Accountability & Audit

Risk Management and Internal Controls

Principle 9: The Board is responsible for the governance of risk and ensures that Management maintains a sound system of risk management and internal controls, to safeguard the interests of the company and its shareholders.

Corporate Governance Practices of the Company

Board determines the nature and extent of risks

The Board has instituted risk tolerance levels to guide Management in the course of operations and achieving its strategic objectives. These tolerance levels were drafted based on the top risks identified by the Enterprise Risk Management (“ERM”) committee. Board approval is required for initiatives involving greater risk exposures that exceed the predetermined levels. The Group’s Investment Guideline Policy sets out the policies and guidelines for investments of more than S$500,000. Pursuant to the Investment Guideline Policy, all investments must be initiated by the Directors and assisted by the Treasury Division of the Finance department and Corporate Legal Manager of the Company. Once a potential investment is identified, the target will be brought to the attention of the Board in writing or during a board meeting. A working group which includes but is not limited to the management, legal counsel, certified public accountants, as well as relevant employees which the directors assign to be in the working group, will be formed. A financial adviser may also be involved for material transactions where appropriate. Upon completion of the due diligence and valuation exercises, the working group will present the final investment proposal to the Board for approval. In accordance with Chapter 10 of the Listing Manual of the SGX-ST, the investment may also be conditional upon the approval of the Company’s shareholders and the SGX-ST. Completed investments will be analysed during the board meetings on a half-yearly basis as part of the enterprise risk management updates.

The ERM Committee comprises the Executive Director and Chief Operating Officer – Mr Huang Ban Chin, department heads and chaired by the Lead Independent Director – Mr Lee Sen Choon who assists the Board on risk management. The key components of the Company’s risk management framework include:

• Risks assessment – Risks that the Company is exposed to are identified, assessed and updated in the risk register. The risks are rated and ranked according to the likelihood and its impact. Top risks are highlighted for extra emphasis.
• Risks monitoring – Risks are monitored through internal audits, internal reviews, questionnaires circulated to subsidiary management and the control self-assessment (“CSA”) programme.
• Risks response & risks reporting – The ERM committee holds regular meetings to discuss risk issues, new initiatives and reports material findings uncovered from risk monitoring. These meetings are thoroughly minuted and form part of the Board papers presented to the Board. Key risks exposures and statuses are also compiled in a risk reporting summary and submitted for Board review.

The top 5 risks faced by the Group are identified below:

1. Business concentration risk in China
   About half of the Group’s business comes from China. Apart from dealing with macroeconomic headwinds, we also need to be mindful of cultural and historical elements in the company’s external communication, from our internal documents to our publications on social media and product labels on products sold in China, to meet expectations of all stakeholders.
2. Breach of Personal Data Protection Act
   We collect, receive, store and process personal information and other data from our members in the course of business. Any failure or perceived failure by us to comply with our privacy policies, our privacyrelated obligations to users or other third parties, or any privacy laws or regulations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or members’ personal data, may result in governmental enforcement actions, litigation or public statements against us or generally affect our members’ confidence in our security systems, all of which would detrimentally affect our reputation and adversely affect our business.
   
