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Keynote Address by Mrs Lim Hwee Hua, Minister in Prime Minister's Office and Second Minister for Finance and Transport, at the IFRS Regional Policy Forum

13 May 2010

Trustees of the International Accounting Standards Committee Foundation:
Dr Robert Glauber,
Mr Jeffrey Lucy,
Mr Mohandas Pai,
Mr Noriaki Shimazaki,

Chairman of the International Accounting Standards Board:
Sir David Tweedie,

Distinguished Guests,

Ladies and Gentlemen,

1.      I am delighted to join you this morning at this International Financial Reporting Standards, or IFRS, Regional Policy Forum 2010. The theme for today, “Beyond the Global Crisis – Making Financial Reporting More Relevant to Stakeholders’ Needs” is a timely one and reflects a key challenge that we as policy makers are very keen to see addressed, especially at an international forum such as this.

A world without borders, and what it means for the standards-setting process

2      Globalisation is a double-edged sword. Globalisation brings countries and players closer, and provides businesses with better access to investors and funds from all around the world. However, globalization also means that countries are more vulnerable to financial fallouts that may originate in another part of the world. We continue to see the speed at which the global financial crisis can spread across the world. As the global marketplace adapts and develops from this inter-connectedness and integration of economies, we need a high quality, global business language that can facilitate the acceleration in cross-border movement of goods, services, technology and capital. It should be a language that gives investors and stakeholders certainty and confidence to use it in their financial reporting, and ultimately fosters stability in the global financial system.

3      A single global business reporting language will also help lower the compliance costs for companies seeking capital from different markets, and facilitate the comparison of companies’ performance across jurisdictions. This, in essence, is the value proposition of the IFRS developed by the International Accounting Standards Board, or IASB. The IFRS is widely regarded by many countries around the world to have the potential to become this single, high quality business language for the global marketplace.

4      However, for the IFRS to live up to its full potential as a global business language, it must demonstrate that financial statements prepared according to the IFRS will provide a “true and fair” view of business operations, and will fully reflect the realities of doing business in any particular domicile in the world. This is a tall order by any measure and reflects the magnitude of the task confronting the IASB in developing the IFRS into a truly global set of financial reporting standards.

5      To achieve this, the IASB will have to conduct extensive consultation with stakeholders such as investors and companies. It also needs to incorporate the views of regulators and tax authorities, so as to ensure that the standards will be robust and comprehensive. This is especially critical now since the IASB is conducting a fundamental review of key accounting principles and its conceptual framework, which will have a far-reaching impact in many areas. Take for example, the definitions of assets and liabilities. How they are defined would have a profound impact on how they are accounted for. Another example is revenue recognition - when and how revenue is recognised would also impact the bottom line, as well as what is eventually taxable.

6      As such, we are seeing an expansion in the influence of the IFRS, as it no longer affects just current and potential investors. Its reach extends to other areas such as prudential regulation and tax collection. One oft-cited example is fair value accounting, especially with regard to the valuation of securities. From the perspective of an investor in a bank, there is clear merit to fair value accounting, as it is the best indicator of what he indirectly owns, especially when the security has identifiable market value. However, from the perspective of policy makers and regulators, they are more concerned about systemic stability, and that fair value accounting may result in pro-cyclical behaviour.

7      The challenge thus lies in maintaining a fine balance between meeting the interests of investors and avoiding the build-up of risks that could affect the stability of the financial system as a whole. There is no easy solution to the fair value issue and I am heartened to note that the IASB has been working with various stakeholders, including the regulators, on the new accounting standard on financial instruments to replace the current IAS 39.

8      On another front, we are seeing a divergence between the legal definition of control and the accounting definition under the IFRS. Under the common law system, control is linked to voting rights and this is enshrined in our corporate legislation. However, under the IFRS, control is dependent not only on voting rights but also on other factors such as the ability to direct the activities of the entity. This move from the notion of de-jure control to de-facto control would potentially have a huge impact on how Real Estate Investment Trusts or REITS, which are prevalent in this part of the world, would be consolidated. This in turn would impact on a property developer’s decision to tap capital markets to finance growth in the real estate sector in this region.

