Guidebook for Audit and Risk Committees in Singapore

In a world where change is the only constant, businesses must remain agile and responsive to emerging risks and challenges. As companies continue to navigate the uncertainties brought about by the COVID-19 pandemic, geopolitical uncertainties, macroeconomic fluctuations, and climate change movements, Audit and Risk Committees (ARCs) in Singapore need to remain vigilant in their oversight role to ensure the accuracy and transparency of financial reporting and the effectiveness of the audit process.

To assist ARCs in fulfilling their responsibilities, the Singapore government, through its various agencies, have continuously released guidance on how the Audit committee can effectively oversee the financial reporting process in the ever-changing business environment and drive sustained improvement in audit quality.

This guide offers a comprehensive overview of the latest considerations for audit and risk committees in Singapore, providing valuable insights and practical advice to help companies stay ahead.


1. SGX RegCo’s Regulatory Guidance

Board Diversity

Starting January 1st, 2022, companies must have a board diversity policy covering gender, skills, experience, and other relevant aspects of diversity. This policy must include specific targets for achieving diversity on the board and plans and timelines for reaching those targets. Companies must also disclose their progress towards meeting those targets within the established timelines. In addition, the policy should describe how the combination of skills, talents, experience, and diversity among the directors serves the company’s needs and plans.

Mandatory Climate Reporting

Effective 1 January, 2022, all issuers must conduct climate reporting based on a “comply or explain” framework for their financial years. This includes mandatory reporting on the impact of their activities on the climate and the actions they are taking to mitigate that impact.

To ensure that mandatory climate reporting is introduced most effectively, it will be implemented gradually in specific industry sectors over time. These sectors will be identified based on their potential impact on climate change and their ability to contribute to mitigating it.

The goal of mandatory climate reporting is to increase transparency and accountability for companies’ impact on the environment. By requiring companies to report on their climate-related activities, stakeholders such as investors, customers and regulators will have access to more information to help them make informed decisions.


2. Sustainability Initiatives and Developments in Singapore

Climate change is a global challenge, and Singapore recognizes the need for firm actions and leadership to build a sustainable future. To this end, the country has implemented various initiatives and measures to address climate change and reduce its carbon footprint.

Singapore Green Plan 2030- The Singapore Green Plan 2030, released in February 2021, outlines concrete targets for the next decade, strengthening Singapore’s commitments under the UN’s 2030 Sustainable Development Agenda and Paris Agreement. The plan focuses on areas such as sustainable living, energy, transport, and carbon pricing, among others.

Green Finance Action Plan– The Monetary Authority of Singapore or MAS launched the Green Finance Action Plan in 2019, complementing the Singapore Green Plan 2030. The plan lays out MAS’ strategy to develop Singapore into a leading centre for green finance in Asia and globally.

Enterprise Sustainability Programme– The Enterprise Sustainability Programme, launched by Enterprise Singapore in 1 October 2021 supports Singapore companies, especially SMEs, in building sustainability capabilities.

Carbon Tax– As announced in Singapore Budget 2022, carbon taxes will be raised from the current $5 per tonne of emissions to $50-80 per tonne of emissions by 2030. From 2024, businesses will be allowed to use high-quality international carbon credits to offset up to 5% of their taxable emissions.

Hydrogen as Decarbonisation Pathway– On October 25th 2022, Deputy Primate Minister and Minister for Finance Lawrence Wong outlined Singapore’s national strategy to develop hydrogen as a significant decarbonization pathway, supporting the country’s international climate commitment to achieve net-zero emissions by 2050.

Low Emissions Development Strategy– Singapore has submitted its strengthened long-term joint emissions development strategy with a clear goal to achieve net-zero emissions by 2050, and it is updated in 2030. Nationally Determined Contribution to reduce its emissions to 60 million tonnes of carbon dioxide equivalent in 2030 to the United Nations Framework Convention on Climate Change at COP27 in November 2022.


3. Sustainability reporting developments

In 2016, the Singapore Exchange (SGX) introduced mandatory sustainability reporting for listed companies, which was enhanced in December 2021 to include reporting on climate and diversity.

Companies must disclose climate-related information based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and board directors must undergo prescribed sustainability training.

Sustainability reports must be issued within four to five months after the financial year’s end and include board diversity policies and targets.

The Sustainability Reporting Advisory Committee was established in June 2022 to develop a roadmap for the broader implementation of sustainability reporting for Singapore-incorporated companies.

A digital disclosure portal, ESGenome, was launched in September 2022 to support ESG disclosure. Globally, there have been ongoing developments in sustainability reporting, including proposed rules by the US Securities and Exchange Commission, exposure drafts on sustainability disclosure standards by the International Sustainability Standards Board, and the publication of European sustainability reporting standards by the European Financial Reporting Advisory Group.

In March 2022, the IFRS Foundation and Global Reporting Initiative announced a collaboration agreement to coordinate their work on standard-setting activities.