   We have in place a cyber security team to shore up our cyber defences capabilities and established policies to ensure compliance with PDPA, reduce and protect private information in our reports and systems. In addition, we also procured insurance to cover against possible damages due to cyber-attacks. Aligned with our steadfast commitment to the continuous development of our Cyber Security and Data Protection posture, we recently underwent certification and attained the Cyber Trustmark Tier 3 and Data Protection Trustmark, affirming the security of our systems and our dedication to safeguard sensitive information.
3. Unauthorized alteration to membership information in our IT systems
   BWI’s business relies on IT systems that stores membership information such as sales achieved by members, commission earned and member bank account details. Any unauthorized manipulation of system data could result in alteration of the commission payments.
   Automated monitoring & alert mechanisms are in place to detect unauthorized system usage. In the event of a unauthorized alteration attempt, there will be several layers of defense in place to automatically detect and block. In the event automated defenses fail, administrators will be alerted of the breach for manual intervention. All attempts to alter data regardless legitimate or malicious will be logged in the audit logs.
4. Risks associated with managing business operations internationally such as foreign exchange movements, currency restrictions, regulatory compliance and tariff changes due to geopolitical issues.
   As the company operates internationally, revenue is generated in various currencies which may fluctuate significantly against the Singapore dollar. Remittance of funds back to HQ may also be subjected to currency restrictions and other regulations. Depending on geopolitical developments, trading restrictions and tariffs maybe imposed between countries.
   BWI monitors rate fluctuations and work together with professionals to manage foreign exchange exposures using hedging techniques and financial instruments. BWI also monitors regulations and geopolitical developments closely and plan accordingly if situation changes have medium to long term impact.
5. Effects of climate change
   Our assessment of physical and transitional risks relating to climate related events that may impact the Group are as follows,
   • increase in cost of manufacturing and operations
   • impact from floods or chronic climate-related events
   • impact from stress in workforce (due to extreme weather condition) and increasing strain on operations resulting in errors and loss of care
   Though the shift in consumer preference to environmentally friendly products is typically a transition risk, Best World was able shift its manufacturing and packaging strategies to greener practices, turning the risk into an opportunity.
   
   Overall the financial impact of the above identified risks are assessed to be relatively low at the moment. However the effects of climate change are still developing and will require constant monitoring to ensure minimal disruption to our operations.

The CSA programme established provides a framework to obtain feedback on the state of internal controls. The programme requires subsidiaries to review and report annually on the effectiveness of controls and the control environment to HQ and significant findings are reported to the Board. Periodically, internal audit and independent reviews would be conducted to validate the self-assessments.

Based on the system of internal controls established and maintained by the Group, work performed by the internal and external auditors, and reviews performed by Management, various Board Committees, the Board, with the concurrence of the Audit Committee is of the opinion that the Group’s internal controls, addressing financial, operational, compliance and information technology controls and risk management systems were adequate and effective as at 31 December 2023.

The internal controls maintained by the Management provide reasonable but not absolute assurance against material misstatements or loss, and the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with relevant legislation, regulation and best practice and containment of business risk.

Assurance from the Co-Chairman, Group CEO / Managing Director, Senior Group Financial Controller and other key management personnel

The Board has received assurance from (a) the Co-Chairman, Group CEO / Managing Director and the Senior Group Financial Controller that the financial records of the Company have been properly maintained and the financial statements give a true and fair view of the Company’s operations and finances; and (b) the Co-Chairman, Group CEO / Managing Director and other key management personnel who are responsible, regarding the adequacy and effectiveness of the Company’s risk management and internal control systems.

Legal review of China business model

In addition, we have instituted an annual independent legal review of our business model in China in recent years.

1. The Company continued to engage Merits and Tree (Beijing) Law Office to provide updates to the Supplementary Legal Opinion, dated 28 March 2024. In their report, Merits and Tree reviewed key areas such as 1) the continuing collaboration with SDIC Human Resources Co., Ltd and the automatic renewal of their service agreement, which led to the firm keeping the opinion that was previously issued in the Supplementary Legal Opinion that the arrangement under the Service Agreement could reduce the risk to Best World (China) Pharmaceutical Co., Ltd. and Best World International Limited, 2) researched the laws and regulations related to ChuanXiao and direct selling and found no changes since 1 January 2023 and 3) searched for administrative penalties during the period from 1 January 2023 to 28 March 2024 through Wolters Kluwer, Administrative Penalty Decision Network, Zhejiang Province administrative punishment information public network and China Judgement Online on 28 March 2024 and found that the company has not been administratively punished by any Chinese authorities for engaging in ChuanXiao or direct selling activities within the Period.
2. The Company also obtained from Dentons Beijing Office (“Dentons”) an updated independent legal opinion on the legality of the Company’s Sales Operation Mode in China dated 28 March 2024 (hereinafter referred to as “Dentons Update”) for the period from 1 January 2023 to 28 March 2024 as an update to the Legal Opinion issued by Dentons. Dentons Update is of the view that it is of low risk that the business modes of the three companies (namely Best World (China) Pharmaceutical Co., Ltd, Hunan Branch of Best World (China) Pharmaceutical Co., Ltd, and Best World Lifestyle Co., Ltd.) in China are deemed to violate the Regulations on Direct Selling Administration and Regulations on the Prohibition of Pyramid Selling and they have not been punished by the Supervision Department for six years; therefore, the risk of the above three companies being administratively punished by the government regulatory authorities for alleged ChuanXiao is low.

