Singapore Urged to Raise Audit Standards to Avoid ‘Failures’

(Bloomberg) -- Singapore needs to raise its auditing and accounting standards to help boost the nation’s ESG credibility following a series of corporate scandals, according to the country’s top central banker.

“There have been several failures that are due to lapses in accounting, auditing, and some fraudulent activities are not as easily detected,” said Ravi Menon, head of the Monetary Authority of Singapore and the country’s financial regulator. “It is an area that needs to be addressed.”

While Singapore’s corporate disclosure level improved this year, it lags behind neighboring countries like Malaysia and Thailand, according to a report published in October by the Securities Investors Association (Singapore). Compliance around environmental, social and governance standards is becoming an existential question for firms as sustainable investing assets swell to more than $30 trillion, according to a report by the Global Sustainable Investment Alliance.

Singapore has had its share of high-profile corporate scandals in recent years. Hyflux Ltd., a water-treatment firm, owes about S$2.8 billion ($2.1 billion) to some 34,000 retail investors and banks, while commodity trader Noble Group Holdings Ltd. remains under investigation by local authorities for its accounting practices. Meanwhile, troubled oil trader Hin Leong Trading Pte faces forgery charges and accusations of hiding losses.

“When an auditor says this is in line with accounting standards, there is still a fairly wide range of what is acceptable,” Menon said in an interview, referring to the recognition in many places that audit quality needs to be raised. “Getting more precision has been quite a challenge.”

Strict Rules

The city-state has “pretty strict rules” on corporate governance requirements including a minimum number of independent directors, disclosure, and separation of management and ownership, all of which have become “quite ingrained,” Menon said.

The Accounting and Corporate Regulatory Authority is working on amendments to the Companies Act to review issues including current company types and financial reporting as well as safeguarding shareholders’ interests. Singapore Exchange Ltd.’s regulatory arm is also set to beef up its enforcement powers to deter corporate misconduct.

Singapore is also striving to become a green finance hub. Earlier this month, the MAS unveiled a grant program aimed at boosting access to green and sustainability-linked loans. This is on top of incentives introduced in June 2017 to help with external-review expenses for issuers of green bonds.

More than S$6.5 billion ($4.9 billion) of green bonds has been issued in Singapore since the incentive was launched, according to MAS data from March.

The amount of green bonds issued in Singapore this year has almost tripled to $1 billion, from $341.8 million last year, according to data tracked by Bloomberg.

The central bank is working with ratings firms and experts in certification to ensure companies raising money from green financing stick to their sustainability pledges, the managing director said.

Regional Standards

“It is quite frustrating that there is no common understanding of what constitutes a green product or a green process,” said the MAS chief, adding efforts are underway for some degree of consistency. “I think we will get at least regional standards that are consistent across regions, not exactly identical, but taking into account regional peculiarities and circumstances.”

Singapore is building up expertise in verification and certification processes to ensure it meets “respectable global standards,” that may lead to more jobs in this area, he said.

“We need to build a whole ecosystem for green finance,” Menon said.

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