4. Areas of Review Focus for FY2022 Financial Statements

ACRA has issued its 2022 Practice Guidance for Audit Committees to highlight financial reporting areas that need closer attention due to the impact of COVID-19, geopolitical uncertainties, macroeconomic uncertainties, and climate change movements.

  • Key risks from geopolitical uncertainties include supply chain disruption, trade sanctions, retaliatory measures, and increased costs of raw materials and prices, which may impact financial reporting areas such as provisions, delayed/cancelled deliveries, inventory obsolescence, impairment, and expected credit loss.
  • Key risks from macroeconomic uncertainties include inflation, rising interest rates and discount rates, which may affect companies’ computations of value-in-use or fair value fewer costs of disposal for impairment assessment.
  • Key risks from climate change include new regulations, increased costs of operation or production, changing consumer preferences, and discontinuation of carbon-intensive operations, which may lead to a reduction in useful lives or write-down in the value of energy-inefficient equipment, and may create constructive climate obligations or commitments.
  • ACRA has expanded the guidance to cover areas ACs should proactively engage their external auditors on, to drive sustained improvement in audit quality, including risk assessment, use of technology in audits, ensuring auditor’s independence, and communicating audit inspection findings.
  • With the passing of the Accountants (Amendment) Bill in October 2022, ACRA will require public accountants who have obtained a “Not Satisfactory” inspection outcome to disclose their audit inspection findings to the audit client of the inspected engagement, starting from 2Q2023.

ACs are encouraged to understand the root causes of the inspection findings and the remediations taken by the public accountants to avoid recurrence and assess the implications to the company’s financial reporting and future audits approaches and procedures, where applicable


5. SID Audit & Risk Committee (ARC) Chapter

The ARC Chapter was instituted to augment the capacity and efficacy of Audit & Risk Committees (ARCs). This collective body comprises members involved with ARCs, encompassing committee chairpersons and members, management personnel providing assistance or closely engaging with ARCs, and professionals rendering support to ARCs.

The ARC Chapter endeavours to serve as a forum for active discourse on issues germane to ARCs to bolster their ability to execute their roles effectively.

Furthermore, it seeks to cultivate thought leadership for ARCs via publications in the SID Directors Bulletin, press, and other channels, promote the professional development of ARCs through courses and seminars and advocate for issues that pertain to ARCs.



Hence, the Audit Committee (AC) of listed companies has a critical role in overseeing the financial reporting process regarding the impact of climate-related risks and opportunities. They should evaluate the steps taken by management in addressing these matters in their financial reports, ensuring that they have appropriately assessed, recognized, measured, and disclosed the economic impact of climate-related risks and opportunities. The AC can ask management and internal and external auditors specific questions to gain valuable insights and ensure the robustness of management’s assessment.

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Frequently Asked Questions

Climate change can significantly affect an entity’s business model, cash flows, financial position, and performance. As ACs oversee financial reporting for listed companies, it’s crucial to evaluate management’s assessment of climate-related risks and opportunities in financial reports.

To ensure robust financial reporting in relation to climate change, the Audit Committee (AC) can ask management a series of key questions, such as how they have assessed the financial impact of climate-related risks and opportunities and whether such impacts have been properly recognized, measured, and disclosed in the financial statements. Other important questions include whether management has evaluated the appropriateness of accounting treatments and disclosures for green instruments, if probability-weighted scenarios have been considered in cash flow projections, and whether there is consistency between the entity’s sustainability report and financial statements.

These questions will enable the AC to assess the impact of climate-related risks on the entity’s financial position and performance and to ensure that management’s assessments are appropriately evaluated by internal and external auditors. They should also ensure consistency between sustainability reports and financial statements.

ISCA’s technical bulletin highlights the need to consider climate-related risks’ potential accounting and auditing implications, including impairment of assets, sustainability-linked loans, and going concern assessments.

ACs can gain valuable insights by discussing these matters with internal and external auditors to execute their governance responsibilities effectively.

A public consultation has been launched by the Intangibles Disclosure Industry Working Group, ACRA, and the Intellectual Property Office of Singapore on a proposed Intangibles Disclosure Framework.

The aim is to help businesses identify and disclose their intangible assets, including technologies, brands, and data, to unlock their value and contribute to their overall business strategy.

The Framework will also provide stakeholders with standardized information about a company’s intangibles to make more informed assessments of business and financial prospects and to facilitate the commercialization of intangibles as a driver of economic growth.

To ensure effective governance and oversight of sustainability reporting, it may be beneficial to assign this responsibility to a dedicated committee within the organization.

The committee can consider overseeing ESG reporting, ESG disclosures, ESG processes, ESG controls, and ESG assurance and building ESG expertise and capabilities.

To evaluate an audit firm’s commitment to audit quality, Audit Committees (ACs) should request and review AQI data from the auditor and engage in in-depth discussions with the audit team.

ACRA provides semi-annual publications of industry averages and ranges for specific metrics in the listed company segment, such as leverage ratios, average years of experience, and overall staff attrition rates.

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