Accountability and Audit
Principle 10: The Board is accountable to the shareholders while the Management is accountable to the Board.
As stated above, Management provides the Board with a monthly update, apart from the regular Board meetings. Disclosure to investors is addressed in the section “Communication with Shareholders”.
Principle 11: The Board should establish an Audit Committee (AC) with written terms of reference which clearly set out its authority and duties.
The Audit Committee comprises independent non-executive directors Bernard Chen (Chairman), Moses Lee and Peter Ong.
The role of the AC is to:
||review the financial statements prior to submission to the Board;
||review with the external auditor the audit plan, the evaluation of the system of internal accounting controls and the external auditor’s audit report;
||review the scope and results of the internal audit procedures;
||nominate the external auditor;
||review the cost effectiveness, independence and objectivity of the external auditors and (where the auditors also supply a
substantial volume of non-audit services to DBS) to keep the nature and extent of such services under review, seeking to balance the maintenance of objectivity and value for money; and
||perform any other functions which may be agreed by the Audit Committee and the Board.
The AC also has explicit authority to investigate any matter within its terms of reference, full access to and co-operation by management, and full discretion to invite any director or executive officer to attend its meetings. The AC has reasonable resources to enable it to discharge its functions properly.
In its review of the audited financial statements for the financial year ended 2003, the AC discussed with management and the external auditors the accounting principles that were applied and their judgement of items that might affect the financials. Based on the review and discussions with management and the external auditors, the AC is of the view that the financial statements are fairly
presented in conformity with generally accepted accounting principles in all material aspects.
The AC meets with the external auditors separately after each AC meeting.
2003 saw a change in DBS’ auditors from PricewaterhouseCoopers (PwC) to Ernst & Young (EY), in response to MAS’ requirement that
banks in Singapore must rotate their auditors every five years. The change took effect on April 21, 2003, the date that shareholders approved the appointment of EY.
The AC has received the requisite information from EY and has considered the financial, business and professional relationship between EY and DBS, for the financial year 2003. The AC has also conducted an annual review of the volume of non-audit services
provided by EY to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the
auditors before confirming their re-nomination. The AC is of the view that EY can be considered independent.
Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders’ investments and the company’s assets.
A sound system of internal controls can only operate within a defined organisational and policy framework. The management framework at DBS clearly defines the roles, responsibilities and reporting lines of business units and support units. Delegations of authority, control processes and operational procedures are documented and disseminated to staff. While all employees have a part to play in upholding the system of internal controls, DBS has established certain units to provide independent oversight and control. These units include Group Audit, Group Risk and Group Compliance.
Internal controls are reviewed on an ongoing basis by Group Audit, whose work is supplemented by that of the external auditors. The
role of Group Audit and the external auditors is described in the section on “Internal Audit”.
Risk management is essential to DBS Group’s business. Group Risk Management is responsible for instituting a firm-wide risk
management framework and infrastructure. Risk management processes have been integrated throughout the DBS Group into the business planning, execution and monitoring processes, particularly through the approval process for new products and/or services.
Business units also perform periodic control self-assessment processes to review and attest to the effectiveness of their internal control environment. The risk management process in DBS is also strengthened through the regular deliberations of the Board Risk
The Group Compliance function has specific accountability for instilling and maintaining a strong compliance culture and framework within the DBS Group.
The AC has reviewed DBS’ risk assessment and has made its report to the Board.
Based on the information furnished to the Board, nothing has come to the Board’s attention to cause the Board to believe that the internal controls and risk management processes are not satisfactory for the type and volume of business conducted.
Principle 13: The company should establish an internal audit function that is independent of the activities it audits.
Group Audit is an independent function that reports directly to the Audit Committee and the CEO. Its scope of work covers all business
and support functions in the DBS Group, both in Singapore and overseas. All audit offices in the Group follow a consistent code of
ethics based on principles recommended by the USA Institute of Internal Auditors.
The annual audit plan is developed under a structured Risk Assessment Approach that examines all of the Group’s activities and
entities, the inherent risks and internal controls. Audit assignments are identified based on this approach and audit resources are
focused on the higher risk activities.
The progress of corrective actions on all outstanding audit issues is monitored monthly through Group Audit’s centralised Global Audit
Tracking System. Information on outstanding issues is categorised and reported to senior and line management through the Monthly
All audit reports are copied to the Audit Committee, external auditors and senior executives of the Group, including the Chief
Executive Officer, Chief Financial Officer, Chief Compliance Officer and Head of Group Risk Management.
Group Audit meets regularly with the external auditors to strengthen working relationships between both parties, discuss matters of
mutual interest, develop a common understanding and co-ordinate the audit efforts.
During 2003, Group Audit carried out its functions in accordance with the general description provided above.
The professional competence of the internal auditors is maintained through Group Audit’s continuing professional development programme, which focuses on updating auditors’ knowledge of auditing techniques, regulations and banking products and services.
