Enhancing Governance

March 2008

The stock exchange, Bursa Malaysia, recently announced key amendments to its listing requirements in order to raise governance and reassure investors in the wake of unsettling corporate scandals and the exposure of accounting irregularities. Among the recent controversies that were widely reported in the press were the alleged misappropriation of RM36.3m (£5.75m) in funds by a former managing director of Multi-Code Electronics Industries (M) Bhd, claims of fraud and fictitious transactions at Transmile Bhd and Megan Media Holdings Berhad, and alleged missing or destroyed accounting records at OCI Bhd by its previous management.

Bursa Malaysia's amendments affect companies listed on the Main Board, Second Board and Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ) market. Notably, the independence of the audit committee has been enhanced and the internal audit function mandated in order to improve internal checks and balances for Plcs. Executive directors are now prohibited from sitting on the audit committee. The internal audit function is also made compulsory to provide more effective support to the audit committee, and it is required to report directly to the audit committee.

Other amendments include setting out the rights of the audit committee to convene meetings with either the external auditors or the internal auditors, or both, and excluding the attendance of other directors and employees at these meetings.

The amendments will take effect from 28 January 2008, but listed companies will be given until 31 January 2009 to comply with the requirements on the revised composition of the audit committee, as well as the mandatory internal audit function.