Based on the Merits and Tree Update and Dentons Update, the Board is of the view that the risk of the Group’s business model in China being held to be in non-compliance with the direct selling and ChuanXiao laws in China continues to be remote and that the possibility of the Group being penalized by the relevant Chinese regulatory authority in relation to the above remains low.

Audit Committee

Risk Management and Internal Controls

Principle 10: The Board has an Audit Committee ("AC") which discharges its duties objectively.

Corporate Governance Practices of the Company

Duties of AC

The AC assists the Board in discharging its responsibility to safeguard the Company’s assets, maintain adequate accounting records, develop and maintain effective systems of internal control. The duties of the AC are as follows:

External Audit

1. review with the external auditors and Management on the following:-
   1. the audit plan;
   2. significant financial reporting issues and judgments so as to ensure integrity of the financial statements of the company and any announcements relating to the company’s financial performance;
   3. their audit report;
   4. their management letter and Management’s response
2. ensure co-ordination where more than one audit firm is involved;
3. review the quarterly, half-year and annual financial statements and earnings releases before submission to the Board for approval;
4. meet with the external auditors and internal auditors at least once a year in the absence of Management to discuss issues arising from the audit, including the assistance given by the Management to the auditors;
5. report to the Board its findings from time to time on matters arising and requiring the attention of the AC;
6. undertake such other reviews and projects as may be requested by the Board;
7. undertake such other functions and duties as may be required by statute or the Listing Manual, and by such amendments made thereto from time to time;
8. consider and recommend to the Board, the appointment / re-appointment and removal of the external auditors, and approving the remuneration and terms of engagement of the external auditors;
9. review the independence of the external auditors annually and the aggregate amount of fees paid to the external auditors for that financial year and a breakdown of the fees paid in total for audit and non-audit services; and
10. ensure that the External Auditor has direct and unrestricted access to the Chairman of the Board and the AC.

Internal Audit

1. review and report to the Board at least annually on the adequacy and effectiveness of the Company’s risk management and internal controls, including financial, operational, compliance and information technology controls;
2. review internal audit programme and the scope and results of the internal audit and its effectiveness;
3. review the appointment, removal, evaluation and compensation of the internal audit function;
4. review and monitor Management’s responsiveness to the internal audit findings and recommendation; and
5. ensure that the Head of Internal Audit has direct and unrestricted access to the Chairman of the Board and the AC.

Interested Person Transactions ("IPT")

1. approve the internal control procedures and arrangements for all future related party transactions to ensure that they are carried out on arm’s length basis and on normal commercial terms;
2. review transactions falling within the scope of Chapter 9 (Interested Person Transactions);
3. consider the need for a general mandate for IPT and obtain independent advisory support, if required;
4. where a general mandate is being renewed, consider if the basis of determining the transaction process is adequate to ensure fair transaction terms;
5. direct Management to present the rationale, cost-benefit analysis and other details relating to IPT subject to specific mandate; and
6. receive report from Management and internal audit on IPT.

Internal Control

1. assess the effectiveness of the internal control and risk management systems established by the Management to identify, assess, manage and disclose financial and non-financial risks at least once a year;
2. review the statements included in the annual report on the Group’s internal controls and risk management framework;
3. review reports from Management and internal auditors on the effectiveness of the systems for internal control, financial reporting and risk management; and
4. review the Group’s procedures for detecting fraud and whistleblowing, and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

Risk Management

1. advise the Board on the Group’s overall risk tolerance and strategy;
2. oversee and advise the Board on the current risk exposures and future risk strategy of the Group;
3. in relation to risk assessment, (i) keep under review the Group’s overall risk assessment processes that inform the Board’s decision making; (ii) review regularly and approve the parameters used in these measures and the methodology adopted; and (iii) set a process for the accurate and timely monitoring of large exposures and certain risk types of critical importance;
4. review the Group’s capability to identify and manage new risk types;
5. before a decision to proceed is taken by the Board, advise the Board on proposed strategic transactions, focusing particularly on risk aspects and implications for the risk tolerance of the Group, and taking independent external advice where appropriate and available;
6. provide advice to the Remuneration Committee on risk weightings to be applied to performance objectives incorporated in executive remuneration;
7. review promptly all relevant risk reports on the Group; and
8. review and monitor the Management’s responsiveness to the findings.

