SGX updates guidance note on change of auditors
30 July 2024
On 19 June 2024, Singapore Exchange Regulation (“SGX RegCo”) published an updated Guidance Note on Change of Auditors (“Guidance Note”). The Guidance Note serves to guide issuers and their audit committees on SGX RegCo’s approach in assessing an issuer’s application to SGX RegCo for change of auditors (“Application”). Among other things, the updated Guidance Note introduces a checklist setting out quantitative and qualitative measures of incoming auditors. SGX RegCo’s intention in doing so is to uphold the audit quality of issuers.
Auditors to demonstrate high standard and competency
The Guidance Note provides that where incoming auditors are appointed to replace the existing auditors, due regard must be given to the time and effort required by the incoming auditors to familiarise themselves with the issuer’s operations and other ongoing processes. Incoming auditors must be allocated sufficient time to prepare and execute a thorough audit ahead of the financial reporting deadline. As far as possible, a change of auditors should only be conducted after the end of the term of office for which the auditors were appointed, to minimise any disruption to the ongoing audit for the current financial reporting period.
Issuers and audit committees are encouraged to evaluate the incoming auditors against the Audit Quality Indicators (AQIs) Disclosure Framework issued by the Accounting and Corporate Regulatory Authority (“ACRA”). These indicators, which correlate closely with audit quality, include time spent by audit team members, years of audit experience and industry specialisation, training hours, results of inspections, quality control, staff oversight, and attrition rate.
To further enhance the assessment process, SGX RegCo, in consultation with ACRA, has introduced a checklist in the Guidance Note to assist issuers and audit committees in their evaluation of the incoming auditors. This checklist sets out both quantitative and qualitative measures of the incoming auditors with respect to areas such as staff strength, professional experience, and track record. It also takes into account the risk profile of issuers. This checklist must be completed and submitted to SGX RegCo, along with the Application. Issuers must pre-consult SGX RegCo before submitting the Application if the checklist identifies any potential concerns about the competencies or capabilities of the incoming auditors. SGX RegCo has also made the checklist available in a downloadable Listing Compliance Toolkit.
Issuers to disclose important information for decision-making
When seeking shareholders’ approval for a change of auditors, SGX RegCo expects issuers to disclose all relevant information in the circular to shareholders to enable shareholders to make an informed voting decision. The Guidance Note sets out the information that should minimally be included in the circular to shareholders, e.g. the names of the proposed incoming and outgoing audit firms and audit partners-in-charge, and the specific reasons for the outgoing auditors’ discontinuation as auditors of the issuer.
Reference materials
The following materials are available on the SGX website www.sgx.com: