On January 12, 2021, the Singapore Exchange Regulation (“SGX RegCo“) announced key changes to the SGX-ST motherboard rules and Catalist rules (collectively, the”Registration rulesThese changes strengthen the requirements regarding the appointment of auditors by certain listed issuers and property valuation matters.
The amended listing rules introduce a new requirement for primary issuers listed on SGX-ST to appoint a registered auditor with the Accounting and Corporate Regulatory Authority (“ACRA“) to perform their statutory audits and authorize SGX to require the appointment of a second auditor in certain circumstances. The amended rating rules also impose minimum qualification criteria for property appraisers and prescribed standards for property appraisal reports .
The changes made to the Listing Rules will come into force as of February 12, 2021.
These changes follow a public consultation in January 2020 in which SGX requested comments on these proposed changes in its consultation paper titled âRegulatory Regime Improvements for Property Valuation and Auditorsâ (âConsultation documentWe covered the consultation in our previous client update in January 2020 titled âSGX Proposes New Requirements on Appointment of Auditors and Valuation of Assets.â On January 12, 2021, SGX released its response to comments received on the consultation document (“Reply“).
This update provides an overview of the main changes to the listing rules. In particular, it will highlight the main requirements and, if applicable, the specific deadlines for the implementation of certain requirements, which issuers should note for compliance purposes.
Stricter audit requirements
The main amendments concerning audit matters relate to:
- New requirement for major listed issuers to appoint an auditor registered with ACRA;
- the power of SGX to order that an additional auditor be appointed in certain circumstances; and
- Clarification on the preparation of periodic financial statements.
New requirement for major listed issuers to appoint an auditor registered with ACRA
All major listed issuers are required to appoint an auditor registered with ACRA to perform their statutory audits. SGX recognized that some foreign issuers may find it difficult to appoint a Singaporean auditor if, for example, they are required by the requirements of their home jurisdiction to prepare financial statements in accordance with national accounting or auditing standards. In this regard, SGX said it would consider granting waivers where appropriate. In addition, SGX also reported that foreign issuers who also wish to appoint a regulated auditor outside of Singapore will have the option of appointing a Singaporean auditor to jointly conduct the audit.
For secondary listed issuers in developed markets, SGX will not impose this requirement. For all other listed secondary issuers, SGX will assess on a case-by-case basis whether the appointment of a co-auditor registered with ACRA is required. In its response, SGX set out some of the considerations it will take into account in this assessment, for example, the reputation of the audit firm.
Key implementation deadlines for the appointment of the registered auditor with ACRA
Existing issuers must appoint an auditor from Singapore to audit their financial statements for their years beginning on or after January 1, 2022. Primary listing applicants who have made the initial public offering (“Initial Public Offering“) Mandates on or before January 12, 2021 and who submit their applications to SGX by June 30, 2021 may continue to appoint a foreign auditor without a Singaporean counterpart. However, like existing issuers, they must appoint their Singaporean auditors. after listing to audit their financial statements for their financial years beginning on or after January 1, 2022.
Power of SGX to order that an additional auditor be appointed in certain circumstances
Currently, the Listing Rules allow SGX to require issuers to appoint independent professionals, as well as special auditors, for specified purposes. The amended listing rules will expand SGX’s administrative powers to allow SGX to require the issuer to appoint a second auditor in âexceptional circumstancesâ.
In its response, SGX clarified that this power to appoint a second auditor will not replace the existing powers in SGX’s regulatory toolbox and that it will use the appropriate tools to deal with such exceptional circumstances. SGX also provided examples of potential âexceptional circumstancesâ in which it will exercise the power to order a second audit. For example, a second audit could be ordered when SGX believes that possible misstatements in the financial statements are pervasive and yet not substantiated by the opinion of the incumbent auditor.
For more details on changes to the rating rules relating to audits, please refer to Annex 4 (Amendments to the Mainboard rules on the appointment of auditors) and Annex 5 (Amendments to the Catalist rules on appointment listeners) of the response.
