Speech For The ICPAS Annual Dinner 1999 By Minister For Finance Dr Richard Hu, Hilton International Singapore, 5 Nov 9905 Nov 1999
Mr Tan Boen Eng, President of the Institute of Certified Public Accountants of Singapore
Distinguished guests, Ladies and Gentlemen,
I am very pleased to join you here today for the Institute's Annual Dinner.
Recent Developments: Corporate Governance
2 This year's celebration comes against a backdrop less clouded by uncertainty, compared to this time last year. The economy has returned to positive growth and we can be more optimistic about the outlook for the future. However, corporate restructuring and the pain associated with the economic adjustments will continue. Businesses and companies have to recognise that they are facing a much more competitive and demanding business environment and make the necessary structural changes.
3 There will be much greater scrutiny on the issue of corporate governance. The corporate governance debate focuses on how to reduce the grey areas of corporate health, where excessive discretion and subjective judgements often cloud the quality and integrity of corporate reporting and performance. The need today for companies, their accountants and auditors, to deliver responsible financial reporting is urgent. Investors are paying more attention to corporate earnings and how these earnings are computed. Financial instruments are getting more sophisticated and so too risk management. Developments in information technology will provide investors with easier and wider access to financial information.
4 The increased focus on corporate governance is worldwide. Early this year, the Organisation for Economic Cooperation and Development (OECD) published a document on the Principles of Corporate Governance. In the US, a high-powered Blue Ribbon Committee recently presented ten recommendations on "Improving the Effectiveness of Corporate Audit Committees". The Committee commented that, "If a corporation is to be a viable attraction for capital, its board must ensure disclosure and transparency concerning the company's true financial performance as well as its governance practices. Accounting games may be short-term fixes, but they are not long-term bases for financial credibility".
Increasing demands on the profession
5 Demands on the quality and integrity of accounting is being ratcheted upwards everywhere. In the US, the Financial Accounting Standards Board - noted for its independence from corporate pressure - will be tightening merger accounting rules to put an end to accounting techniques used to avoid reporting goodwill on balance sheets after a takeover deal. Last year, the US Securities and Exchange Commission (SEC) also asked the Big Five accounting firms to upgrade their internal controls and training programmes due to an alarming rise in cases of fraud at public companies audited by the Big Five firms.
6 The pace of change is already apparent in the field of information technology. The American Institute of Certified Public Accountants last month announced that it will be backing the development of a new Internet "mark-up language" for the preparation of financial information that will make financial figures easier to search for and analyse when posted on-line by companies. This will make the work of accountants and auditors everywhere increasingly open to investors' scrutiny. More of such changes will come.
7 Singapore needs to keep up with these changes if we intend to stay abreast of international economic competitiveness.Much has already been said and written about the move in Singapore's regulatory regime towards "supervision with a lighter touch", based on disclosure. A freer hand for the industry does not and should not imply a lower standard of regulation. In fact, we can only be confident of moving towards disclosure-based regulation if our supporting infrastructure is strong enough. The driving principle behind this is that the ultimate responsibility of the soundness of our corporate environment lies with the businesses and corporations themselves.
Role of accountancy profession
8 The accountancy profession plays a critical role in such an infrastructure. Public accountants are the custodians overseeing the smooth operation of the corporate sector. In order to hone our competitive edge to keep in step with these new demands, public confidence in the integrity of our corporate environment, and the international comparability of our standards must take precedence. The Institute, together with the Public Accountants Board (PAB), fulfils the function of custodians of public interest in upholding high standards of technical competence and ethical conduct expected of public accountants.
ICPAS' initiative on accounting standards
9 In this regard, I am very pleased to note that the Institute has agreed to review the Singapore Statements of Accounting Standards (SAS) to strive towards making them identical to International Accounting Standards (IAS) as far as possible, and exceeding them in parts where appropriate. I also understand that the Institute will similarly review the Singapore standards within a year of new IASs being issued. The Institute's role will be of great help to the Public Accountants Board fulfilling its statutory responsibility to prescribe the standards, methods, and procedures to be followed by public accountants in discharging their work in the course of their profession. As we seek to establish ourselves as a world-class international financial and business hub, our standards and practices must closely follow those of reputable comparable centres. International best practices and standards are not a matter of willy-nilly choices. How we benchmark against them will represent how we are judged by the international investor. This will mean that where we differ from the International Accounting Standards, we should have strong and justifiable reasons for the special Singapore circumstances that demand these deviations. It is good to know that ICPAS is keen to meet this challenge.
Future directions: Incorporation
10 To provide for a greater degree of flexibility to cope with these challenges, we will be pushing forward with a proposal to allow for incorporation as an option for constituting public accountant entities. I am sure this is good news for the public accountants here. Incorporation of public accountants will put our law on par with comparable jurisdictions such as the United States, the United Kingdom, Australia, Canada, New Zealand and Hong Kong. It should enhance our competitiveness and attractiveness in terms of the operating environment for public accountants. Of course, incorporation also allows for a better allocation of accountability among public accountants - while the public accountant involved remains liable under the law of tort, the other public accountants will not be jointly liable.Incorporation may also help public accountants retain their staff through more flexible remuneration packages. My Ministry will be sponsoring the promulgation and development of the corporate option for public accountants. We will move the necessary legislation within a year.
11 The new opportunities and challenges ahead will bring with them fundamental changes to the way the business of accountancy is conducted in Singapore. Bigger firms with greater resources will inevitably threaten the survival of smaller players who do not look ahead. Our public accountants should not be content with being cosy domestic players in a safe and protected harbour. It is in these times that they need to re-think strategies, aim for world-class standards, and extend their sights beyond Singapore. With the onset of incorporation, a sensible international benchmarking of our accounting standards, and the demands of bus inesses for excellent service, our accountancy professionals will not have too little to take stock of and prepare for. I hope that the Institute will meet these challenges squarely and bring us closer towards fulfilling our ambition to be a world-class financial centre and business hub.
12 On this note, I wish you an enjoyable evening, and congratulate all who receive the ICPAS Award tonight for your contributions to the profession and community.