Speech By Mrs Lim Hwee Hua, Minister Of State For Finance And Transport At The Pricewaterhouse Coopers Dinner Presentation On 28 August 2007, 7.45 pm, Grand Hyatt Singapore28 Aug 2007
Sir David Tweedie, Chairman of the International Accounting Standards Board
Distinguished Guests, Ladies and Gentlemen, Good evening.
Welcome to Sir Tweedie
2. First, I would like to extend a warm welcome to Sir Tweedie to Singapore. I understand that you are in Singapore for the International Accounting Standards Committee (IASC) Foundation Conference. This is the first time the conference is held in Asia, and I am happy that you have decided to have it in Singapore. I hope you would enjoy your stay here.
3. I thought I should start off on a lighter note, by sharing with you a joke on the accounting profession, which my staff found and sent to me. For those of you who have heard about this joke, I would like to seek your indulgence. The joke goes something like this,
"On a sunny afternoon three accountants are standing near a tall pole and wondering about the height of the pole.
The first accountant, a partner in a small firm says, "I do not think there is any authoritative guidance on how to measure the height of a pole, that is not the job of accountants."
The second accountant, an accounting professor says, "Well, if we take a survey of similar locations and asked people about the height of poles, then we may be able to deduce the height of this pole; it will be a good enough estimate."
The third accountant is a partner in a big 4 firm of accountants. He confidently claims, "if we measure the shadow of the pole under different conditions, then I can run a multivariate regression model and can give a very good estimate of the height."
As this conversation is going on, an engineer passed by and asked what the accountants are discussing about. Upon hearing the problem, the engineer smiles, lifts the pole from the base, took out his measuring tape, measures it, and says, "twelve feet and three inches," before walking off.
The accountants look at him, laugh and say in unison - "typical - we wanted to know the height of the pole and he tells us the length."
4. It was said that the best jokes are those with a modicum of truth in them. Small accounting firms periodically seek guidance, especially on interpreting accounting standards. I will come back to this point later. Accounting professors will try to be in touch with what others do. And large firms, with their technical departments, will always want to use their own sophisticated frameworks. But at the end of the day, are we closer to understanding and presenting the right picture? This is a critical challenge facing the accounting profession, and it is only in overcoming this challenge that we can keep on building up trust in the profession.
TRUST AS A CRITICAL SUCCESS FACTOR
5. I believe all of you would agree that trust is critical to the effective and efficient functioning of markets. However in recent years, investors' confidence and trust in the markets have been seriously undermined by a series of high-profile cases of corporate mismanagement and financial distress. This has also led to the destruction of one global accountancy business, the erosion of public trust in the accounting profession, as well as a substantial increase in the regulatory burden for business and not-for-profit entities and risks for others.
6. We have come some way in restoring confidence in our economy and trust in the accounting profession. The question is how we can continue to build on this. I would like to first share with you the regulatory framework that we have put in place in Singapore, before focusing on what I think you as accountants and CFOs of companies can do to help buttress this trust.
GOVERNMENT'S KEY INITIATIVES TO PROMOTE TRUST
7. As Government, in our role as regulators, our greatest challenge is to tackle malpractice and to boost public confidence, without stifling the economy nor laying down unnecessary red-tape or increasing the compliance burden for entrepreneurs. In Singapore, we recognise that in order to retain our reputation as a trusted reference, and as a regional financial hub, it is imperative that we pursue and practice global standards that are recognised and trusted internationally. Let me elaborate.
Adopting International Accounting Standards
8. The rationale for a global accounting standard is that it allows investors to draw better comparisons among the different investment options. It also provides assurance that the accounts are being prepared in a consistent manner. The assurance has multiple benefits. To companies and the lenders, it provides a better financial diagnosis, which ultimately helps to reduce the costs of borrowing and lending. To investors, it helps to bring about a more accurate evaluation of their investment risks.
9. Hence, in Singapore, we recognise the need for the harmonisation of standards and have, since 2002, through the Council on Corporate Disclosure and Governance or CCDG, adopted the International Financial Reporting Standards (IFRSs) and International Accounting Standards (IASs) issued by the International Accounting Standards Board.
