- Key findings from the fourth study on the profile of audit committees in Singapore
Singapore, 12 January 2021 – The latest study on audit committees (ACs) found that listed companies in Singapore have made progress in adopting corporate governance best practices. To build on the progress made, the study also highlighted areas for further improvement.
Audit committees play an important role in ensuring the integrity of companies’ financial reporting. By adopting the best practices in corporate governance, the ACs will enhance the governance and oversight of the company’s corporate reporting function.
The Accounting and Corporate Regulatory Authority (ACRA), the Institute of Singapore Chartered Accountants (ISCA), Singapore Exchange Regulation (SGX RegCo) and Singapore Institute of Directors (SID) have commissioned the Singapore Institute of Technology (SIT) to conduct a study on the profile of ACs of listed companies in Singapore. There were similar studies  conducted in 2009, 2011 and 2015.
The 2020 study covers the ACs of 650 listed companies in Singapore comprising 1,539 individuals serving as AC chairmen and members. Led by Professor Ho Yew Kee, the study team gathered data from the annual reports published by the companies for 2019 and information provided by DC Frontiers Pte Ltd. The study team also surveyed 126 respondents and held focus group discussions and conducted individual interviews to gain further insights on the role of ACs.
The 2020 study presents an improvement in companies’ practices to raise the effectiveness of ACs. Some areas would benefit from further strengthening. The key findings include:
- The proportions of AC chairmen and members who held four or more AC positions have dropped to 4% and 1% respectively, as compared to 5% and 2% when the study was last conducted in 2015. A majority of 1,539 unique individuals who served in ACs sat on one AC, either as a chairman (76%) or a member (84%). Holding fewer AC positions allows individuals to dedicate time to discharge their oversight role;
- The number of executive directors in ACs had dropped to 24 in 2020, from 38 in 2015 study. This represents progress towards the standard under the Singapore Code of Corporate Governance (2018) (the CG Code) which recommends for all AC members to be non-executive;
- The proportion of women directors in ACs increased to 11% in 2020 from 8% in 2015. While gender is one aspect of diversity, listed companies are also encouraged to consider other characteristics such as experience, age and social background to enhance board/AC diversity in line with the principles of the CG Code;
- 33% of AC chairmen and 26% of AC members have served in the same ACs for more than 10 years, increasing from 21% and 18% in the previous study in 2015. To strengthen the diversity and independence of their boards, from 1 January 2022, directors who have served more than nine years will be deemed as non-independent under the SGX Listing Rules, unless their appointments have been approved via a two-tier voting process of shareholders. Listed companies are encouraged to start preparing for the new requirements now;
- 94% of the companies have at least one financially-trained  member in their ACs, comparable to the previous study in 2015. The CG Code recommends at least two members, including the AC Chairman, to be financially-trained;
- A vast majority (98%) of the ACs had the requisite of minimum three AC members, same as the previous study in 2015. The Companies Act and CG Code require at least three members in the AC;
- Almost half (48%) of the survey respondents ranked “going concern and liquidity” as their top concern, alongside impairment of asset values and internal controls. Their areas of concern are consistent with ACRA’s guidance  on the proposed areas of review by directors for 2020 financial statements; and
- 90% of the survey respondents said that issues covered by ACs had expanded over time, to include areas such as risk management and cybersecurity. 78% of the survey respondents also indicated that ensuring the integrity of the financial reporting had required 10% to 50% more time due to the COVID-19 pandemic.
The findings in the report are encouraging as they show that ACs are stepping up their game. Together with the new listing rules on the appointment of a second auditor and the mandating of Singapore-registered auditors, this will support the effective functioning of Singapore’s capital market and further enhance confidence and trust.
The 2020 study on the profile of audit committees of listed companies in Singapore is available for download via ACRA, ISCA, SGX, SID and SIT websites.
 The first three studies conducted in 2009, 2011 and 2015 can be found at https://isca.org.sg/tkc/cogov/audit-committees/audit-committees/2016/june/isca-audit-committee-study-report-2015/
 Defined as individual with recent and relevant accounting or related financial management expertise or experience, consistent with the Singapore Code of Corporate Governance (2018).