Apart from the above duties, the AC will commission and review the findings of internal investigations into matters where there is suspicion of fraud or irregularity, or failure of internal controls or infringement of any Singapore law or regulation or rules of the SGX-ST or any other regulatory authority in Singapore which has or is likely to have a material impact on the operating results and/or financial position.

In performing its duties, the AC:

1. has met with the internal and external auditors, without the presence of management, at least once a year;
2. has explicit authority to investigate any matter within its terms of reference;
3. has had full access to and cooperation from Management and has full discretion to invite any director and executive officer to attend its meetings; and
4. has been given reasonable resources to enable it to discharge its functions properly.

The AC noted that there were no non-audit services provided by the external auditors to the Company in FY2023 that may impair the independence or objectivity of the external auditors of the Company. As at 31 December 2023, total fees paid/payable amounted to S$428,300, comprising only of audit fees.

The AC had recommended to the Board that the auditor, Nexia TS Public Accounting Corporation, be nominated for re-appointment as auditor at the forthcoming AGM of the Company.

The auditors, CLA Global TS Public Accounting Corporation, have indicated their willingness to accept reappointment.

In recommending the re-appointment of the auditors, the AC considered and reviewed various factors including the adequacy of resources, the experience of the auditing firm and the audit engagement partner, the firm’s other audit engagements, the number and experience of supervisory and professional staff to be assigned to the audit, the size and complexity of the Group and its businesses and operations. Accordingly, the AC has recommended the re-appointment of CLA Global TS Public Accounting Corporation as external auditors at the AGM of the Company.

The Company has in place a whistle-blowing policy to empower employees with avenues to report suspected fraud, corruption, dishonest practices and other acts of misconduct. The policy is available on the company website and includes contacts of the HQ compliance team and members of the AC. Independence is ensured as matters relating to subsidiaries can be referred to the HQ compliance team and matters relating to HQ can be referred to the AC. An independent team reporting directly to the ERM committee or the AC will be established according to the severity of the incident to follow up on the report. All information received will be kept confidential to protect the identity (if available) and the interest of all whistle blowers. Those found to have taken reprisal actions or victimized the whistle blower shall face disciplinary action, including the possibility of dismissal. All disclosures made through the whistle blowing channel are recorded and reported to the AC on a half-yearly basis, together with the findings and follow-up actions taken. There were no significant matters raised through the whistle blowing channel in FY2023.

Summary of AC’s activities in FY2023

1. reviewed the financial statements of the Company before the announcement of the Company’s quarterly and full-year results;
2. together with the COO and Senior Group Financial Controller and where applicable, the external auditors, reviewed the key areas of Management’s judgement applied for adequate provisioning and disclosure, critical accounting policies and any significant changes thereto that would have a material impact on the financials;
3. reviewed and approved both the Group internal auditor’s and external auditor’s plans to ensure that the plans covered sufficiently in terms of audit scope in reviewing the significant internal controls comprising financial, operational, information technology and compliance controls of the Company;
4. reviewed the independence and objectivity of the internal and external auditors through discussions with the internal and external auditors;
5. reviewed non-audit fees, where applicable;
6. reviewed the appointment of different auditors for its subsidiaries;
7. reviewed the accounting, auditing and financial reporting matters so as to ensure that an effective system of control is maintained in the Group;
8. reviewed the internal audit functions and discussed accounting implications of major transactions including significant financial reporting issues;
9. reviewed interested party transactions;
10. reviewed with the COO, Senior Group Financial Controller and external auditors on the changes to accounting standards and issues which are relevant to the Group and have a direct impact on the Group’s financial statements; and
11. reviewed the balance sheet of the Company and the consolidated financial statements of the Group for the financial year ended 31 December 2023 as well as the Independent Auditor’s Report thereon before submitting them to the Board for its approval.