10. This practice of taking reference from the IASB would continue under the newly-set up Accounting Standards Council, which will replace the CCDG as the new accounting standards setting body.
Adopting International Auditing Standards and Code of Ethics
11. Besides adopting international accounting standards, to ensure that we maintain our reputation for trustworthiness, integrity and competence, we have also adopted international auditing standards. Thus, as part of the accounting oversight function, the Practice Monitoring Programme administered by the Public Accountants Oversight Committee currently audits the work of auditors based on the auditing standards issued by the Institute of Certified Public Accountants of Singapore, which are in accordance with the auditing standards issued by the International Federation of Accountants or IFAC (pronounced as I-FAC).
12. In addition, the Public Accountants Oversight Committee is looking at adopting a Code of Ethics based on the IFAC's Code of Ethics for Professional Accountants. This proposed Code of Professional Conduct and Ethics for Public Accountants is now up for public consultation and I would like to encourage all of you to actively participate in the consultation.
ROLE OF AUDITORS AND ACCOUNTANTS
13. However complying with international standards is of limited use if companies do not, in abiding with the standards, keep to the spirit behind these standards. As Plato once noted, "Good people do not need laws to tell them to act responsibly, while bad people will (try to) find a way around the laws." And that is where those of you, who are auditors and CFOs of companies, can play a useful role. For while it is possible for the Government to outlaw false accounting through the use of legislation, it is up to you to root out creative accounting.
14. As CFOs, group accountants and accounts executives, you play an important role in preparing proper accounts, and in consistently and faithfully applying internationally recognised accounting standards.
15. As auditors, your role is to be vigilant and to never let satisfaction about a business's compliance with the letter of the accounting standards cloud your judgments about the underlying commercial realities. This is crucial because the public places great trust on the stamp of approval provided in the auditors' reports.
Interpretation of Accounting Standards
16. All these are however easier said than done. Given that accounting standards are principle-based, some accountants prefer greater certainty to be given. And just like the first accountan t mentioned in my joke earlier, some are of the view that it is not the job of accountants to interpret accounting standards and would prefer this to be done by the accounting standards setting body.
17. I am aware that the IASB is mindful of this and is wary of providing too many clarifications on the principles-based standards lest they become rules. While we appreciate and agree with IASB's policy of not providing excessive interpretations, we believe some form of implementation guidance would still be needed as there are grey areas within the accounting standards.
18. This sentiment is echoed in a recent survey conducted by CPA Australia and the Corporate Governance & Financial Reporting Centre at the National University of Singapore on the draft IFRS for SMEs, whereby 37% of the respondents feel that more guidance should be given on the implementation of the proposed IFRS. We believe the issuance of interpretations by the IASB, in a controlled manner, may be a lesser evil than the situation whereby, in the absence of an international interpretation, each regional accounting standards setting body would take it upon itself to issue its own interpretations, thus leading to a divergence of standards.
19. At our end, I would also encourage accountants and auditors to provide thought-leadership on this and to be ready to exercise your professional judgement on how an accounting standard should be applied. Rather than wait for an interpretation, preparers and auditors of accounts should learn to ask themselves whether the information disclosed as a result of the implementation of an accounting standard makes sense, and whether it helps to provide investors and other users of accounts with an appropriate and accurate view of the company as seen through the eyes of management.
20. I would also recommend that you be more forthcoming with your comments and suggestions when exposure drafts of new accounting standards are issued for public consultation. Surface your concerns early.
21. Finally, the restoration of public trust in the accounting profession also has a direct implication for the attraction and retention of talent in the accounting profession. While most of the discussion on talent retention in the profession has centered on remuneration aspects, another important factor is the public image of accountants. It is safe to say that no one wants or likes to work in a profession that is associated with moral ambiguity! It is thus imperative that the accounting profession continue to prove that accountants are men and women who possess the virtues of integrity, honesty and who are bold enough to question anything, including the dubious practices of some companies.
22. With that, I wish all of you an enjoyable and enriching evening. Thank you.