SINGAPORE Post's (SingPost) appointment of PricewaterhouseCoopers (PwC) as the special auditor has raised serious concerns among stakeholders.
SingPost has given the reasons for appointing PwC in its media interview. The board had advanced reasons for not selecting the other three big firms: KPMG because SingPost has already outsourced some internal, related audit work to it.
As for Deloitte and EY, SingPost said one was the auditor for Stirling Coleman and the other was directly involved in providing due diligence for two of the three acquisitions the probe will focus on.
It also said it considered second-tier firms but thought the Big Four would carry a "better reputation". So it appointed PwC. In choosing PwC, did SingPost make the right decision in the interest of all parties?
Perhaps at this point we should revisit the reason and the need for the special audit. It was entirely prompted by a letter to the press by associate professor Mak Yuen Teen on Dec 15, 2015, "Corporate governance concerns at SingPost", which rightly raised some pertinent corporate governance and disclosure issues.
One of the serious concerns among stakeholders was the failure of the disclosure of the role of the audit chairman and director, Keith Tay, in two of the acquisitions by SingPost at the appropriate time in view of his interest in Stirling Coleman, which was appointed by the seller as an arranger and financial adviser to the seller of the two acquisitions.
However, the failure of the board in ensuring timely disclosure is another question which will have to be considered separately.
The questions on how the "administrative oversight in disclosure" regarding the involvement of Mr Tay in relation to the acquisition of FS MacKenzie and Famous Pacific Shipping (NZ) occurred, whether there were any weaknesses in compliance controls and whether the board reviewed the announcements, have all been raised by SIAS to the board and will require the necessary responses.
Was the appointment of the special audit a kneejerk reaction or did the board feel that there were far more serious corporate governance lapses that warranted it? The calling for the special audit without first clarifying the terms of reference is somewhat misplaced.
Such a move is expensive and usually called for compelling reasons. If indeed there were compelling reasons requiring a special audit, surely these could be material information that ought to have been disclosed upfront in connection with the proposed special audit.
Calling for a special audit without information and trading halt, therefore, was not a responsible move because the market was allowed to trade with inadequate information, which management and others may have otherwise possessed.
It may even be appropriate to consider whether a false market was created with certain privileged persons having access to material information that required a special audit.
To this date, it is still not clear why there was a rush to call for a special audit when only after nearly a month the scope was sketched out in the announcement on Monday.
Assuming that there is/are compelling reasons, which we will get to hear from the board in due course, the nagging question that would still occupy the minds of everyone is whether PwC is the right party to be appointed as the special auditor.
Without questioning the high reputation and integrity of PwC, the issue in this case is whether PwC should even take the job. By accepting this appointment, PwC may be seriously compromised as SingPost's external auditor.
It should evaluate whether it can be engaged in non-audit work for SingPost that will attract substantial fees. Notwithstanding the quantum of fee, there is a certain self-renewal and familiarity threats that require consideration by PwC.
It cannot be denied that PwC is too close to the board and senior management in this instance, being its long-time external auditor.
PwC is best placed to consider its position vis-a-vis Fourth Schedule of the Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities.
Considering the totality of facts and circumstances, it would be wise for PwC to step aside and allow another audit firm to undertake this task.
SingPost should look for a completely independent audit firm, which is approved by the Accounting and Corporate Regulatory Authority, and not worry about "better reputation" as all accounting firms meet the required accounting standards.
Knowing that PwC has been their external auditor and that the appointment will raise concerns, the board should have carefully considered the independence issue. Credibility of the report is very crucial, given the many governance issues already canvassed by the experts.
To this end, neither the chairman nor director Tay should participate in the supervision of the special audit report. Senior managers would also have to refrain from this exercise.
The serious concern the audit report will have to focus on will, without doubt, be the acquisitions involving Mr Tay, especially the governance process which raises the question: Was it done the right way?
In the case of the purchase of FS MacKenzie and Famous Pacific Shipping (NZ), SingPost must reveal why it paid 2.8 times and 9.8 times of NAV respectively. In addition, the acquisition of Trade Global at S$236 million for a company with NTA at S$17.5 million, 13.5 times of NTA will also be a matter for discussion.
One can only assume at this stage that the SingPost board has been mindful of its fiduciary duty in pursuing these acquisitions. If the board is not forthcoming or is silent on the basis for these acquisitions and fails to justify to shareholders, then they will be pressed for proper accountability by shareholders. They need to canvass their business case for doing so.
Perhaps, to safeguard the reputation of the board and in the interest of all stakeholders, it would be advisable that Mr Tay temporarily take leave of absence from the board until the special audit is completed so that he can fully co-operate with the auditor without conflict of interest in relation to his position as director.
The writer is the founder, president & CEO of the Securities Investors Association (Singapore)
This article was first published on January 21, 2016.
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