from the ground Up

by Jessica Cheam, The Straits Times, Mar 20 2009

Directors told to keep an eye on weaknesses, inform shareholders promptly

AN INCREASE in the number of corporate scandals here prompted the Singapore Exchange (SGX) to issue a strongly worded heads-up to bosses last night.
The SGX told directors to stay alert, keep an eye on any areas of potential weakness and to communicate clearly and promptly with shareholders.
Industry observers say SGX’s rare statement highlights the tough economic climate that firms face, where the temptation to commit fraud and misreporting is high.
It is also a testament that the exchange believes companies are under pressure from all sides, from dealing with issues of corporate governance to countering rumours in a volatile market.
Mr Tham Sai Choy, the head of audit at KPMG, told The Straits Times that the SGX statement was a “timely reminder” for directors of their responsibilities at a tough time where there are “temptations to take short cuts and easy solutions”.
The SGX has urged board members and audit committees to “heighten their vigilance in identifying, addressing and managing risks” that may hit businesses in this challenging environment.
The exchange said last night that it has been engaging firms and industry players such as auditors since last September to identify risky areas deserving more attention.
Some of these risk areas are the safeguarding of cash, the possibility of bad debts and the assessment of off-balance sheet items. Off-balance sheet items usually refer to liabilities that are not included in the company’s financials.
The Accounting and Corporate Regulatory Authority had earlier this week identified similar risk areas.
SGX called for auditors and directors to consider conducting further checks of these areas if necessary. If additional checks are done, listed companies should promptly tell shareholders what was done and the result, the exchange added.
SGX also reiterated the importance of timely disclosure by directors, audit committees and management to provide “clear, concise and meaningful information” to shareholders. “We expect listed companies, being mindful of current economic and financial uncertainties, to take prompt action as necessary.”
It stressed communication, stating that “boilerplate statements and disclosure that is imprecise or could be misconstrued should be avoided as they do not meet the standards required”.
This call follows its public reprimand of Neptune Orient Lines on Tuesday for failing to quash market rumours over a rights issue.
There has also been a spate of corporate scandals to keep regulators awake at night, the latest centring on Catalist-listed education provider Oriental Century, whose chief executive confessed to cooking the books.
Another Chinese firm listed here, Fibrechem Technologies, was recently suspended from trading over alleged accounting irregularities.
Mr Robson Lee, partner at Shook Lin & Bok LLP, said of the exchange’s moves: “This is a reinforcement of the kind of culture that SGX wants to develop: transparency, timely disclosure, and being forthright to investors.”
The message has been spreading, said Dr Ernest Kan, chairman of the Institute of Certified Public Accountants of Singapore’s corporate governance committee.
“In southern China, for example, companies are shutting down by the dozen and if they are your debtors, you won’t get any money. Auditors have to identify such potential risks in advance,” he said.