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Singapore – SGX-ST Introduces Practice Note On Adequacy Of Internal Controls.

30 April, 2013


Legal News & Analysis – Asia Pacific – Singapore  Capital Markets


In September 2011, the Singapore Exchange Securities Trading Limited (“SGXST”) introduced listing rules requiring issuers to have a robust and effective system of internal controls, addressing financial, operational and compliance risks. At the same time, the SGX-ST also required the board of directors of the company (“Board”) to provide an opinion, with the concurrence of the audit committee, on the adequacy of such internal controls (“Opinion Requirement”). In April 2012, the SGX-ST issued an advisory note to provide guidance on compliance with the Opinion Requirement. In order to formalize the guidance provided in the practice note, the SGX-ST, has, on 2 April 2013, introduced a new practice note to replace the advisory note. 


The new practice note 12.2 (“Practice Note”) sets out the SGX-ST’s intent behind the Opinion Requirement – to enhance transparency and accountability with regards to internal controls (including financial, operational and compliance controls) which serve to safeguard shareholders’ investments and the company’s assets. 

The Practice Note states that the Board and the audit committee must demonstrate that they have rigorously assessed the internal controls in relation to all three areas of risk. In order to do so, the Board and the audit committee may ask for an independent audit on internal controls to assure themselves of the adequacy of such controls, or if they are not satisfied with the system of internal controls. The company should also maintain proper records of the discussions of the Board and the audit committee. 

The SGX-ST has also clarified in the Practice Note that in order to comply with the Opinion Requirement, where the Board and the audit committee are satisfied that the issuer has a robust and effective system of internal 
controls, the disclosure must include the basis of such an opinion. Where the Board and/or the audit committee is of the view that the controls need to be strengthened or has concerns that the controls are inadequate, the Board must disclose these issues in its annual report and how it seeks to address and monitor the areas of concern, so that investors are able to make an informed decision about the company. Further, in addition to the Opinion Requirement, all listing applicants are also required to provide the auditor’s report to management on the internal controls and accounting systems for the SGX-ST’s assessment. Where weaknesses exist, the SGX-ST may seek a confirmation from the auditors of the applying issuer that the material weaknesses have been addressed. 


While the SGX-ST has not provided a prescribed format in the Practice Note for the Opinion Requirement, they have recommended that the Opinion Requirement be disclosed in the section on “Audit Committee” or “Internal Controls” of the prospectus and the Directors’ Report or Corporate Governance section of the annual report, as the case may be. 

A similar practice note has been adopted in the Catalist Rules and the same standards for compliance with the Opinion Requirement apply. 


For further information, please contact:


Jolie Giouw, ATMD Bird & Bird

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