Ng Peng Khian was Acting Head of Group Audit from February 2003 until March 8, 2004, when Edmund Larkin was appointed Group Audit Head. Mr Ng is a Certified Internal Auditor (CIA) and a Certified Information Systems Auditor (CISA). Mr Larkin has a
Bachelor of Commerce degree from the University of New South Wales and is an Associate Member of the Institute of Chartered
Accountants in Australia and Securities Institute of Australia. Prior to joining DBS, Mr Larkin was Regional Head of Equities Business
Control at J.P. Morgan Chase, Sydney.
As stated above, Group Audit works closely with the external auditors, Ernst & Young. The external auditors carry out, in the
course of their annual statutory audit, a review of the effectiveness of DBS’ material internal controls and risk management to the
extent of their audit plan. Material non-compliance and internal control weaknesses noted during their audit, along with any recommendations, are reported to the AC.
Communication With Shareholders
Principle 14: Companies should engage in regular, effective and fair communication with shareholders.
DBS adopted quarterly results reporting in September 2001.
DBS has an active dialogue with shareholders, both institutional and retail, and takes its responsibilities towards shareholders very seriously. DBS holds a media and analysts briefing for the release of its quarterly results. All press releases, audited financial statements and financial results announcements are published on MASNET and DBS’ website. A dedicated investor relations team meets key institutional investors on a regular basis.
DBS does not practise selective disclosure. Price sensitive information is first publicly released, either before DBS meets with any group of investors or analysts or concurrently.
DBS has reviewed the Code recommendation that companies encourage greater shareholder participation at annual general meetings by allowing shareholders to vote in absentia via such methods as email and fax. Following advice that the present legal and regulatory environment is not entirely conducive to absentia voting methods (particularly email voting), DBS has decided to defer the introduction of absentia voting methods until an appropriate time.
The following disclosures are required to be made under the SGX Listing Manual and the Working Group recommendations.
Dealings in Securities/Best Practices Guide
In line with the recommendation under the SGX-ST Best Practices Guide, DBS prohibits all staff in the DBS Group from trading in DBSH securities:
||during the period beginning one month before the release of the half-year and full-year results; and
||during the period beginning two weeks before the release of the first quarter and third quarter results
and ending on the date of release of the said results.
Related Party Transactions
The DBS Group’s policy on transactions with related parties is driven by compliance with statutory and regulatory requirements, namely:
||(in the case of DBS Bank) Section 29 of the Banking Act, Chapter 19; and
||(in the case of DBSH) MAS Directives to Financial Holding Companies No. 8 and Chapter 9 of the SGX Listing Manual on interested person transactions (see the section “Interested Person Transactions Policy” on page 31).
Under Section 29(1)(d) of the Banking Act, a bank cannot grant unsecured credit facilities, directly or indirectly, which in the aggregate and outstanding at any one time exceed the sum of $5,000 to:
||the bank’s directors;
||any firm in which the bank or any of its directors has an interest as a partner, manager or agent, or to any individual or firm of whom or of which any of its directors is a guarantor;
||a company in which any of its directors, whether legally or beneficially, owns more than 50% of the issued capital or in which any of its directors controls the composition of the board of directors, but excluding public companies, the securities of which are listed on SGX or other stock exchange approved by MAS and the subsidiaries of such public companies; and
||any corporation, other than a bank, that is deemed to be related to the bank as described in Section 6 of the Companies Act.
In addition, under Section 29(1)(e) of the Banking Act, a bank shall not grant to any of its officers (other than a director) or its employees or other persons, being persons receiving remuneration from the bank (other than any persons receiving remuneration from a bank in respect of their professional services) unsecured credit facilities which in the aggregate and outstanding at any one time exceed one year’s emoluments of that officer or employee or person.
To ensure compliance with Section 29(1)(d) and (e), DBS Bank has taken the following steps:
||Compliance with Section 29(1)(d) and (e) is an integral part of the credit approval process;
||Before directors are appointed, they are notified of the requirements of Section 29(1)(d) and their existing facilities, if any, are adjusted to comply; and
||The Bank sends all directors an annual reminder to update their particulars and any interests, as defined in Section 29(1)(d).
Directive 8 restricts lending and guarantees by a financial holding company such as DBSH. Under Directive 8(1)(a), a financial holding company may not, inter alia, grant any credit facility to any person other than a subsidiary or any of its officers (other than a director) or its employees or other persons, being persons receiving remuneration from the financial holding company (other than in respect of professional services rendered). In particular, under Directive 8(2), a financial holding company shall not grant, directly or indirectly, unsecured advances or loans under Directive 8(1)(a) to:
||Any subsidiary which in the aggregate and outstanding at any one time exceeds the sum of $5,000 except to any subsidiary which is a bank licensed under the Banking Act, a finance company licensed under the Finance Companies Act or, with MAS’ prior approval, a foreign banking subsidiary; or
||Any of its officers (other than a director) or its employees or other persons, being persons receiving remuneration from the
financial holding company (other than in respect of professional services rendered) which in the aggregate and outstanding at any one time exceeds one year’s emoluments of that person.
Compliance with MAS Directive No. 8 is an integral part of the credit approval process for all credit facilities granted by DBSH.
The DBSH Group has granted credit facilities to the following related parties in the ordinary course of business on normal terms and conditions. The outstanding amounts of these credit facilities and the estimated values of collaterals at December 31, 2003 are as follows: