Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister for Finance at ACRA'S 10th Anniversary Dinner01 Apr 2014
Ms Lim Soo Hoon, Chairman of ACRA,
Board members of ACRA,
Ladies and gentlemen,
I am very pleased to join you in commemorating ACRA’s 10th anniversary. Ten years may not be a long time, but ACRA can look back with satisfaction at the important role it has played in building a trusted and responsive regulatory environment in Singapore - broadly trusted by investors, yet responsive to evolving business needs.
2. Since 2006, Singapore has been ranked by the World Bank as the world’s easiest place to do business. Equally important, we have a regulatory environment that most investors regard as providing ample disclosure, and effective legal remedy when investors are discriminated against or cheated.
Evolving Corporate and Accountancy Landscape
3. A critical part of this environment is the presence of an effective and professional accountancy sector. We have embarked on major strategies, as recommended by the Committee to Develop the Accountancy Sector, or CDAS, in 2010 - to position Singapore as: (i) a key centre in the region for quality accountancy services, (ii) an influential and authoritative thought leader in technical and professional standards in accountancy and its related fields, and (iii) the place of choice to train and develop aspiring professional accountants and specialists in accountancy and its related fields.
4. The Singapore Accountancy Commission was formed in 2013 to spearhead the transformation of the accountancy sector, by strengthening professional standards and capabilities in partnership with key stakeholders. These key stakeholders include the Accounting Standards Council, which sets the national accounting standards used by companies, the Institute of Singapore Chartered Accountants (ISCA), which is responsible for professional competence, standards and ethics in the profession, and ACRA itself, which regulates public accountants.
5. Complementing the role of the accountancy sector are the stakeholders involved in the corporate regulatory sector. These include the Monetary Authority of Singapore and the Singapore Exchange, which regulate the capital market; the Singapore Institute of Directors, which promotes professional development of directors and corporate leaders and encourages higher standards of corporate governance and ethical conduct; and the Singapore Investors Association of Singapore, which champions investors’ rights and empowers investors through education.
6. ACRA works closely with these stakeholders to maintain a robust and responsive accountancy and corporate regulatory regime. At the same time, ACRA has continued to adapt its processes so that businesses can continue to focus on business.
7. By the end of 2014, ACRA would have launched its Next Generation Bizfile, a new filing and information retrieval system for businesses and the public. The enhanced system will be easier to use and more importantly, more mobile applications will be created to meet the needs of users who want to be able to access the system on the move and on any device.
8. In an era of Big Data, companies want to be able to effectively mine data. With ACRA’s introduction of filing of financial information in full international XBRL format, we have created a common taxonomy that allows companies to tap on XBRL enabled data for comparative analysis.
Keeping a balance between the three pillars of market governance
9. As with all developed markets, we have seen an evolving balance between regulation and laws, market disclosure and discipline, and the responsibility of the investor to scrutinise information carefully before making decisions.
10. In the late 1990s, for example, we shifted the balance moved from merit-based regulation, where regulators sought to pre-judge risks of investments, to regulation requiring greater and better disclosure to investors, so as to better enable investors to make their decisions.
11. Since then, there have been major developments in the regulatory landscape in overseas markets. In the US, the passage of the Sarbanes-Oxley Act and more recently the Dodd-Frank Act have shifted the balance toward greater government regulation. The UK on the other hand has opted to strengthen market-based regulation, and updated their Corporate Governance Code, which operates on a “comply or explain” principle.
12. We have to keep a balance between the three pillars of government regulation, market-based disclosure and discipline, and the responsibility of the investor. Each pillar is important, and so too the balance between the three. Moving too far in the direction of one against the others tends to weaken the system over time. For example, relying primarily on government regulation tends to introduce moral hazard, and weakens the incentive for investors to exercise care and do their due diligence. But neither can we rely exclusively on market discipline or leave investors to figure out what is real or false. Government has to regulate where it matters. We have to constantly review the balance between the three pillars as the environment evolves, and as new business models or investment instruments gain sway.
ACRA's Regulatory Approach
13. As a regulator as well as a facilitator of a conducive business environment in Singapore, ACRA plays an important role in this evolving corporate and accountancy ecosystem.
14. In this, ACRA has four key tasks: First, relaxing regulatory requirements to reduce compliance costs for small companies. Second, tightening regulations to address emerging risks. Third, ensuring that businesses understand key changes to the regulatory regime. Finally, having a regular forum on regulatory reforms that might be needed so that we stay responsive to business and investor needs.
Relaxing Regulatory Requirements on Small Companies
15. We will reduce regulatory burdens on small businesses and companies. As part of the impending changes to the Business Registration Act, ACRA intends to relieve business owners who operate in their own name of the need to register. Accordingly, one-person start-ups including home and internet businesses, as well as service providers such as tuition teachers, electricians, and plumbers no longer need to register with the government in order to run their business in their own name. This will help to reduce compliance costs for our small businesses. We had put this through public consultation, and received broad support for this move.
16. Small companies will be exempted from statutory audit when the audit exemption criteria for small private companies are changed in the upcoming Companies Act amendments. The new criteria will take into account factors such as annual revenue, where the threshold for statutory audit will be raised from the current $5 million to $10 million, gross assets and number of employees. This will reduce compliance costs for a further 10% of companies, or about 25,000 small companies, which have a smaller shareholder base and are of lower public interest. Existing safeguards will be retained, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to audit its accounts.
Need for New Rules to Address New Challenges
17. Given the dynamic nature of the business landscape, some new regulations may be necessary to address eme rging risks. Singapore has in place a robust regulatory regime to combat money laundering and terrorist financing, and is amongst the best-rated jurisdictions under the Financial Action Task Force’s Mutual Evaluation exercise. Nevertheless, our recent national risk assessment report found that controls are relatively less robust for corporate service providers. These are entities and people that provide services such as corporate advisory, office hosting, corporate secretarial duties and statutory filings for their customers.
18. The ACRA Act will therefore be amended to introduce requirements for corporate service providers such as the need to conduct customer due diligence and report suspicious transactions.
19. There is also more to be done to ensure the reliability and effectiveness of financial statements. Some key measures include:
- Greater scrutiny of financial statements: ACRA has committed to widening the scope of its financial reporting surveillance to not just review modified financial statements of listed companies, but also to review listed companies’ financial statements with clean audit reports, as well as financial statements of non-listed companies with public interest. This will ensure their compliance with accounting standards. ACRA will be leveraging off expertise residing within the ISCA Financial Statements Review Committee for this purpose.
- Raising audit standards: ACRA's audit inspection and disciplinary process has come a long way, with Singapore being ranked first for audit regulation in Asia. Under ACRA’s audit inspection programme, known as the Practice Monitoring Programme, ACRA has conducted three cycles of inspections since 2006. Based on the findings and feedback thus far, ACRA has revamped its inspection methodology to better target higher risk audit engagements which are more likely to have audit quality issues. For example, instead of selecting audit engagements for inspection based on a cyclical approach, ACRA will focus on higher risk engagements such as engagements led by audit partners who had failed earlier practice reviews. Such a targeted approach is more effective and efficient in raising audit quality.
Outreach to ensure business awareness of regulatory requirements
20. Regulation is most effective when it is understood. Therefore, we have to actively complement enforcement actions with regular outreach efforts - aimed at helping businesses understand the regulations and what they need to do to comply with them. Here, ACRA’s partners play an important role, particularly in reaching out to company directors, who play a key role in ensuring companies maintain high standards of corporate governance and financial reporting.
21. ACRA will be launching two initiatives aimed at strengthening competencies of company directors. First, in partnership with the Singapore Institute of Directors, ACRA will be providing training in Financial Reporting aimed at helping the directors of both listed and large non-listed companies fulfil their duty of ensuring the accuracy of financial statements by strengthening their financial reporting competencies.
22. Second, ACRA will be rolling out a Directors’ Compliance Programme, undertaken in collaboration with industry, which targets to train 10,000 first-time offending directors who fail to file annual returns. The training will focus on general director duties and common statutory requirements under the Companies Act, and is offered in lieu of prosecution.
More Responsive Regulatory Reforms
23. To keep regulations responsive to business needs, ACRA will also be launching a virtual Institute of Corporate Law comprising industry stakeholders, academics and practitioners. The Institute will work with ACRA legal officers on law reforms as well as how we can strengthen the way the market can exercise discipline, including raising the quality of corporate reporting, and auditors and helping investors make well-informed and careful judgements.
24. Let me end by once again, congratulating ACRA on your 10th anniversary. I would like to thank ACRA’s partners and stakeholders, and most importantly, all ACRA staff, for your contributions over the past decade. Your hard work and unwavering commitment have been instrumental in cementing Singapore’s reputation as a trusted marketplace.