Financial Reporting Matters

In the review of the financial statements for FY2023, the following significant matters impacting the financial statements and its disclosures were reviewed by the Audit Committee and discussed with Management and the external auditors.

Significant Matter	Comments by the Audit Committee
Business model in China	The Audit Committee notes that management instituted a recurring annual legal review of the business model in China (Provision 9.3) Additionally, the external auditor also performed work to understand the business model, reviewed the updated legal opinions, performed independent searches for legal and compliance issues relating to the Group, considered provisions of relevant accounting standards and the adequacy of disclosures in the financial statements. The Audit Committee is satisfied that sufficient work has been done to monitor this area of concern.
Revenue recognition	The Audit Committee discussed the key audit matter with the external auditors and is satisfied with the audit procedures performed by the external auditors over revenue recognition.
Valuation of put and call option	The Audit Committee was apprised of the work done by the external auditor in assessing the independence and competency of the valuer engaged by management, the appropriateness of the valuation methodologies used, the reasonableness of assumptions and also consider the adequacy of the disclosures in the financial statements. The Audit Committee considers the valuation approach, estimates and assumptions adopted and disclosures in the financial statements to be appropriate.

The Board and AC have reviewed the appointment of different auditors for some of its subsidiaries and significant associated companies and were satisfied that such appointment would not compromise the standard and effectiveness of the audit of the Group and that Rule 716 of the Listing Manual has been complied with. Refer to Note 16 Investment in subsidiary corporations of the Notes to the Consolidated Financial Statements for the subsidiaries audited by different auditors.

In appointing the audit firms for the Company, its subsidiaries and significant associated companies, the Audit Committee and the Board are satisfied that the Group has complied with Listing Rules 712, 715 and 716.

Composition of AC

The AC, regulated by a set of written terms of reference, comprises three NEIDs, all of whom are non-executive, and the majority of whom, including the AC Chairman, are independent.

• Chairman : Lee Sen Choon
• Member : Adrian Chan Pengee
• Member : Chester Fong Po Wai

The AC Chairman, Lee Sen Choon, has more than 30 years of experience in accounting, auditing, taxation and corporate secretarial work. The other members of the AC possess experience in finance, legal, business management and are exposed to regular updates from the relevant regulators. They are considered to be well qualified by the Board to discharge their duties in the AC.

The AC members take measures to keep abreast of the changes to accounting standards and issues which have a direct impact on financial statements through periodic meetings with the external auditors, briefings provided by professionals or external consultants as necessary.

AC does not comprise former partners or directors of the Company’s auditing firm

None of the AC members were previous partners or directors of the Company’s existing auditing firm or auditing corporation within a period of two years commencing on the date of their ceasing to be a partner of the auditing firm or director of the auditing corporation and none of the AC members hold any financial interest in the auditing firm or auditing corporation.

Primary reporting line of the internal audit function is AC; internal audit function has unfettered access to Company’s documents, records, properties and personnel

The internal audit function of the Company is outsourced to an external consulting firm – BDO LLP, who has unfettered access to all the Company’s documents, records, properties and personnel, including access to the AC. The Internal Audit methodology adopted by the internal auditors is consistent with the requirements of The Institute of Internal Auditors.

The AC has reviewed the adequacy and effectiveness of the internal audit function and is satisfied that the internal audit function is independent, effective and adequately resourced, has unfettered access to all the Group’s documents, records, properties and personnel, including the AC, and has appropriate standing within the Company. The AC is satisfied that the internal audit function is adequately resourced and is independent of the activities it audits.

The AC approves the hiring, removal, evaluation and compensation of the internal audit function. Based on risk assessments performed, greater emphasis and appropriate internal reviews are planned for high risk areas and material internal controls, including compliance with the Group’s policies, procedures and regulatory responsibilities. The internal audit plans are reviewed and approved by the AC annually.

AC meets with the auditors without the presence of Management annually

Annually, the AC meets (physically or via teleconference) separately with the internal and external auditors without the presence of Management.

