Keynote Address By Minister For Finance, Dr Richard Hu At The 12th Asean Federation Of Accountants Conference On 18 October 2001 At 9.00 am At The Westin Stamford & Westin Plaza Hotel, Singapore18 Oct 2001
President and members of the ASEAN Federation of Accountants, Distinguished Guests, Ladies and Gentlemen.
It gives me great pleasure to join you today at this gathering of accountants from the ASEAN region.
2. You have chosen for this Conference the theme of 'Challenges facing ASEAN accountants in the New Economy'. This is an appropriate theme. In an environment where change is the only constant, a forward-looking attitude is the key to survival.
Challenges in the New Economy
3. There are many challenges facing accountants in the New Economy. This morning, I would like to speak on two of them - these are technology and globalisation. Technology is setting the pace of the financial reporting process. Five years ago, it took Microsoft two weeks per month to close their books. Today, it takes only 4 days. The Microsoft finance team expects that they would soon be able to achieve a continuous reporting capability, and provide updated information on a daily basis. This would not be possible without the use of technology. Accountants must stay on top of the technology wave, so that they can continue to keep up with the technological advancements and add value to their clients.
4. The Institute of Certified Public Accountants of Singapore ('ICPAS') has taken a laudable initiative to lead the study on Internet reporting of financial information. The team has made some progress in establishing an Internet standard on Business Reporting for Singapore. This is based on the 'eXtensible Business Reporting Language' or 'XBRL'. I understand that the Chair of the XBRL Liaison Committee, Mr Zachary Coffin, will be speaking on XBRL during this forum.
5. The second challenge comes from globalisation. In today's world, financial markets are like inter-connected networks. Capital can flow at the touch of a button. The new economy does not mean we discard old values. Jurisdictions and companies that want to attract capital must satisfy investors that they have met certain fundamental market requirements. The competition for international capital has placed greater demands on regulators and companies. They need to adopt international standards and improve their corporate governance and disclosure practices to achieve greater transparency and investor confidence. As the gatekeepers of financial information, accountants play an important role in maintaining the integrity and soundness of the financial environment.
The Review on Corporate Governance and Regulation in Singapore
6. To ensure that our regulations and corporate practices keep up with international best practices and remain conducive to businesses, the Singapore Government set up three private-sector-led committees to review the corporate governance and regulatory framework in Singapore. These committees are: the Corporate Governance Committee ('CGC'), the Disclosure and Accounting Standards Committee ('DASC') and the Company Legislation and Regulatory Framework Committee ('CLRFC').
7. The CGC completed its review and submitted its report and an accompanying Code of Corporate Governance in April 2001. Listed companies in Singapore are encouraged to adopt this Code. If they deviate from it, they must disclose and explain their areas of deviation. The CLRFC's work is still on-going. The Committee will be launching a public consultation by end October to seek feedback on its preliminary views.
8. The DASC has completed its review and submitted its report containing 22 recommendations to the Government in September this year. The committee had conducted two rounds of public consultation to gather feedback on its proposals. The first consultation was in December 2000 and the second was in May this year. Before finalising its report, the DASC held a dialogue session in August with the respondents, to discuss the rationale behind the Committee's proposals. The final report from the DASC has incorporated the views and comments from the two public consultations, as well as the dialogue session.
9. I am pleased to announce that the Government has accepted all the DASC recommendations. I would like to thank the DASC's Chairman, Mr Ng Boon Yew, who is the Corporate Adviser to Singapore Technologies and a director of United Overseas Bank, and his members for their contributions in helping to raise the level of disclosure and accounting standards in Singapore.
10. The DASC recommendations seek to improve the process by which accounting standards are set, maintained and regulated in Singapore. They aim to align Singapore's standards in the areas of accounting and auditor independence with international standards, as well as promote good disclosure practices in Singapore. Let me now share with you some of the DASC recommendations.
11. The DASC recommends that all listed companies should make financial announcements on a quarterly basis for financial periods commencing on or after 1 January 2003. The quarterly reports do not have to be audited. Such quarterly announcements should be made within 60 days of the quarter end. Together with the use of technology, quarterly reporting would help bring about greater transparency and better corporate governance in Singapore. It would improve Singapore's standing as a world-class business and financial centre. Listed companies would be encouraged to adopt quarterly financial announcements earlier if they are able to do so.
12. A distinguishing feature of the accounting profession is its responsibility to the public. The investing public relies on the objectivity and integrity of public accountants in their capacity as company auditors. This places a responsibility on the accounting profession to be impartial and independent when they carry out auditing work. Internationally, the issue of auditor independence has featured prominently in the reviews by the International Federation of Accountants ('IFAC') and the European Commission, as well as the U.S. Securities and Exchange Commission's ('SEC'). The APEC Task Force on Company Accounting and Financial Reporting had also identified auditor independence as a pressing issue throughout APEC member economies.
13. In making its recommendations on auditor independence, the DASC has studied the reviews by the international bodies and the practices in leading jurisdictions. In its report, the DASC has proposed a two-pronged approach. First, it highlights the principles by which independence of public accountants could be determined. These principles would apply to auditors of all companies. Next, it recommends prohibiting auditors of public companies from providing their audit clients with certain non-audit services, such as book-keeping. It was felt that such services would seriously impair auditor independence. These recommendations are consistent with the approach taken by the IFAC and European Commission and the practices in the US, UK, Australia and Hong Kong.
