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Second Reading Speech By The Minister Of State For Finance, Mrs Lim Hwee Hua, On The Accounting Standards Bill 2007 at The Parliament, 27 Aug 2007

28 Aug 2007

Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".

2. The Bill before the House seeks to establish the Accounting Standards Council in place of the Council on Corporate Disclosure and Governance (i.e. CCDG) to issue accounting standards applicable to companies, and other incorporated and unincorporated bodies. The Bill will also require certain statutory bodies to prepare their financial statements in accordance with accounting standards established by the Accountant-General.


3. In August 2002, the CCDG was set up under the Companies Act as the authority to prescribe accounting standards namely the Singapore Financial Reporting Standards or SFRS, for all companies. It also advises MOF on corporate governance issues pertaining to listed companies.

4. The CCDG has served its purpose well. In the area of corporate governance, it has laid down the foundation of a strong and robust corporate governance framework for listed companies. It is now timely for this function to be taken over by MAS and SGX, given the synergies with their role as market regulators of listed companies. This would help to ensure a consistent approach in prescribing mandatory requirements and best practices for listed companies.

5. Similarly, in the area of accounting standards, the CCDG has done much to improve the efficiency and rigour of the accounting standards setting process for companies. The CCDG however has no authority to issue accounting standards for non-corporate entities such as societies and co-operatives, as it derives its authority from the Companies Act. These non-corporate entities have often been adopting the SFRS, even though they are not legally required to do so. This is not surprising as their auditors need to audit them against an acceptable accounting standards framework, which by default is the SFRS. This is not always satisfactory for these non-corporate entities as they find themselves having to comply with accounting standards that may not be suitable for their purposes since SFRS were drawn up primarily for companies.

Consolidated Accounting Framework for Private and People Sector Entities

6. Hence, to address this gap, the Accounting Standards Bill provides for the creation of a well-represented council, which would be known as the Accounting Standards Council or ASC for short.

7. Parts I and II of the Bill establish the ASC and set out its functions, constitution, as well as the procedures for its meetings and proceedings. Clause 3 establishes the functions of the ASC, namely to prescribe accounting standards for companies and for any other entities like societies, charities and cooperatives. With its functions on corporate governance issues and company accounting standards taken over by SGX/MAS and the ASC respectively, the CCDG will be dissolved. I would like to thank to thank the Chairman and members of the CCDG for their significant achievements and contributions.

8. Clause 4 of the Bill allows the Minister for Finance to appoint a Chairman and up to 15 members to the ASC. The ASC will comprise senior accounting professionals, regulators, preparers and users of financial information, among other stakeholders.

9. Part III sets out the manner the ASC would go about setting accounting standards. Clause 9 of the Bill provides the objectives behind the accounting standards formulated by the ASC. The ASC would ensure that the accounting standards set are relevant to the entities they are applicable to, are readily understandable by both the preparers and users of financial information and can facilitate comparability. In addition, to ensure that stakeholders are fully aware of the accounting standards issued, the ASC is required, under clause 10 of the Bill to publish a notice of the making of the accounting standard(s). It will also have to make available copies of it, and all prior amendments, for inspection by members of the public.

10. In formulating the accounting standards for non-corporate sector entities, the ASC will consider the suitability of the proposed accounting standard to the entities concerned and will, if necessary, apply different accounting requirements to different types of entities. The ASC is empowered to propose suitable modifications to existing SFRS to make them more appropriate and relevant for these entities, without compromising the quality of the standards. In areas where there is presently no relevant SFRS, the ASC may consider either issuing its own standards or adopting an alternative set of standards.

11. This framework which consolidates the accounting standards setting authority for both corporate and non-corporate entities under one roof will ensure consistency in standards, facilitate comparison of accounts between different entities, and enhance the credibility and transparency of reporting. The ASC is responsible only for the formulation and promulgation of accounting standards. The monitoring and enforcement of compliance with accounting standards will remain the prerogative of the respective regulators, viz. ACRA for companies, Commissioner of Charities for charities, Registrar of Co-operatives for co-operatives and Registrar of Societies for societies.

Accounting Standards for Charities

12. Currently a charitable organisation may be set up as a company, society or trust, before registering with the Commissioner of Charities as a charity. While charities incorporated as companies are required by the Companies Act to comply with the SFRS, there is no such requirement for charities that are registered as societies or trusts. This inconsistent treatment creates an uneven situation where certain charities are subject to a more stringent disclosure regime owing to the legal vehicle they adopt. This also makes it difficult to compare the financial health of two charities which may be pursuing the same charitable objects, but are set up using different legal vehicles.

13. To address this, the consequential amendments to the Companies Act and the Societies Act provide that once the accounting standards for charities have been formulated and promulgated, they would take precedence over accounting standards for companies and for societies. This means that in future, a charity, regardless of the legal vehicle it uses, would have to comply exclusively with the accounting standards for charities. This is in line with the policy objective of having accounting standards that are more appropriate and relevant to the purpose the entity is set up to pursue.

14. This practice of having a separate set of accounting standards for charities is consistent with the practice in the UK. Under the ASC, the accounting standards for charities would continue to take reference from the SFRS and would be supplemented with specific requirements to meet the special accounting needs of charities.

15. As the ASC would need some time to formulate the accounting standards for charities, the Ministry of Community Development, Youth and Sports would in the meantime, conduct a holistic review of the Charities Act. Hence the necessary consequential amendments to the Charities Act to make it mandatory for all charities to comply with the charities' accounting standards would be moved in Parliament at a later date.

Accounting Standards for Statutory Boards

16. Clause 11 of the Bill empowers the Accountant-General or AG to establish accounting standards for statutory boards. This is merely a formalisation of the current arrangement whereby MOF, through the Accountant-General's Department, would issue finance circulars to prescribe the accounting standards to be complied with by statutory boards.

17. While statutory boards may share certain characterist ics of corporations, there is a fundamental difference, which is that statutory boards do not have public shareholders and are accountable to Parliament. Hence standards that are formulated based on the profit motive, which are of paramount concern to shareholders and creditors, may not always be appropriate for statutory boards. Instead, the accounting standards for statutory boards would be driven by the three objectives of enhancing statutory boards' accountability to Parliament, strengthening transparency, and ensuring a better and more efficient stewardship of public assets.

18. Let me assure the House that this will not lead to a "cherry-picking" of accounting standards for statutory boards. Clause 11(2) of the Bill provides that AG in establishing the accounting standards shall first take reference from the standards and interpretations issued by the ASC. AG would modify or introduce new standards or guidelines only in areas where the SFRS is lacking or where the SFRS is providing insufficient guidance to statutory boards. An example of an area currently not clearly addressed by the SFRS, which might necessitate the intervention of AG, is how assets of Public-Private Partnerships (PPP) should be accounted for in the books of public sector agencies.


19. Sir, the creation of the ASC is a positive step towards ensuring that local accounting standards are of a consistent high quality. More importantly, the ASC will draw up standards that are customised to the circumstances of non-corporate entities, which would help them to provide a clearer link between their objectives, activities and results to their stakeholders.

20. Mr Speaker, Sir, I beg to move.