Financial Crime World

Establish Criteria for Independence of External Auditors, Suggests Standard Setter

A proposal has been put forward to establish clear criteria for the independence of external auditors in the country’s financial sector. The suggestion aims to strengthen the auditing process and ensure that companies’ financial statements are accurate and reliable.

Proposed Criteria for Independence

  • Previous approval of special services by the Audit Committee
  • Rotation of the Audit partner every five years
  • Strengthening of Chinese walls between the audit firm and its clients

In addition, it is suggested that a financial expert should be included on the company’s board or that the reason for not having one should be clearly stated. This move aims to enhance the company’s governance structure and ensure that financial decisions are made with transparency and accountability.

Composition of the Audit Committee

  • The Audit Committee should consist of at least two members
  • One member should be a Certified Public Accountant (CPA)
  • One member should be a lawyer

This would provide a balance of expertise and ensure that the committee is well-equipped to oversee the auditing process.

Disclosure Requirements

  • Annual financial statements should include a disclosure of Management’s Discussion and Analysis (MD&A), which provides an overview of the company’s performance and financial position

Expected Outcomes

The proposal is expected to be discussed by regulators and industry stakeholders in the coming months. If implemented, it could lead to improved transparency and accountability in the country’s financial sector, enhancing investor confidence and protecting the interests of shareholders.

Enforcement Procedures

In a related development, the regulatory body responsible for enforcing financial laws and regulations has released data on its enforcement procedures in 2002. According to the report:

  • The agency received 28 denunciations or market monitoring reports
  • Resulting in:
    • 24 warnings
    • 22 rejections of claims
    • 24 findings of administrative processes

The agency also imposed sanctions on several companies, including fines and suspension of directors. In one notable case, a company was delisted from the stock exchange after failing to comply with regulatory requirements.

Sanctions

The regulatory body has imposed a range of sanctions on companies that have failed to comply with financial laws and regulations, including:

  • Fines
  • Suspension of directors
  • Delisting from the stock exchange
  • Ban on individuals from acting as directors, officers, auditors, or managers of mutual funds or trusts for a period of five years

Overall, the proposal to establish criteria for the independence of external auditors is an important step towards enhancing transparency and accountability in the financial sector. It is expected to be discussed by regulators and industry stakeholders in the coming months, with a view to implementing changes that will benefit investors and protect the integrity of the market.