Speech By Dr Richard Hu, Minister For Finance, For The Singapore International Chamber Of Commerce AGM, On 21 May 2001 At The Shangri-La Hotel21 May 2001
Chairman and members of the Singapore International Chamber of Commerce,
Ladies and Gentlemen:
I am very pleased to join you in your 160th Annual General Meeting luncheon.
2 In its 2001 World Competitiveness Yearbook, the International Institute for Management Development ranked Singapore as the second-most competitive economy in the world for the fifth consecutive year. In terms of Government efficiency, we retained our number one spot. Singapore's business environment is also highly rated in other international rankings, like the World Economic Forum and the Political and Economic Risk Consultancy (PERC). A recent ranking by leading business magazine Forbes Global rated Singapore as the second best place in the world to start a business.
3 While Singapore has been rated well, that is the past and present. We must always be working for the future. Many countries are striving hard to attract foreign investments and to develop their local enterprises. As a small economy, Singapore has no choice but to embrace the logic of globalisation and learn how we can navigate through the waves of rapid change. The Government, in partnership with the private sector, must regularly review our regulations and corporate practices to ensure they are of world-class standards and that they remain conducive to businesses.
4 Meeting high international standards of corporate governance helps us attract foreign capital and assure investor confidence. It would also help Singapore companies continually push themselves to meet the intense demands of the global economy. It is not simply a matter of Singapore companies being stronger in their expansion overseas. It is also very much a matter of domestic-bound Singapore companies being able to withstand better the foreign competitors setting up shop in Singapore. Shielding Singapore companies from competition is not the sustainable route to prosperity. It is high standards and superior capabilities that give the maximum chances of future successes.
Review on Corporate Governance and Regulation
5 Many of you will know that we have three private-sector-led committees reviewing corporate governance and regulation in Singapore, and recommending how best to align our practices with the leading jurisdictions in the world. The committees aim to improve the level of corporate governance and disclosure in Singapore, and to review our corporate legislation so that they remain useful and relevant in the current operating environment.
6 The Code of Corporate Governance that was recently issued by the Corporate Governance Committee, sets out a model and benchmark of corporate governance practices for Singapore companies to strive towards. The committee recommended that Singapore adopt a balanced approach. The Singapore Exchange has endorsed the Code. While companies may deviate from specific aspects of the Code, they have to disclose and explain the areas of non-compliance in their annual reports.
7 The committee on Company Legislation and Regulatory Framework is undertaking a comprehensive review of our company law, taking up ideas from the latest changes in leading jurisdictions elsewhere while always mindful of the particular circumstances in Singapore. The committee is working on its consultation paper and will be seeking public feedback later in the year.Among its broad ambit is looking at ways to simplify the incorporation process and reduce business costs, and facilitating capital raising by companies. These are important issues that could benefit all companies in Singapore.
8 The Disclosure and Accounting Standards Committee or DASC, has reviewed the process by which accounting standards are set, maintained and regulated in Singapore. It has also studied how we can achieve greater transparency through better disclosure practices, especially among public-listed companies. In December last year, the DASC conducted a public consultation to seek feedback on its preliminary views. I am pleased to note that the first consultation has attracted many good comments and responses from businesses, professionals, academics, and investors.
9 The DASC has thoroughly considered all the feedback received and, as a result, made some significant changes to a few of its recommendations. It is putting out its revised draft report today for a second round of public consultation, before it finalises its report to the Government. I would like to take this opportunity to thank the Chairman and members of the DASC for their hard work in the past months to put together such a comprehensive report. That they are taking the trouble to offer a further opportunity for public comment shows how seriously they have taken feedback, and seek to do what is best for business in Singapore. I urge everyone to read the report and give thought to its proposals.
10 The DASC recommendations aim to improve Singapore's disclosure and accounting standards. Let me highlight a few of them.
Prescribed Accounting Standards
11 The DASC has recommended that International Accounting Standards or IAS, be adopted as the accounting standards for Singapore. Each time a new IAS is issued, it will be carefully studied and the timing for its smooth adoption in Singapore settled on. The standards adopted would be the prescribed accounting standards and be termed 'International Accounting Standards (Singapore)' or 'IAS(Singapore)' for short.
12 The recommendation on IAS (Singapore) notwithstanding, the Committee has sought to strike a balance for companies that have to use some other accounting standards in pursuit of their business. The Singapore Exchange currently allows foreign companies to use certain alternative accounting standards. The DASC feels that Singapore-incorporated companies on the Singapore Exchange should similarly be permitted to use alternative standards, as long as there are sufficient safeguards in place to protect investors. It is therefore proposing that listed Singapore-incorporated companies be permitted to use allowed alternative standards if they are also listed on foreign exchanges that require these standards. For such dual-listed companies, the committee feels that analyst reports would be available to help investors to compare the company with other companies in that industry on the foreign exchange, so that the need to have such analyst reports comparing against other companies on the Singapore Exchange would be less critical.