 Issued in Dec 2020, ACRA’s Financial Reporting Practice Guidance can be found at www.acra.gov.sg
Annex A – Quotes from the organisations involved in the 2020study
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The Accounting and Corporate Regulatory Authority (ACRA) is the regulator of business registration, financial reporting, public accountants and corporate service providers; it also facilitates enterprise. We provide a trusted and vibrant environment for businesses to thrive and flourish, and contribute towards making Singapore the best place for business.
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Singapore Exchange is Asia’s leading and trusted market infrastructure, operating equity, fixed income and derivatives markets to the highest regulatory standards. It also operates Asia’s only multi-partner, multi-asset exchange-led sustainability platform (sgx.com/first).
As Asia’s most international, multi-asset exchange, SGX provides listing, trading, clearing, settlement, depository and data services, with about 40% of listed companies and over 80% of listed bonds originating outside of Singapore. SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN and offers commodities and currency derivatives products. Headquartered in AAA-rated Singapore, SGX is globally recognised for its risk management and clearing capabilities. For more information, please visit www.sgx.com.
The Institute of Singapore Chartered Accountants (ISCA) is the national accountancy body of Singapore. ISCA’s vision is to be a world-class accountancy body of trusted professionals, contributing towards an innovative and sustainable economy. There are over 32,000 ISCA members making their stride in businesses across industries in Singapore and around the world.
Established in 1963, ISCA is an advocate of the interests of the profession. Possessing a Global Mindset, with Asian Insights, ISCA leverages its regional expertise, knowledge, and networks with diverse stakeholders to contribute towards Singapore’s transformation into a global accountancy hub.
ISCA is the Designated Entity to confer the Chartered Accountant of Singapore - CA (Singapore) - designation.
ISCA is a member of Chartered Accountants Worldwide, a global family that brings together the members of leading institutes to create a community of over 1.8 million Chartered Accountants and students in more than 190 countries.
The Singapore Institute of Directors (SID) is the national association of company directors. SID promotes the professional development of directors and corporate leaders and provides thought leadership and benchmarking on corporate governance and directorship. It works closely with the authorities and its network of members and professionals, to uphold and enhance the highest standards of corporate governance and ethical conduct.
Formed in 1998, the membership of SID comprises mainly directors and senior leaders from business, government agencies and nonprofits. SID has a comprehensive training curriculum that covers the spectrum of a director’s developmental journey. Members have access to a range of resources, including research publications, forums, seminars, benchmarking awards and indices, board appointment services and regular networking and social events.
Annex A: Quotes from the organisations involved in the 2020 study
Commenting on the results of the study, Mr Ong Khiaw Hong, ACRA’s Chief Executive, said “Audit committees play a crucial role in raising the quality and transparency of financial reporting, by providing insightful disclosures and facilitating the conduct of effective audits. We are encouraged that the ACs are stepping up their game as this will support the effective functioning of our capital market.”
Mr Lee Fook Chiew, ISCA’s Chief Executive Officer advised that, “Among other qualities, an effective AC should possess a high level of accounting and auditing expertise. This is imperative in helping the AC ensure that the company’s financial statements are accurate and reliable. On a broader scale, this will raise overall corporate governance standards in Singapore and uphold our capital market integrity. I urge all ACs to continue to strengthen this attribute, and build on the good progress that has been made so far.”
“SGX’s new rules on the appointment of a second auditor and the mandating of Singapore-registered auditors serve to raise the standard of financial information listed companies are producing. This together with greater commitment by ACs to address the areas highlighted in this report will over time, enable our markets to reach greater maturity and further enhance confidence and trust.”, said Mr Tan Boon Gin, SGX RegCo’s CEO.
Mr Edwin Lee, SID’s Executive Director remarked that “It is heartening to see an overall improvement in governance practices despite the disruption to businesses caused by the pandemic. An effective board is key to guide companies through recovery, and the snapshot of AC profiles in this survey offers encouraging signs. Board refreshment is an important consideration in strengthening independence and diversity on boards.”
Said Professor Ho, SIT’s Associate Provost (SkillsFuture) “Former US Supreme Court Justice Louis D. Brandeis wrote ‘Sunlight is said to be the best disinfectant’ in the context of banking business and the saying holds true for efficient capital markets today. It is crucial for the Singapore capital markets to have effective governance mechanisms like the audit committees to shine the light on financial statements.”