Speech By Mr Lim Hng Kiang, Minister For Health And Second Minister For Finance For The Asian Academic Accounting Association Inaugural World Conference On 28 August 2000 At 9 Am, At Pan Pacific Hotel28 Aug 2000
Good Morning Ladies and Gentlemen,
It is good to see an Asian initiative amongst the accounting academics and practitioners to discuss corporate governance issues affecting the region. I congratulate the Asian Academic Accounting Association (AsianAAA) for taking the initiative to organise this inaugural World Conference.
Globalisation and Its Effects on Disclosure and Accounting Standards
2. You have chosen the theme "Disclosure, Governance and Transparency - Challenges for Financial Market Development in Asia". This is an apt theme for discussion, especially when it is set against the backdrop of globalisation and its effects on disclosure and accounting standards.
3. A global capital market depends on three things: consistency in drawing up financial information, consistency in the disclosure of corporate information and the ability of investors to believe in the truth of the first two matters. Indeed, disclosure, governance and transparency have received much attention in many circles around the world. The three concepts are closely inter-twined. At the heart of these issues are good stewardship and corporate credibility.
4. OECD, at its recent Asian Roundtable on Corporate Governance held in Hong Kong, had focused on the role of disclosure in strengthening corporate governance and accountability.
5. The International Forum for Accountancy Development (IFAD) is currently undertaking studies on the implementation of accounting and auditing standards, with the support of the Asian Development Bank (ADB), International Monetary Fund (IMF), World Bank, regional development banks, Bank for International Settlements (BIS) and International Organisation of Securities Commissions (IOSCO).
6. The new economy has brought about a new landscape for corporate governance, disclosure and accounting standards. The accounting industry would need to come up with new ways to measure intangible assets such as intellectual property and knowledge. With the Internet, increased connectivity and speed of information flow will lead to stronger demands for timely disclosure and transparency. I can immediately think of two key areas which we need to respond to.
7. Firstly, global developments are taking place at an increasingly rapid pace. Business transactions now happen at Internet speed. This affects the setting of accounting standards too. For example, when the G4+1 countries, namely Australia, Canada, New Zealand, the United Kingdom and the United States of America, announced the draft on accounting for employee stock options, the debate in the Singaporean media was immediate. In the past, we could afford to take our time with exposure drafts, and it may take months to decide whether or not to adopt a new International Accounting Standard (IAS), but we do not have the luxury anymore. The market will decide and those who do not follow will get left behind.
8. Secondly, as cross-border listings become more frequent, regulators and International Financial Institutions become more demanding for improved accounting and audit quality. As companies face different regimes and accounting standards, this increases business costs. There is a case for harmonisation of accounting and audit standards. Given the dynamics of globalisation, convergence of these standards and the speed of their adoption have emerged as issues of necessity, not of choice.
9. In June this year,the European Commission announced that from 2005, all listed companies in the European Union will be required to use the new editions of the IAS. To tap into the global flow, we must ensure that our accounting standards are internationally accepted. Otherwise, we would be locked out of the global market. Public Accounting Corporations
10. The new operating environment will place increasing demands on accountants. Public accountants are key players in ensuring effective compliance with disclosure requirements and the integrity of our corporate environment. Currently, accounting practices in Singapore can operate only as sole proprietorships or partnerships. Under such arrangements, all partners in an accounting firm can be sued if a mistake is committed by a single partner.
11. To put our law on par with comparable jurisdictions such as the United States, the United Kingdom, Australia, Canada, New Zealand and Hong Kong, the Singapore Government is in the process of amending the Accountants Act to allow the formation of Public Accounting Corporations (PAC). This will result in better accountability among public accountants. While the public accountant who is involved remains liable under the law of tort, the other accountants in the PAC will not be jointly liable in their personal capacity.
12. More importantly, incorporation will provide a more conducive environment for the development of the accounting profession. Incorporation will facilitate the raising of capital and give accounting practices the resources to go global. PACs will also have greater flexibility in recruiting and retaining their staff. At the same time, sufficient safeguards on the ownership and control of PACs will be put in place to ensure that the independence of public accountants is not compromised. Whether they are operating as partnerships or corporations, public accountants will continue to be held against high standards of technical competence and ethical conduct.
Efforts to Improve Disclosure, Governance and Transparency
13. In today's world, financial markets are like inter-connected networks. Capital can flow at the touch of a button. Although our operating environment has become more complex and fast-changing, certain basic principles still apply. New economy does not necessarily mean we discard old values. SEC Chairman Arthur Levitt said that although we have complex markets, we should have simple rules of the game. Disclosure of reliable, accurate and timely information is a fundamental market requirement. To reduce market volatility and increase investor confidence, countries must continue their efforts to improve disclosure, corporate governance and transparency.
14. One key element is the development of a sound regulatory regime. Features of such a regime include the existence of an independent accounting standard setting body, properly constituted audit committees, strong professional organisations, and last but not least, effective regulators.
15. But having a sound regulatory regime is a necessary but insufficient condition because good disclosure and corporate governance cannot be achieved by regulations alone. We also need to spend time and resources in educating investors, directors, shareholders and the general public. We need to raise their awareness to the importance of good disclosure and strong corporate governance.
16. I am glad to know that the Singapore Institute of Directors andthe Securities Investors Association of Singapore have been working hard to educate and promote awareness amongst directors and investors. The media has also played an important role in enhancing transparency and good governance. I am also pleased to note that the Business Times recently launched the Corporate Transparency Index. This is a good initiative to improve corporate transparency amongst publicly listed companies in Singapore.
17. Disclosure, governance and transparency are important issues facing Asian economies. It is encouraging to see the strong interest amongst the organisers and participants of this Conference. I wish the AsianAAA and Singapore Management University every success, and congratulate all parties involved in making this conference possible.
18. Thank you