SGX Listing Rule 715

SGX Observer observed quite a few companies, including MindChamps Pre School, Sembcorp Marine, Dutech, Straits Trading Co. , etc had responded to SGX’s Queries on their recently published Annual Report, for one of the common queries regarding SGX Listing Rule 715.

 

What is SGX Listing Rule 715 about?

The Listing Rule 715 is within the section on “Appointment Of Auditors” under  “Chapter 7 – Continuing Obligations”, which consists of Rule 712 to Rule 718.

Rule 715, Rule 717 and Rule 718 are the 3 rules more relevant to the queries.

 

 

According to SGX rulebook (link):

 

SGX Listing Rule 715

  1. Subject to Rule 716, an issuer must engage the same auditing firm based in Singapore to audit its accounts, and its Singapore-incorporated subsidiaries and significant associated companies.
  2. An issuer must engage a suitable auditing firm for its significant foreign-incorporated subsidiaries and associated companies.

 

SGX Listing Rule 717

An issuer must disclose in the annual report the names of the auditing firm(s) for its significant subsidiaries and associated companies.

 

SGX Listing Rule 718

For the purpose of Rules 715 to 717, a subsidiary or associated company is considered significant if its net tangible assets represent 20% or more of the issuer’s consolidated net tangible assets, or its pre-tax profits account for 20% or more of the issuer’s consolidated pre-tax profits.

 

 

So these rules basically state the point that :

‘Foreign-incorporated subsidiaries and associated companies with net tangible assets represent less 20% of the issuer’s consolidated net tangible assets and pre-tax profits account for less than 20% of the issuer’s consolidated pre-tax profits, the issuer need not disclose the name of the audit firms for these subsidiaries and associated companies’.  😇

 

Sounds like an easy rule to pass ?   🤨

 

Basically the issuer just need to setup more subsidiaries at foreign countries to split the ‘net tangible assets’ or to split the ‘pre-tax profits’ such that none of them will exceed 20%.  😏

 

 

 

The Queries and Responses

 

MindChamp Pre School

We note that the Company did not name the auditor(s) of the foreign-incorporated subsidiaries listed on pages 81 and 82 on the basis that they are “not required to be audited under the laws of the country of incorporation”. Please clarify whether these entities are significant foreign-incorporated subsidiaries and associated companies of the Company.

Link to the response here.

 

Dutech

We note that some of the foreign-incorporated subsidiaries and associated companies listed on pages 58 and 59 are audited by BDO AG Wirtschaftsprufungsgesellschaft, Sycip Gorres Velayo & Co, Nantong Zhongtian Certified Public Accountant Co., Ltd, RWT Horwath GmbH or Crowe Clark Whitehall LLP. In addition, the Company has also indicated that some of these subsidiaries are not subject to local statutory audit for the financial year ended 31 December 2017.
With regard to these entities:-

  • (i) Please state if they are significant foreign-incorporated subsidiaries and associated companies of the Company; and
  • (ii) If so, please provide (1) the Board and Audit Committee’s assessment of the auditing firm’s suitability; and (2) their basis for the same.

Link to the response here.

 

SembCorp Marine

We note that the Company stated on pages 273 to 277 of its Annual Report that some its foreign-incorporated subsidiaries are “audited by other firms” or “not required to be audited under the laws of their country of incorporation”. With regard to these entities:-

  • (i)  If they are “audited by other firms”, please identify (1) the auditing firm involved; (2) the Board and Audit Committee’s assessment of their suitability; and (3) their basis for the same.
  • (ii)  If they are “not required to be audited under the laws of their country of incorporation”,please clarify whether these entities are significant foreign-incorporated subsidiaries and associated companies.

Link to the response here.

 

Straits Trading Co.

For purpose of compliance with Listing Rules 715 and/or 716, please confirm whether the Company has appointed suitable auditing firm for ALL its subsidiaries and significant associated companies and if not, what are the reasons apart from the reason that there is no audit requirement in place of incorporation for such entities.

Link to the response here.

 

 

So…

 

These companies were queried because they indicated those subsidiaries / associated companies as “not required to be audited under the laws of their country of incorporation” or simply “Audit is not required for this company”, but missed out the important keyword required by SGX — ‘not significant‘.

 

 

SGX Observer thought …

… the chance of a company “not required to be audited under the law of its country of incorporation” (typically because the turnover/revenue of the companies is less than certain certain amount set by the country) but still ‘significant’ to the issuer is extremely slim.  🤨

 

 

SGX Observer wondered …

…  Chicken or Egg first? While issuer says “the subsidiary / associated company is ‘not significant’ therefore audit not required”, will there be any chance that the subsidiary / associated company is actually ‘significant’ if being audited?  🐣🥚🐓

 

 

SGX Observer is curious …

… does SGX verify if the issuer has included ALL its subsidiaries and associates companies, as well as the complete list of the subsidiaries and/or associate companies of its subsidiaries and/or associated companies…. etc, in the annual report?  🤔

 

 

SGX observer was reading the 2017 annual report of City Development Ltd (link).

At page 25, highlights of the year, it mentioned – “CDL’s wholly-owned subsidiary, CDL China Limited (CDL China)…. ”

However, SGX Observer wasn’t able to locate “CDL China Limited” within the long list of companies under ‘Significant Investments In Subsidiaries‘ section (from page 235 onwards) within the annual report.  🧐

 

Any gurus care to enlighten the layman observer here?  🤓

 

 

 

 

 

 

 

Disclaimer: SGX Observer is just a layman investor and not professional accountant or analyst or financial guru. The interpretation is purely from personal point of view, and the interpretation could be wrong. Appreciate your kindness to point out any incorrect concept or mistakes you spotted.

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