Speech By Mrs Lim Hwee Hua,Minister Of State For Finance And Transport, At The CPA Forum, 11 August 2006, 9.00 am At The Stamford Ballroom, Swissotel The Stamford11 Aug 2006
Distinguished Guests, Ladies and Gentlemen,
Good morning. I am pleased to join you here at the CPA Forum 2006.
2. Let me begin by commending ICPAS and CPA Australia for organizing this valuable forum and producing the Business Dashboard television series that preceded today's event. Such events and programs help to keep accountants, if not the public at large, abreast of the latest developments in accounting.
3. In today's dynamic business environment, there are many facets to the role of accountants. They produce robust financial information that boosts the well-being and performance of our markets. They also help their clients, colleagues and employers become financially literate and enable them to understand the opportunities and challenges that their respective organisations face. Finally, they also act as stewards, safeguarding the public interest by educating investors and management about the importance of promoting ethics and governance.
4. Two important areas where accountants can specifically influence and educate the various stakeholders are through their roles as auditors and Chief Financial Officers, or (CFOs). Allow me to elaborate.
ROLE OF CFO
5. The increasing focus on corporate governance has brought the function of CFOs into the limelight. Good CFOs fulfil many functions. They are involved in creating value and growing the business. And as custodians of corporate financial information, they play a key role in earning the trust of investors. CFOs also need to guide their management as corporate governance and disclosure practices develop. This last task is particularly challenging.
6. In all their work, CFOs must act as advocates for good governance and of true and fair reporting, just as lawyers act as advocates for the rule of law. When helping companies adapt to new accounting standards, CFOs need to explain why these changes are taking place and how they strengthen the governance and disclosure standards. In this way, CFOs can help promote a strong governance and ethical culture in the commercial arena.
7. Robust and efficient regulation alone will not ensure high standards of governance. Companies need to demonstrate strong ethical leadership and an uncompromising commitment to integrity. While we cannot and should not be placing the personal ethics of others on the shoulders of CFOs alone, we can charge them with ethical leadership, and with ensuring that their companies understand the importance of fairness and honesty when dealing with stakeholders.
8. While the first priority of every business is building shareholder value, every business also has a social responsibility towards the community they operate in. The two need not be mutually exclusive. In this regard, I understand that some companies such as Singapore Airlines, Keppel Land, City Developments, Sembcorp Industries and Chartered Semiconductor Manufacturing, have out of their own initiative, incorporated sustainability accounting in their reporting and decision-making framework. This development is welcome as it creates a decision-making process that recognises the environmental and social impacts of business strategies. This would not only improve the environment in which businesses operate, but also make firms more attractive to today's consumers, especially at a time when consumers place increasingly greater emphasis on intangibles such as impact on the environment and social contributions.
9. I hope that in the years to come, more companies will follow suit and come to realise that as corporate citizens, companies owe a duty of care not only to their shareholders but also to the community they operate in.
10. It appears that CFOs are shouldering many responsibilities, and this load does not seem to be getting any lighter. I am thus heartened to know that ICPAS is forming a new Committee to address the professional requirements of ICPAS members that are currently CFOs. This committee will seek to address the needs of CFOs by organising conferences, workshops, round-table discussions, forums, dialogue sessions and networking sessions to keep them abreast of the latest developments in the industry.
11. Let me now touch on how auditors can play a broader role in raising governance standards in the conduct of business.
ROLE OF AUDITOR
12. Recent talk about the growing complexity of audit work - and the reported rise in audit fees - has thrown the spotlight on the role of auditors. While most of the people in this room would have the same understanding of what an auditor's role entails, members of the public typically have higher expectations, expecting them to police companies for fraud or to screen management for good ethical behaviour. I think there is a need to narrow this gap in expectations.
13. For example, in February this year, the Business Times reported concerns that some companies, especially those with unproven track records, were unable to obtain audit services from top tier firms. It was suggested that audit firms are worried that if they accept a company as a client and it is subsequently implicated in corporate misdemeanours, the reputation of the audit firms may be severely damaged.
14. This is a troubling trend that represents a serious obstacle to business growth in the region. While we recognise it is purely a business decision when accounting firms decide who to take on as audit clients, we would strongly urge auditors not to shy away from companies with supposedly unproven track records. Auditors should instead work with these companies to help them lower their risk profiles. They should help these companies understand the importance of ethics and good governance, and show them how to enhance their financial reporting framework. This will lower the chances of corporate failure and of the audit firm's reputation being damaged. This may even improve the reputation of the audit firms as they would now be associated with firms of improved corporate governance standing.
15. Auditors should also ensure that their audit work is conducted in accordance and in compliance with international standards. Locally, the Public Accountants Oversight Committee, in conducting their Practice Monitoring Programmes, has adopted audit standards issued by ICPAS. These standards are equivalent to those issued by the International Federation of Accountants. This serves as a form of quality assurance, ensuring that the audits performed by local auditors are comparable to those done by their international counterparts. Convergence with international standards will enhance Singapore's standing as a trusted reference in the international business community.
16. I am confident that Singapore has high quality standards in place, and that we are on the right track for the future. The next step is educating the market players - directors, management, investors, shareholders and the public, - about what they can expect from accountants who are committed to these standards.
17. The topics for today's forum are harmonization with international standards, and sustainability accounting. Both of these developments require paradigm shifts and would therefore need some effort to get buy-in from all stakeholders. Through thought leadership and strong communication, I expect the Singapore's accounting profession to lead this thinking in a positive direction and also secure the support and confidence of all concerned.
18. With that, I wish you all a fruitful discussion ahead. Thank you.