13 The DASC's view is that it imposes an unnecessary cost on a company to continue with the current requirement that a Singapore-incorporated company listed on both the Singapore Exchange and a US exchange, for example, would have to prepare separate accounts in accordance withthe two different accounting standards. To elaborate, the committee is recommending that Singapore-incorporated companies that are dual listed in Singapore and the US be permitted simply to use US GAAP in the preparation of its accounts. Investors could rely on reports from US analysts to compare such companies with other US listed companies. To give flexibility also to companies which are not listed, the DASC is recommending that they be similarly allowed to use alternative accounting standards if they have good business reasons for doing so, subject to specific approval from the Ministry of Finance.
Accounting Standards Setting Process
14 In line with the practices in the US, UK and Australia, the DASC is recommending that the Minister for Finance establish a panel on corporate governance with representation from businesses and organisations such as the Institute of Certified Public Accountants of Singapore, Investment Management Association of Singapore, Singapore Exchange, Securities Investors Association of Singapore and Singapore Institute of Directors. The panel would undertake the prescription of accounting standards in Singapore, after considering if there are overriding reasons why an IAS should not be adopted, or adopted immediately, as a prescribed accounting standard in Singapore. In addition, the panel would review and recommend to the Government enhancements in corporate governance and disclosure practices on a regular basis.
15 Finally, I wish to touch on the DASC's recommendation on auditor independence. Public accountants have an important role in society. The investing public, as also other stakeholders, relies on public accountants for sound financial accounting and reporting. It is therefore important to ensure the objectivity and integrity of public accountants in their capacity as company auditors.
16 In line with the practices in leading jurisdictions, the DASC is recommending that auditors be prohibited from providing certain non-audit services to their audit clients, if the client is statutorily required to file its financial statements with the Registry of Companies and Businesses. Specifically, the recommendation is to disallow company auditors of non-exempt companies from undertaking bookkeeping and company secretarial functions in the company. To enable auditors to make the necessary arrangements with their audit clients, the committee is recommending that prohibition of these services will only come into effect from January 2003. 75% of companies in Singapore are exempt companies, and so will not be affected by this recommendation.
Push for e-Government and Less Bureaucracy
17 In addition to improving Singapore's corporate practices and reviewing our regulatory framework, the Government recognises that public agencies themselves must continually trim bureaucracy and help lower business costs. A critical part of this is e-government, meaning a more widespread use of electronic delivery to improve the efficiency of public services.
18 To simplify the incorporation process, the Registry of Companies and Businesses or RCB will be introducing an electronic filing system at the end of the year. This system will allow companies and businesses to register and file their documents via the Internet. Applicants will benefit from round-the-clock service and shorter processing time. Businessmen no longer need to be physically present at RCB and queue up for the RCB services. For greater convenience to the public, all documents that are filed with RCB will be available online. I am confident that the business community will welcome the launch of this e-filing system.
19 There is also an on-going initiative to develop an online system that will allow companies and businesses to seamlessly apply for various Government licences via the Internet. With the one-stop licence application system, an applicant will no longer need to put in separate applications to each licensing authority. By completing just one form, he will be able to electronically register his company or business and apply for the required licences at the same time. The system will certainly simplify and speed up the process of starting a business.
20 These are just two examples of how e-government will change the government-business interface. Here I have to make the special point that as the Government expands the scale and scope of its electronic services, businesses also must be prepared to change internal procedures and processes so as to fully benefit from the productivity gains that comes with electronic delivery. There are many firms today, for example, who are unwilling to effect payments electronically because their internal processes are made for cheque payments, and they are unwilling to change their procedures.
21 The ongoing reviews to align ourselves with global standards, and the initiatives to streamline our rules and procedures, are important steps towards building a world-class business and financial centre. The 1997 Financial Crisis highlighted the importance of good corporate governance and strong regulatory frameworks. Singapore companies managed to escape relatively unscathed because investors and multi-national businesses had confidence in our workers, our companies and the Government. We need to continue strengthening our foundations so that our companies have the resilience to ride the fluctuations in the economic cycle and the wherewithal to win in the global economy.
22 I commend the Chairman and members of the Singapore International Chamber of Commerce for your contributions in making Singapore one of the best places for doing business, and telling the world about it. I wish you in your respective businesses much success as we all look ahead to a future we cannot predict but hope to do well in.
23 Thank you.