In these uncertain times, it is important for the independent directors and audit committees to vigilantly review each of the identified risks carefully with management and help (companies) along the way so they don’t fall into pit holes.’
Independent directors should also be given more regulatory empowerment, given that ‘the onus on audit committees is going to get heavier, especially on S-chips’, said Mr. Robson Lee, partner at law firm Shook Lin & Bok.
‘When entire operations are out of Singapore, it is easy for best rules and systems to be outridden by management prerogatives,’ he said.
At the initial public offering stage, issue managers and professionals need to educate companies on the culture and practice of timely disclosure and other obligations, Mr. Lee said.
He also suggested that independent directors ‘be pre-qualifed by the exchange and appointed by minority shareholders’.
1 comment:
SGX urges investors to be vigilant
More auditors raising red flags about listed firms in midst of crisis
By Yang Huiwen
4 April 2009
Investors have to be more vigilant about where they put their cash as the financial crisis exacts its toll on listed companies here.
The Singapore Exchange (SGX) raised the issue yesterday in the wake of a growing number of companies where auditors have flagged concerns over their books.
It outlined what measures it was taking to strengthen corporate governance but warned that greater scrutiny, coupled with the financial crisis may bring more problem cases to light.
‘Inevitably, these additional checks, greater disclosure requirements and emphatic reminders to heighten vigilance will surface undesirable detritus,’ it said.
‘This is not unexpected, given the current hostile economic environment. The (SGX) is prepared to face this squarely.’
Auditors have raised red flags over a dozen companies - particularly China-based firms, or S-chips - in recent months as they step up checks on company books.
The SGX is acutely aware of the risks presented by companies operating in foreign countries, including S-chips, it said, but added: ‘The market needs to distinguish companies that are adversely affected by the current crisis as against those who resort to fraud.’
It said about 142 listed companies have issued profit warnings and guidances since the beginning of last year.
Analysts say the financial crisis has tended to increase the risk of fraud, as fear of losing bank financing could pressure some executives to cook the books.
But many companies are also facing a ‘going concern’ issue where the survival of the firm is at risk.
The SGX said the widespread market uncertainties has meant that there is a pressing need for timely corporate disclosure and compliance with listing rules.
It also stressed that disciplinary action will be taken if companies fail in their duties.
The SGX has stepped up market monitoring as well as communications with the boards and auditors of listed firms, among other things.
Last month, it highlighted high risk areas that auditors should look into - including cash balances, accounts receivable and off-balance sheet items - and urged them to conduct additional verifications.
The proactive stance taken by the SGX ‘augurs well for the investing community’ as some investors have raised concerns about the accounting standards of some companies, said Securities Investors Association of Singapore president David Gerald.
But he added: ‘This will deter to some extent but cannot wipe out misconduct. Investors should not be naive that it will not happen.’
Experts have also highlighted the importance of an effective internal audit committee.
‘Companies need a very enlightened audit committee knowing its roles and responsibilities and asserting its weight fully,’ said KhattarWong’s managing partner, Mr. Tan Chong Huat.
‘In these uncertain times, it is important for the independent directors and audit committees to vigilantly review each of the identified risks carefully with management and help (companies) along the way so they don’t fall into pit holes.’
Independent directors should also be given more regulatory empowerment, given that ‘the onus on audit committees is going to get heavier, especially on S-chips’, said Mr. Robson Lee, partner at law firm Shook Lin & Bok.
‘When entire operations are out of Singapore, it is easy for best rules and systems to be outridden by management prerogatives,’ he said.
At the initial public offering stage, issue managers and professionals need to educate companies on the culture and practice of timely disclosure and other obligations, Mr. Lee said.
He also suggested that independent directors ‘be pre-qualifed by the exchange and appointed by minority shareholders’.
Post a Comment