Clarifications on the preparation of periodic financial statements
Currently, the registration rules require that issuers prepare their periodic financial statements in accordance with prescribed accounting standards and that their annual financial statements be audited by certified public accountants in accordance with prescribed auditing standards. However, SGX noted that several issuers did not comply with the above requirements.
As such, SGX clarified the application of these requirements in its response. All issuers (foreign and local) must comply with these requirements and the listing rules will be amended to make this clearer. This means that all issuers must prepare their interim financial statements in accordance with applicable accounting standards. For example, issuers that prepare their financial statements in accordance with International Financial Reporting Standards must comply with International Accounting Standards 34 on Interim Financial Reporting, in addition to the requirements of the listing rules. This requirement will also apply to issuers that file quarterly reports.
In this regard, the Institute of Singapore Chartered Accountants (“ISCA“) issue guidelines to assist issuers in preparing their interim financial statements in accordance with applicable accounting standards and listing rules.
In addition, the current rating rules require directors to confirm in interim reports that nothing has been brought to their attention that could make the interim financial statements false or misleading in a material respect (“Negative insurance confirmationBy providing this negative assurance confirmation, SGX expects the directors to review whether the interim financial statements comply with relevant accounting standards.
Main implementation deadlines for the preparation of interim financial statements
Changes to the listing rules regarding accounting standards for interim financial statements will take effect for issuers’ financial statements for any interim financial period (i.e. first, second or third quarter of the year) ending as of June 30, 2021.
New / stricter requirements for property valuation
The main amendments concerning property valuation relate to:
- New minimum qualification criteria prescribed for real estate appraisers; and
- Prescribed standards for property appraisal reports.
New minimum qualification criteria prescribed for real estate appraisers
The amended listing rules will require issuers and applicants to register on SGX-ST to hire a real estate appraiser who:
- Has at least five years of relevant practical experience in appraising the type of property to be appraised;
- Is a member of the Singapore Institute of Surveyors and Valuers (“SISV“), or a similar professional body in its home jurisdiction which shall have the power to discipline and revoke the membership of its members;
- is independent of the issuer;
- is not an individual practitioner; and
- Has no adverse compliance history.
SGX elaborates on each of these criteria in the Response. In addition, SGX expects issuers to exercise due diligence on the appraisers they appoint with reference to these qualification criteria.
Prescribed standards for property appraisal reports
To align the regulatory regime with that of other jurisdictions such as Hong Kong and Malaysia, SGX will prescribe minimum valuation standards for real estate appraisals.
Appraisals of properties located in Singapore should be prepared in accordance with SISV standards. Overseas properties must have appraisals prepared in accordance with national standards (if applicable) or, if there are no such local standards, international appraisal standards.
With respect to valuations intended for financial reporting purposes, issuers should refer to the relevant guidance on applicable financial reporting standards and seek professional advice to ensure that valuations will be conducted in accordance with all standards. relevant. An example of such guidance is the Financial Reporting Guidance 1 published by the ISCA which defines the best practices to be adopted when engaging assessors.
In addition, real estate appraisal summary reports will be required for certain significant transactions identified in the listing rules, such as an IPO for investment companies or real estate developers, commercial trusts or real estate investment trusts. (REITS), or in an interested party transaction involving the purchase or sale of property. All summary real estate appraisals must contain the information required for prospectuses and circulars as currently prescribed by the SISV Practical Guide. SGX has indicated that it will set out the disclosure requirements in the listing rules.
For more details on the listing rule changes related to property valuations, please refer to Annex 2 (Motherboard Property Valuation Rules Changes) and Annex 3 (Property Valuation Changes). Catalist’s rules on the evaluation of properties) of the response.
Key timelines for new property assessment requirements
Existing issuers must comply with the new real estate appraisal requirements from February 12, 2021. Listing applicants entering IPO mandates by January 12, 2021 and submitting their applications to SGX before June 30, 2021 can continue to use their current property valuation agreements. However, after registration, they will be required to comply with the new requirements.