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Speech by Mrs Josephine Teo, Minister of State for Finance and Transport at the Public Accountants Conference

26 Jul 2011

Ms Juthika Ramanathan, Chief Executive of ACRA,

Distinguished Guests,

Ladies and Gentlemen,

Good morning. I am delighted to join all of you today for ACRA’s sixth Public Accountants Conference (PAC).

The role of accountants and the value of audit

2. Before I begin, I would like to share a joke that I came across on the internet recently. An accountant is having a hard time sleeping and goes to see his doctor. “Doctor”, he says, “I just can’t get to sleep at night.” The doctor asks him “Have you tried counting sheep?” The accountant replies “That’s the problem – I made a mistake in calculation and then spent three hours trying to find it.”

3. This describes the stereotypical accountant. The generalised view is that an accountant balances the books and makes sure that the numbers add up. An audit is then performed to make sure that the accountant did not make any mistakes.

4. However, accountants today are more than just “bean counters” or “number crunchers.” More and more, they are asked to provide value-added services in internal audit, risk management or management forecasts. Similarly, an audit is more than just a check on accountants. It provides stakeholders with the assurance that the financial report represents a true and fair view of a company’s business.

5. Globally, there is a growing debate on how accountants can add value to financial reporting and how the audit process can be improved. In Europe, this debate has been encapsulated in the European Commission’s Green Paper on Audit Policy, which was issued for public consultation last year.

6. The Green Paper covers issues of interest to us in Singapore as well. For example, the value of audit and how the audit opinion should focus on substance over form. It also recommends that auditors actively challenge management from a user’s perspective, exercise professional scepticism, and better communicate information in audit reports. These would in turn raise the quality and value of audit to companies and users of financial reports.

Opportunities through the provision of value added services

7. With this emphasis on audit quality, public accounting firms thus need to ensure that they have sufficient resources at hand to fully cope with the intrinsic complexity that an audit engagement represents. What this means is that public accounting firms need to grow together with their clients, in terms of enhancing their capabilities and resources, so as to add value to their clients and deliver audits that are of a consistently high quality. This may of course be easier said than done. All things being equal, the Small and Medium Sized Public Accounting Practices (SMPs) may be the ones finding it most urgent to level up their expertise and upgrade their capabilities. Ironically, they may also find it most challenging to do so.

8. As the joint survey from ACRA and ACCA on the SMPs will show later, while SMPs do acknowledge the need to raise their own professional capabilities so as to seize the emerging growth opportunities and to move up the value chain, they are finding it difficult to expand, either organically or via a merger with another firm.

9. We are mindful of the challenges in this process. SMPs too would also need to continue to give serious thought on how else they could enhance their capabilities, for example, leveraging on the support offered by the various professional bodies.

10. Besides audit, there are also alternative service offerings in niche value-added areas that SMPs could consider focusing on. For instance, as businesses are increasingly regionalizing their operations, demand is on the rise for services which cater to the needs of the business on both domestic and international fronts. In particular, companies aspiring to venture overseas may require business advisory services or tax planning services in relation to its expansion overseas. These could be potential niche areas that SMPs could explore and exploit in the future.

Review of the Accountants Act

11. Singapore’s vision is to transform itself into a leading global accountancy hub for the Asia Pacific region by 2020. To meet the challenges ahead, the Pro-Tem Singapore Accountancy Council has been formed to take the first steps forward. The Council will drive initiatives to deepen the pool of accounting professionals and strengthen Singapore’s position as a leading centre for high value-adding professional accountancy services.

12. To ensure a holistic approach towards the development of the accountancy sector, our industry promotion and development efforts are complemented by regular reviews of our regulatory framework. A strong and robust regulatory framework is important in promoting confidence in our accountancy profession and engendering trust in the broader business environment in Singapore.

13. To this end, the Government is committed to ensuring that the regulatory framework for public accountants remains relevant. We must also keep pace with international developments. I am therefore pleased to announce that ACRA has embarked on a timely review of the Accountants Act.

14. ACRA will be carrying out the review in two parts. A targeted consultation approach will be taken for the first part of the review. ACRA has already reached out to key stakeholders, such as public accountancy firms, and there will also be focus group discussions to hear views from interested parties. A separate consultation paper for Part 2 will be released at a later date. These will be followed by a public consultation exercise.

15. I would like to highlight two key recommendations from Part 1 of the review.

Firm review framework for accounting entities that audit or review public interest entities

16. First, ACRA has proposed a firm review framework for accounting entities that audit or review public interest entities (“PIEs”) such as listed companies, financial institutions and charities. As the financial reports of such PIEs could have a significant public impact, it is proposed that auditors of PIEs should demonstrate certain important qualities such as compliance with the Singapore Standard on Quality Controls 1 (SSQC1). ACRA will assess auditors based on the required standard before they are approved as eligible auditors for PIEs. The choice of auditors will however continue to be a commercial decision.

Special Investigation regime

17. Second, ACRA proposes to introduce a special investigation process to improve its ability to deal with cases of potential non-compliance with audit requirements that are of public interest. For example, this can be where investors’ interests are adversely affected as a result of a listed company not complying with audit requirements for its financial statements. A special investigation regime will grant ACRA specific powers to investigate and respond in an appropriate manner to such cases.

18. These recommendations are part of our efforts to raise the quality of standards for the accountancy profession, which will in turn promote confidence and assurance in the audit process. Key stakeholders, such as the business community, investors and shareholders, will then better appreciate the value and quality of audit in Singapore.

19. As stakeholders in the accountancy profession, I hope that you can actively contribute your comments and views on the proposed amendments to the Accountants Act. Together, we can work towards shaping a regulatory regime that is robust yet conducive for growth o pportunities and development.

Conclusion - Public Accountants Conference 2011

20. Events like PAC 2011 are valuable in educating and equipping the accountancy profession to prepare for future challenges. I hope that you can take away the key learning points and lessons from the line-up of distinguished speakers and panellists, and benefit from their sharing of experiences.

21. On this note, I wish you a fruitful conference ahead. Thank you.