Bigger role for Asia-Pacific in the Standards-setting Process

9      The Asia-Pacific region will increasingly become a key component of the global marketplace. In terms of GDP by purchasing power parity, China has the largest economy in Asia and the second largest economy in the world, followed by Japan and India as the world's third and fourth largest, respectively. Some of the busiest international capital markets can also be found in Asia, like Tokyo, Hong Kong, Shanghai and of course Singapore.

10      It therefore follows that the Asia-Pacific can, and should, take on a more active role in the IFRS setting process. The creation of the Asian-Oceanian Standard-Setters Group (or AOSSG) last year, of which Singapore is one of the founding members, is a step in the right direction. It allows the Asia-Oceania countries to come together and surface to the IASB the diversity of issues and concerns faced by businesses operating in Asia.

11      Besides contributing to the standard-setting process, economies in this region that have embraced the IFRS can also play a useful role in promulgating the use of IFRS amongst regional neighbours. While major jurisdictions in the Asia-Oceania region, such as China, Japan and India, have already taken steps to convert to the IFRS, more can be done to encourage those who have yet to do so.

Singapore’s role as a nexus and an enabler

12      While the Asia-Pacific is an important economic region, it is also fairly diverse and non-homogenous in terms of market practices. Singapore, as a major financial hub in Asia, can play an active role as a nexus between the IASB and other countries in this region. Singapore is firmly committed to the development of a single set of high-quality international accounting standards, and the Singapore Accounting Standards Council (or ASC) has already stated its intent to work towards full convergence with the IFRS for Singapore-inc orporated companies listed on the Singapore Stock Exchange by 2012.

13      I am pleased to note that the Singapore ASC has been proactively engaging the IASB on key accounting issues to reflect the business and economic realities of conducting business locally as well as in the region. The IASB, in turn, has been very receptive to the comments put forth by the standard setters in this region. A good example was the accounting for unexpired long-term leasehold land, which would have to be recognised as an operating lease in the past. Following feedback from the ASC, the Malaysian Accounting Standards Board and other standard setters in the region, the IASB revised the IFRS in 2009 to allow such long term leasehold land to be recognised as a finance lease. This reflects the importance of providing timely feedback to the IASB, and the IASB’s willingness to improve on the IFRS to take into consideration the business and economic realities that exist in different parts of the world.

14      Besides providing technical feedback and views on accounting issues to the IASB, the ASC also plays its part in promoting collaboration amongst our fellow standard-setters. In 2008, Singapore hosted the Regional Standard-Setters Meeting. Just this year alone, ASC has hosted several delegations from the region interested in Singapore’s experience in the adoption of IAS 39, as well as the Singapore Financial Reporting Standards (or SFRS), which are mainly aligned with the IFRS.

15      Such meetings are important as it allows us to have a mutual sharing of best practices and lessons learnt. I hope that the sharing sessions would set the foundations for future bilateral and multilateral cooperation efforts in adopting IFRS in Asia.

16      Moving forward, Singapore is committed to contributing and participating actively in the IASB standard-setting process, whether it is to provide venues for roundtable discussions or through the submission of feedback on accounting issues being studied by the IASB. We would also like to applaud the IASB and the IASCF for their efforts in putting in place a standard-setting process that is robust, open and inclusive. This helps to improve the quality of the IFRS and engenders a sense of ownership.


17      As we gather here today, we must bear in mind that the accounting standards-setting process cannot be done unilaterally. In order to achieve the goal of having a single set of high quality, global accounting standards, the IASB would need the active participation of all stakeholders arrive at a set of standards that are robust and can withstand the test of economic cycles and business reality.

18      To conclude, I will like to leave you with this quote from Henry Ford, “Coming together is a beginning. Keeping together is progress. Working together is success.” By gathering here today, we are already half way to success. It is left for us to work together as a collective group.

19      With that, I wish you all a fruitful conference ahead. Thank you.