Role of audit committees in Singapore

Abstract

An audit committee is a standing committee comprising primarily of non-executive directors whose broad objective is to oversee the financial reporting process and to enhance the credibility of that process. In Singapore, the Companies ( Amendment ) Act 1989 has made it mandatory for every public company incorporated in Singapore to constitute an audit committee within twelve months of the coming into operation of the Act on 23 March 1990. This public legislation has affected more than 150 listed companies. The study is an attempt to provide some insight of the perceived impact it has had on the business community in Singapore. The role of the audit committee is studied in detail with regards to its structure and composition, the mode of operation, and the functions that it has to undertake. The study also examines the potential benefits that can be derived from an effective audit committee and the drawbacks of this concept. In addition, interviews with and surveys were conducted on, audit committee members and parties working closely with them - the executive directors and the external auditors - to obtain feedback on their perception of the role and effectiveness of audit committees, the problems that have been encountered and also their opinions on what constitutes an effective audit committee. The study is concluded with recommendations that perhaps can be further researched on to improve the current status of audit committees. The conception of the public legislation requiring the use of audit committees came about a mere 21/2 years ago. As such, it will take some time before they become fully established. It is hoped that this study will serve to increase the awareness of and enhance the understanding of the role of audit committees in Singapore.