KUALA LUMPUR (Nov 24): A total of 618 or 65.3% of listed companies on Bursa Malaysia have an audit committee that comprises solely independent directors as of Aug 31, 2021, the Securities Commission Malaysia (SC) revealed.

This is in accordance with the Step Up Practice 8.4 of the Malaysian Code on Corporate Governance (MCCG), which recommends that an audit committee should comprise solely independent directors to strengthen its independence and effectiveness.

“As of Sept 1, 2021, the average tenure of an independent director on the board of a listed company on Bursa was six years. The longest tenure of an independent director is currently 34 years,” the SC said in the Corporate Governance Monitor 2021 report released on Wednesday (Nov 24). This year's edition of the report also featured a thematic review on the demographics of audit committees by the SC’s Audit Oversight Board.

The capital market regulator noted that on average, a relatively shorter committee tenure is recorded for a member of the audit committee, at three years, with the majority of audit committee members serving less than nine years.

“Out of 3,248 audit committee members, only 395 directors (12%) have served on the committee for more than nine years, out of which 292 (8.9%) have served more than 11 years. The longest-serving member of an audit committee has been on the committee for 23 years,” it said.

In terms of age, there is almost an equal split in the age of audit committee members, where 44% of them are above 60 years old, 31% are between 51 to 60 years old, 21% are between the age of 41 to 50, and another 5% are 40 years old and below. The youngest audit committee member is currently 26 years old, and the most senior is 87 years old.

On the participation of women directors in the audit committee, only 15.9% of audit committee members were women while the remaining 84.1% were men as of Sept 1, 2021. This compared with data gathered by the Malaysian Institute of Accountants that showed 54% of chartered accountants in Malaysia are women, which reflects an untapped pool of skilled women who can serve as directors and members of the audit committee.

The audit committee plays an important role in a company’s corporate governance (CG) structure to rigorously challenge and pose probing questions on its financial reporting process, internal controls and risk management.

The SC cited the court’s decision in the case of PP v Chin Keem Feung and Shukri Abdul Tawab where the judge stated that an audit committee is not a decorative piece of a company, but is a vital organ of a company, in particular when it comes to CG.

“Boards are reminded that all the audit committee members must be financially literate in order to discharge their duties effectively. Step Up Practice 1.1 of the MCCG highlights that all directors should be able to understand financial statements and form a view on the information presented, provide critical and probing views on the financial reporting process, transactions, audits, and other financial information of the company,” said the SC.

The audit committee must comprise not fewer than three members, all of whom must be non-executive directors, with a majority of them being independent directors.

“As of Aug 31, 2021, the average board size of listed companies on Bursa is seven directors. While the average size of an audit committee is four directors, and typically at least half of the directors on the board of a listed company are also members of the audit committee. The largest audit committee comprises six members,” the SC said.

Despite the increase in the number of companies leveraging technology to conduct general meetings, the SC observed that most companies provided minimal information in their disclosures for leveraging technology to support shareholders’ participation at general meetings.

“Some companies only disclosed a statement that the company’s general meeting was conducted using an online platform without any further details. Among the details that should be included are the type of platform used for the meeting, how voting was conducted, observations on the use of the platform and the board and shareholders’ meeting experience.

“It would add to the quality of the disclosure if there is also discussion on the board’s views or assessments on the use of technology; whether it improved the overall conduct of the meeting or otherwise. Companies should also share the overall feedback from shareholders (if any) on the conduct and quality of the virtual meeting,” it said.

The SC also highlighted that it is important for audit committee members to sharpen their skills and stay abreast of the latest developments particularly on matters relating to financial reporting and auditing.

“Most companies disclosed that members of the audit committee were qualified individuals and had attended the necessary training related to financial reporting. However, more details should be provided on the nature, content and intended objectives of these training sessions for stakeholders to understand and appreciate their significance,” it said.

In fact, the SC observed that some companies were silent on their training or continuous professional development measures for members of the audit committee.

“Assessing the continuous professional development needs of audit committee members is an important step, and boards should ensure that the assessment informs the selection of training programmes for the audit committee members and that the directors participate in these programmes.”

For more stories on the SC CG Monitor 2021, click here.