Robust corporate governance is fundamental to building and maintaining stakeholder trust. It establishes a clear framework of principles, policies, and processes that guide organisations to operate with integrity, transparency, and accountability.
Internal audit plays a pivotal role within this framework by assessing the effectiveness of corporate governance practices and highlighting areas that need improvement or corrective action. It ensures that governance structures are not only in place but also functioning as intended.
How Singapore Works to Promote Good Corporate Governance in Companies
Singapore maintains a strong commitment to corporate governance, recognising it as a key pillar of economic growth and investor confidence. Listed companies in Singapore are required to comply with the Code of Corporate Governance, developed and issued by the Corporate Governance Advisory Committee (CGAC).
This Code sets out a clear framework built on core Principles and supporting Provisions. It encourages companies to move beyond compliance by adopting a “comply or explain” approach—meaning they must either adhere to the provisions or clearly explain deviations in their annual reports.
Key areas covered by the Code include board composition and performance, remuneration practices, risk management and internal controls, stakeholder engagement, as well as disclosure and transparency.
In particular, the Code places specific emphasis on the role of the Audit Committee (AC). The AC is tasked with overseeing financial reporting, internal controls, risk management systems, and audit functions. To uphold objectivity and independence, the Code sets strict requirements for Audit Committee composition:
- The AC must comprise at least three directors, all of whom must be non-executive.
- The majority of the AC, including the Chairman, must be independent directors.
- At least two members, including the Chairman, must have recent and relevant accounting or related financial management expertise.
Through this structured governance framework, Singapore continues to foster a business environment that promotes integrity, transparency, and investor confidence.
What Is a Corporate Governance Audit?
A corporate governance audit is a comprehensive, independent review of an organisation’s governance structures, policies, and practices. It assesses how well the company upholds key governance principles such as ethical leadership, board oversight, transparency, accountability, and regulatory compliance.
Unlike traditional financial audits, a corporate governance audit goes beyond numbers. It examines the roles of the Board of Directors, Audit Committee, senior management, and other stakeholders to determine whether they are effectively fulfilling their governance responsibilities.
It will also examine how governance practices shape the audit process itself. This includes evaluating how risks are managed, how financial disclosures are handled, and how conflicts of interest are identified and resolved.
Key Areas Covered Typically Covered in a Corporate Governance Audit
A corporate governance audit covers several key areas that reflect an organisation’s commitment to transparency, integrity, accountability, and risk management. These areas include the following:
1. Financial Reporting Integrity
One of the core areas reviewed in a corporate governance audit is the integrity of a company’s financial reporting. This includes evaluating how significant financial reporting issues and judgments are identified and addressed.
When reviewing this aspect of corporate governance, auditors consider whether the company ensures the accuracy of its financial statements and public announcements regarding financial performance. This is crucial for maintaining transparency and stakeholder confidence in the company’s financial disclosures.
2. Internal Controls and Risk Management
Corporate governance audits also play a crucial role in ensuring the adequacy and effectiveness of the company’s internal control and risk management systems. These systems help in ensuring that business operations are secure, compliant, and aligned with the organisation’s risk appetite. It assesses whether internal controls are subject to regular assessment and whether they are capable of responding to financial, operational or strategic risks effectively.
3. Leadership Accountability
Leadership accountability is another key focus area in corporate governance audits. It evaluates the assurance provided by the CEO and CFO on the reliability of the company’s financial records and statements. This review is essential as it reflects the commitment of senior management to uphold financial transparency and take ownership of the company’s reporting processes.
4. Whistleblowing and Ethical Conduct
Governance audits examine the company’s policies and arrangements for raising concerns about possible improprieties in financial reporting or other matters. This includes reviewing whether the company has in place a clear whistleblowing policy that allows such concerns to be raised safely and investigated independently. It also considers whether this policy is well-communicated to employees, encouraging a culture of ethical conduct and transparency.
Why Corporate Governance Audits Matter
These are a few reasons why businesses of all sizes should consider engaging in corporate governance audits:
1. Enhance Transparency and Accountability
These audits help organisations increase transparency and strengthen accountability by pinpointing areas that need improvement and offering practical recommendations. It also promotes greater trust and confidence among stakeholders, which is crucial for the company’s sustained success.
2. Reduce Operational and Reputational Risk
By identifying vulnerabilities and gaps within a company’s policies and procedures, corporate governance audits enable management to address potential risks proactively. This helps prevent or reduce the impact of financial losses and reputational harm.
3. Ensure Compliance with Laws and Industry Standards
Corporate governance audits verify that the company adheres to all relevant laws and regulatory requirements, particularly in areas such as financial reporting, internal controls, and risk management. This, in turn, helps companies avoid legal penalties associated with non-compliance and protects the company’s standing in the market.
4. Improve Efficiency and Business Performance
These audits highlight opportunities for improving efficiency by streamlining workflows, cutting unnecessary costs, and making better use of available resources. Such improvements can contribute to greater operational effectiveness and boost profitability.
5. Promote a Culture of Ethical Governance
Corporate governance audits encourage the alignment of company policies and practices with its core mission and values. They also promote ethical conduct and sound decision-making, reinforcing a culture of responsible governance throughout the organisation.
Corporate Governance Audits as a Strategic Investment
Conducting regular corporate governance audits is more than risk prevention. It’s a strategic investment in your company’s future. Audits help maintain regulatory compliance, enhance decision-making, and build stakeholder confidence in your brand.
For businesses in Singapore looking to strengthen their internal audit for corporate governance, partnering with an experienced provider can make all the difference. AG, a trusted mid-tier accounting company and auditing firm in Singapore, provides tailored internal audit services, including specialised corporate governance audits. With our expertise, we help ensure your company stays aligned with both local regulatory requirements and international best practices.
By integrating a strategic audit into your governance framework, you proactively safeguard your organisation’s integrity, resilience, and long-term value.
For more tips on business audits, check out our insights into exploring AI in the auditing process and why businesses should conduct sales audits.