14. In implementing the DASC's recommendations, the Government would provide for certain limited exceptions to ensure that the prohibition is confined to areas where auditor independence would be compromised. For example, in the area of book-keeping services, our intention is not to prevent auditors of public companies from advising and assisting their clients. Auditors can continue to provide value-added assistance to their clients so long as these do not impair their independence. Appropriate exceptions, which are consistent with international practices, will be provided by the Public Accountants Board through its rules on auditor independence.
15. In the area of employment relationship, the DASC proposes that if a former partner is employed by an audit client in an accounting or financial report ing oversight role, there should not be financial ties between the individual and the audit firm. While this is a sensible safeguard, exceptions will be provided to allow pre-determined, fixed arrangements, such as pensions, between the former partner and the audit firm. We would not prohibit arrangements where the payments are not influenced by any connections between the individual and the audit firm, and do not depend on the firm's revenues and profits.
16. As a transition measure, a grace period will be given before the prohibition comes into effect. This is to enable auditors to make the necessary arrangements with their audit clients. The recommendations on auditor independence will take effect from 1 Jan 2003.
Compliance with Accounting Standards
17. There is currently no statutory requirement for companies in Singapore to comply with accounting standards. To position Singapore as a key business and financial centre, we need to give investors the confidence that financial statements are prepared in accordance with the prescribed accounting standards. The DASC recommends that compliance with prescribed accounting standards be legislated. This is consistent with the practices in the US, UK and Australia.
18. The DASC recommendation allows companies to deviate from the prescribed accounting standards if such deviations are required to present a 'true and fair' set of financial statements. For a company to exercise this 'true and fair override', its auditor must confirm that he agrees with the deviation. This balanced approach allows companies some flexibility. At the same time, readers of the financial statements would have the assurance that deviations from accounting standards are made with the confirmation of the auditors.
Harmonisation with International Standards
19. Most of you would be aware that the International Organisation of Securities Commissions ('IOSCO') has endorsed the application of International Accounting Standards or IASs for cross-border listing in May 2000. Many stock exchanges now allow their listed companies to use IASs. Like the US GAAP, IAS has become an internationally accepted standard. To align ourselves with international standards, the DASC recommends that Singapore adopt the standards issued by the International Accounting Standards Board. These standards would be our prescribed accounting standards, and would be termed 'Financial Reporting Standards' or 'FRS'.
20. The DASC recommends that we allow listed Singapore-incorporated companies to use certain alternative standards, if they are also listed on foreign exchanges that require these standards. These companies do not need to reconcile their accounts with Singapore accounting standards. Thus, a listed Singapore-incorporated company that is also listed in the US can prepare its accounts based on US GAAP. It does need not to prepare a parallel set of accounts based on the Singapore accounting standards. This would reduce business cost for such companies. All other Singapore-incorporated companies must use the prescribed accounting standards, unless they are exempted by the Registry of Companies and Businesses.
Council on Corporate Disclosure and Governance
21. Currently, accounting standards in Singapore are set by the ICPAS. Once the accounting standards are made a legal requirement, it would not be appropriate for the accounting standards setting authority to reside with a professional organisation.
22. In line with the practices in leading jurisdictions, the DASC recommends that the Government establish an independent panel, comprising representatives from the various stakeholder groups. These include accountants, investors, bankers and businessmen. This panel, whose members would be appointed by the Minister for Finance, would undertake the prescription of accounting standards in Singapore. It would also assist the Government in the review and enhancement of corporate governance and disclosure practices on a continuous basis.
23. The Government accepts this recommendation and will name this panel as the Council on Corporate Disclosure and Governance ('CCDG'). The CCDG members will be appointed in their individual capacities and will represent the concerns and views of the various stakeholder groups. The CCDG will not undertake monitoring and enforcement activities, as these will be assumed by the Government regulatory agencies.
24. Let me elaborate on what the CCDG would be tasked to do:
First, to prescribe accounting standards in Singapore - The CCDG will help the Government to prescribe accounting standards in Singapore. Under the new arrangement, ICPAS would continue to play a primary role in the accounting standards setting process. It would continue to issue exposure drafts and manage the feedback to the exposure drafts. ICPAS would continue to play a primary role in the accounting standards setting process. It would continue to issue exposure drafts and manage the feedback to the exposure drafts. ICPAS would then make representations to the CCDG on whether there are any reasons why an international standard should not be adopted in Singapore. To ensure timeliness, the CCDG would decide on the prescription of an accounting standard within 3 months after the corresponding standard has been issued by the International Accounting Standards Board. The CCDG would determine the effective date for adopting an international standard. It would also issue interim guidelines in areas where there are no international standards.
Second, to strengthen the existing framework on disclosure practices and reporting standards - The CCDG will review the disclosure practices of both listed and unlisted companies. It would then make recommendations on how these could be improved to align Singapore's disclosure requirements with world class standards.
Third, to review and enhance the existing framework on corporate governance and promote good corporate governance in Singapore - The CCDG would own the Code of Corporate Governance. It would regularly update the Code to ensure it remains relevant and useful. In reviewing the Code, best practices from leading jurisdictions would be adopted. The CCDG would also be responsible for helping to raise the level of corporate governance in Singapore.
25. The establishment of the CCDG would be a positive step forward to improve Singapore's corporate governance, disclosure practices and accounting standards. Its membership would be announced in due course.
26. In conclusion, I would like to commend ICPAS for hosting this 12th AFA Conference. The accounting profession has played a vital role in helping to strengthen our corporate governance and regulatory framework. The drive for higher standards of disclosure and corporate governance can only be accomplished through close collaboration between the Government and the private sector. We should also work hand in hand with our ASEAN colleagues to ensure that our region succeeds and prospers in the New Economy.
27. I wish you all the best for this Conference and success in your future endeavours.