Shareholder Rights And Engagement

Shareholder Rights and Conduct of General Meetings

Principle 11: The company treats all shareholders fairly and equitably in order to enable them to exercise shareholders’ rights and have the opportunity to communicate their views on matters affecting the company. The company gives shareholders a balanced and understandable assessment of its performance, position and prospects.

Corporate Governance Practices of the Company

Company provides shareholders with the opportunity to participate effectively and vote at general meetings

The upcoming Annual General Meeting of the Company (the “AGM”) will be held in a purely physically manner. Please refer to the important notes on the Notice of Annual General Meeting for details on how to participate at the AGM.

Management supports the Code’s principle to encourage shareholder participation. Shareholders are encouraged to attend the AGM to ensure a high level of accountability and to stay informed of the Company’s strategy and goals. Notice of the general meeting is dispatched to shareholders, together with explanatory notes or a circular on items of special business (if necessary), at least 14 days or 21 days, as the case may be, before the general meeting. The Board welcomes questions from shareholders who have an opportunity to raise issues either informally or formally before or at the general meeting.

In general meetings, shareholders are given the opportunity to communicate their views and direct questions to directors and Management regarding the Company. The Chairpersons of Board Committees are present at the AGM and other general meetings of shareholders, to assist the Board in addressing shareholders’ questions.

Shareholders are also given the opportunity to participate effectively and vote at general meetings of the Company, where relevant rules and procedures governing such meetings are clearly communicated to attendees.

In accordance with Rule 730A(2) of the Listing Manual and to have greater transparency in the voting process, the Company has conducted the voting of all its resolutions by poll at all of its general meetings. The detailed voting results of each of the resolutions tabled are announced on the same day after the meetings. The total numbers of votes cast for or against the resolutions are also announced after the meetings via SGXNet.

Separate resolution on each substantially separate issue

Resolutions to be passed at general meetings are always separate and distinct in terms of issue and are consistent with the Code’s recommendation that companies avoid ‘bundling’ resolutions unless the resolutions are interdependent and linked so as to form one significant proposal.

All Directors attend general meetings

All directors will be in attendance at the Company’s AGM to address shareholders’ questions relating to the work of the Board and Board Committees.

The Company’s external auditors, CLA Global TS Public Accounting Corporation, have also been invited to attend the AGM and will be available to assist the directors in addressing any relevant queries by the shareholders relating to the conduct of the audit and the preparation and content of the auditor’s report. All directors attended the Company’s last AGM in FY2022 via electronic means on 27 April 2023.

Company’s Constitution for absentia voting of shareholders

Provision 11.4 of the Code recommends that the Company’s Constitution allow for absentia voting at general meetings of shareholders. The Company’s Constitution allows for absentia voting at general meetings of shareholders, including but not limited to voting by mail, electronic mail or facsimile. As the authentication of shareholder identity and other related security and integrity issues still remains a concern, the Company has decided for the time being, not to implement absentia voting methods such as voting by mail, electronic mail or facsimile. Notwithstanding variation from Provision 11.4 of the Code, the Company is of the view that the intent of Principle 11 is still met as the existing arrangement whereby shareholders have the right to appoint proxies to attend general meetings and vote on their behalf enables shareholders to exercise their rights and have the opportunity to vote even if they are unable to attend in person.

Minutes of general meeting are published on the Company’s corporate website

In accordance with Guidance 6 of the Practice Note 7.5 General Meetings of the SGX Listing Manual, the Minutes of AGM will be published within one month after the AGM on SGXNET. Minutes of the AGM shall be published on (i) the SGX-ST’s website at the URL https://www.sgx.com/securities/company-announcements and (ii) the Company’s corporate website at the URL https://bestworld.listedcompany.com/newsroom.html. The minutes will include the responses to substantial and relevant questions received from shareholders which are addressed during the AGM.

Dividend policy

In view of the Group’s short and medium term commitment which include but are not limited to, working capital requirements and corporate actions capital needs, as well as taking into consideration the uncertain business climate, no dividends have been declared/recommended by the Board for the financial year ended 31 December 2023.