Under corporate governance code, external auditors required to address shareholders’ queries


Published May 08, 2015

Originally published in Business Times, April 30, 2015

LETTER TO THE EDITOR

I REFER to the letter, “Can shareholders quiz external auditors directly?” (BT, April 28), from Denis Distant.

He made reference to my earlier letter, “Noble AGM: Shareholders may not be so supportive next time” (BT, April 21), in which I had suggested that shareholders should also direct questions at the external auditors at general meetings. Mr Distant asked if he had missed any amendment in the Companies Act which allows shareholders to question external auditors directly.

There is no need for any Companies Act amendment for shareholders in a general meeting to ask questions about the external audit. External auditors are appointed by shareholders, their report is addressed to shareholders, and they have a fiduciary relationship with them. It would be odd if shareholders appoint external auditors who report to them, but cannot ask questions about how they did the work.

The Singapore Code of Corporate Governance specifically states that the external auditors should be present “to address shareholders’ queries about the conduct of the audit and the preparation and content of the auditors’ report”.

The value of an external audit derives from the independent assurance provided by the external auditors because the board and management have a perceived self-interest in the preparation of the financial statements.

Section 208(1) of the Companies Act states: “An auditor shall not, in the absence of malice on his part, be liable to any action for defamation at the suit of any person in respect of any statement which he makes in the course of his duties as auditor, whether the statement is made orally or in writing.”

While external auditors may be reluctant to comment about the external audit or the preparation and content of the auditors’ report for fear of offending the client, they are appropriately protected from defamation when commenting about their work. Just because they may be reluctant to answer questions does not mean shareholders should not ask.

In the case of Noble’s AGM, the chairman asked the partner-in-charge of the external audit to read out the audit report, who referred to the auditors’ report and confirmed that the financial statements presented a “true and fair view” .

When a shareholder suggested that the external auditors should respond when a company is under attack from critics, the partner-in-charge reiterated that they have issued an unqualified opinion. While I agree that it is not the role of auditors to respond to criticisms on behalf of the company, there is not much point in having external auditors present at general meetings – and companies being charged for it – just for them to issue boilerplate responses.

For example, shareholders at the Noble AGM could have asked questions about how the external auditors arrived at their audit opinion, the appropriateness of the accounting policies and assumptions used by the company, and how they audited the investments in associate companies such as Yancoal and biological assets.

As a matter of decorum, shareholders should direct their questions about the external audit or about other matters through the chairman of the meeting. The chairman should provide the opportunity for the external auditors, committee chairmen and others to answer these questions as appropriate.

Mr Distant’s letter reminded me of a recent comment I heard from a very senior lawyer, who said that shareholders actually have quite a lot of rights under the law, but often do not use them. Perhaps this is due to ignorance or established conventions. To Mr Distant and other shareholders, I would suggest that, rather than ask “Can we?”, they should perhaps start asking “Why cannot?”.

Mak Yuen Teen

 

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