Technical Update

March 2008

Bursa Malaysia recently announced key amendments to the corporate governance framework under the Listing Requirements and Malaysian Exchange of Securities Dealing & Automated Quotation (MESDAQ) Market Listing Requirements (MMLR). The amendments are aimed at raising standards of corporate governance for Malaysian public-listed companies, while increasing investor confidence. These changes come in light of the recent revisions to the Malaysian Code of Corporate Governance issued by the Securities Commission.

Among the significant changes made are amendments to strengthen the effectiveness of the audit committee. Executive directors are no longer allowed to be part of the audit committee, and the internal audit function is made compulsory to provide a more effective support to the audit committee in carrying out its function.

The amendments will take effect from 28 January 2008. However, listed companies have 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. Audit committees must begin discharging the amended functions with effect from 1 April 2008, with a minimum of ensuring the terms of reference of the audit committee to commence performing the amended functions are ready on this date. Annual reports for financial years ending on or after 31 January 2009 must contain the statement on internal audit function.

A summary of the key amendments include:
- requiring all audit committee members to be non-executive directors, with the majority of them being independent directors
- mandating the internal audit function for listed companies and requiring the internal audit function to report directly to the audit committee
- expanding the functions of the audit committee to include the review of the adequacy of the competency of the internal audit function
- setting out the rights of audit committee to convene meetings with external auditors, internal auditors, or both, excluding the attendance of other directors and employees of the listed issuer whenever deemed necessary
- enhancing the disclosure in the annual reports to include information pertaining to the internal audit function. A statement on internal audit function - whether the internal audit function is performed in-house or outsourced - and the cost incurred for the internal audit function for the year. The audit committee report to include a summary of activities of the internal audit function
- clarifying that Bursa Securities may 'approve' such other requirements relating to the financial-related qualifications or experience that must be fulfilled by at least one audit committee member, and the signatory to the statutory declaration in relation to the accounts, and
- requiring listed companies to submit a copy of written representation or submission of external auditors' resignation to Bursa Securities, as provided under Section 172A of the Companies Act 1965.

Jennifer Lopez, head of policy and technical development, ACCA Malaysia.