In terms of quality control, the SEC has selectively granted permission to 92 certified public accountants (CPAs) from 25 accounting firms to audit financial statements of 388 total listed companies as of 2005.  These CPAs and their firms must maintain an effective quality assurance in accordance with the International Federation of Accountants.  The SEC has the authority to reprimand these auditors for negligence or wrongdoing in their audit.  After the crisis, the SEC generally reprimanded at least one auditor each year by temporarily withdrawing the license to practice whereas hardly any auditors were reprimanded before the crisis.  To be in line with the U.S. Sarbanes-Oxley Act, the SEC has also required listed companies to rotate their audit partners every five years effective the fiscal year starting on or after January 1, 2006.  The SEC is also considering a proposal to limit auditors’ nonaudit services for their audit clients.

Unlike the U.S. Sarbanes-Oxley Act which emphasizes the top executives’ responsibilities for financial statements and effective internal control, and requires the CEO’s and the CFO’s certification of the financial statements, the Thai SEC spotlights the BOD as being responsible for the financial statement reliability and internal control effectiveness.  The SEC requires a signature of both the CEO and the Chairman of the Board Executive Committee at the bottom of the balance sheets and the income statements, and that all listed firms must include a report of the BOD’ responsibilities and an audit committee report in their annual reports.  The SEC also closely reviews quarterly and annual financial statements of listed companies, particularly those considered as weak in governance, to identify any improper disclosure and irregularities which could require a restatement (Chantanayingyong, 2005).  Required disclosures in Form 56-1 annual filing are also similar to those in the U.S. Form 10-K.  To tackle complicated creative accounting, the SEC has set up an accounting steering committee which is comprised of representatives from public sector and reputable market practitioners to focus on in-depth analysis of listed companies’ financial reports.  As a result, 11 companies in 2003 and 16 companies in 2004 were required to restate their financial statements.  In addition, with coordination of the SET, the “SP” (suspend trading) or “NP” (notice pending) signs will be posted on the company with an adverse opinion from auditor to alarm the public of the violation of accounting standards.  Between December 2004 and September 2005, The SEC filed criminal complaints against current and former executives of two listed companies related to financial reporting violation.  The first one is for the failure to prepare its 2002 financial statements in compliance with the Thai accounting standards.  The other one is for fraudulently overstating revenue and profit via transactions with related parties, and falsifying accounting records/documents. 

Self-Restraint, Rewards and Positive Reinforcement

It is impossible to achieve good governance unless each company is committed to conducting its business in the best interest of shareholders and to continually improving its corporate governance.  In line with this concept, the SET has required Thai listed companies since 2002 to disclose in their annual reports the implementation of 15 principles of good corporate governance.  Any companies that do not comply with these principles must disclose the reason for non-compliance.  These principles cover several important corporate governance issues including equitable treatments of shareholders; structure, responsibilities and independence of the board of directors; board committees and each director’s attendance of board meetings; disclosure of compensation of directors and top executives; financial disclosure and transparency; internal control; rights of other stakeholders; risk management policies; connected transactions; investor relations; and code of ethics.  The SET has also conducted workshops on these 15 principles to educate companies and the investing public.  In 2002, the SET established a Corporate Governance Center which offers advisory services on how to improve corporate governance to listed firms and private companies with the potential to list.

There were also two projects that offered positive reinforcement and rewards for good corporate governance.  The first one began in 2002 when the SEC and the SET initiated a corporate governance rating project which provided certain benefits to companies with high rating on governance.  The purposes of this rating were to provide investors with additional information, and to promote good governance among Thai listed companies.  The rating, which was completely voluntary, was conducted by Thai Rating and Information Services Co., Ltd. (TRIS).  TRIS is an independent for-profit organization which was found in 1993, and endorsed by the Ministry of Finance and the Bank of Thailand to be the first Thai credit rating agency.  TRIS ranked a company on a scale of 1 (lowest) to 10 (highest) for each of 45 sub-categories under four criteria: shareholder’s rights, composition and roles of the board of directors and management, information disclosure, and corporate governance culture.  The final score was determined by weighing and totaling the scores of the sub-categories.⁵  A company with a rating score of at least 7 from 10 was entitled to the following benefits from the SEC and the SET.  The SEC granted the company a fast-track process for their public offerings of securities, and reduced the offering fees and annual fees by 50%.  The SET honored the company by publicizing it on the SET web site, and reduced the company’s annual fees by 50%.

Footnotes

5. A participating company must provide TRIS with the following information: (1) invitation letters for and record of shareholders’ meetings for the past three years, (2) minutes of the board and committee meetings for the past three years, (3) annual reports and annual registration statements, (4) records of any penalties, fines or other violations relating to the abuse of shareholder rights, and (5) letter from the CEO or the audit committee chairman certifying the completeness and accuracy of the provided information.  In addition, TRIS interviewed the chairman of the board, audit committee members, the chief executive officer, employees, suppliers and outside analysts.