Keynote Address by Minister in Prime Minister's Office and Second Minister for Finance and Education, Ms Indranee Rajah, at the Tenth Asian-Oceanian Standard-Setters Group (AOSSG) Annual Meeting, on 21 November 2018

Positioning AOSSG for the future

Mr Gao Yibin, Chairman of the Asian-Oceanian Standard-Setters Group (AOSSG)

Mr Hans Hoogervorst, Chairman of the International Accounting Standards Board (IASB)

Mr Kevin Kwok, Chairman of the Singapore Accounting Standards Council (ASC)

Distinguished guests

Ladies and gentlemen

Introduction

1. Good morning. Great pleasure to be here with you at the tenth Asian-Oceanian Standard-Setters Group Annual Meeting.

2. It is an exciting time to be in the Asian-Oceanian region.

a. The global economic weight is shifting to this region.

i. According to a report by the International Monetary Fund (IMF), Asia will be an engine of global growth in 2018 and 2019. Compared to the projected 3.7% global growth rate, Asia is projected to grow at a rate of 5.6% in 2018 and 5.4% in 2019^[1].

ii. Another study by Bain & Company this year has also highlighted the opportunity to accelerate intra-regional trades and GDP growth by US$1 trillion in 2025^[2]. This can be done through harnessing the collective power of digital economies in ASEAN.

b. Second, the business landscape in the Asia Pacific is being rapidly transformed by emerging technologies.

i. As early as 2015, experts such as Mr Bahl of the Cognizant Center had asserted that “Digital transformation is generating new levels of value for companies throughout the Asia-Pacific, at rates much faster than in first-world economies.” ^[3].

ii. Moreover, according to estimates by the International Data Corporation, Asia Pacific’s spending on digital technologies is expected to exceed the United States’ in 2018^[4].

3. Perhaps I could just share with you how these trends may affect accounting standards-setting and AOSSG.

Global adoption of IFRS Standards

4. Let me begin with the global adoption of IFRS Standards.

5. Good progress has been made. Today, 144 out of 166 IFRS jurisdictions require all or most domestic publicly accountable entities in their capital markets to use IFRS Standards.^[5] Of those that have not done so, many have committed to doing so. This is a positive development for global capital markets.

6. The global adoption of IFRS Standards is a journey, not a destination. Jurisdictions will face different challenges in this journey. For jurisdictions that have already adopted IFRS Standards, a challenge will be to resist the temptation and defend against calls for deviation from IFRS Standards. Such deviations can stem from:

a. dissatisfaction with individual accounting outcomes from using IFRS Standards;

b. cost and complexity of applying specific IFRS requirements; and

c. of course, lobbying from stakeholders.

7. From the jurisdictions’ perspectives, these reasons may be of genuine concern.

a. However, deviations dilute the benefits of global adoption of IFRS Standards by reducing the comparability of financial statements.

b. Further, deviations may weaken the IFRS community’s commitment to IFRS Standards.

8. So today, more than ever, we need a single set of global accounting standards to:

a. bring transparency and efficiency to capital markets around the world;

b. to facilitate more cross-border M&A transactions^[6] and investments^[7]; and

c. to improve the value relevance of financial information^[8].

9. Instead of cherry-picking IFRS Standards for adoption, jurisdictions must continue to work with the IASB to ensure the relevance and robustness of the Standards.

Responsive standard-setting process

10. Let me now say a few words on the standard-setting process.

11. IASB’s due process has worked well in ensuring the robustness of IFRS Standards. However, digitalisation may threaten this process. The digital economy brings with it a suite of financial innovations, for which the current Standards were not developed to address.

12. Take cryptocurrency, for example. It has been around since 2009. Although cryptocurrency transactions are not pervasive, they have become increasingly common in some jurisdictions, such as Canada and Korea. As IFRS Standards do not provide specific guidance on accounting for cryptocurrencies, some national standards setters have issued accounting standards to help their business entities account for cryptocurrency:

a. Just this year, Belarus introduced cryptocurrency accounting standards.^[9]

b. The Korea Accounting Institute, which oversees the Korea Accounting Standards Board, is also in the process of creating an accounting standard for cryptocurrencies.^[10]

13. Such outcomes may increase the risk of IFRS Standards losing relevance.

14. I understand that the standard-setting process is resource intensive and IASB has many competing priorities. Nevertheless, as pointed out by respondents to IASB’s agenda consultation in 2015^[11], the standard-setting process can be made more timely.

a. So I commend IASB for taking measures to provide more timely response to emerging issues, such as by publishing agenda decisions through the IFRS Interpretations Committee.

b. I would also like to take this opportunity to encourage IASB to continue examining how the standard-setting process can be further enhanced.

Opportunities for AOSSG to play a greater role

15. Finally, let me turn to the role that AOSSG can play in the light of these trends. Since inception, AOSSG has played a pivotal role. You have brought together jurisdictions in the Asian-Oceanian region to identify, deliberate and offer useful insights to IASB. With the shift of economic weight to Asia and digitalisation, AOSSG can play a greater role in standard-setting.

16. There are three areas where AOSSG can do so: (i) research activities; (ii) post-implementation reviews; and (iii) initiatives.

a. First, on research activities. Since 2011, IASB has taken an evidence-based approach to setting IFRS Standards. With the refined approach, IASB aims to gather sufficient evidence before embarking on a standard-setting project. The digital metamorphosis across the Asian-Oceania region presents an opportunity for AOSSG to conduct research and collect evidence for IASB’s Research Programme.

b. Second, on post-implementation reviews. One project that IASB is working on is the impact of IFRS 11 Joint Arrangements on financial reporting. Infrastructure investments is on the rise in Asia. According to a 2017 report by the Asian Infrastructure Bank^[12], between 2017 and 2030, Developing Asia would need to invest $1.7 trillion per annum in infrastructure in order to maintain growth. The increase in infrastructure investments can lead to more joint arrangements in Asia. This will enable AOSSG members to contribute empirical evidence, among others, to IASB.

c. Third, on initiatives. IFRS Foundation recently launched its Technology Initiative. This initiative considers the effect of technological changes on the Foundation’s work. With digitalisation in the region, AOSSG is in a good position to share with the Foundation the region’s insights and perspectives.

Conclusion

17. Let me conclude. The two trends – shift of economic weight to the Asian-Oceanian region and digitalisation – will let AOSSG turn a new chapter in your work. I am sure that you look forward to the exciting times ahead.

18. And I wish you a fruitful conference ahead. Thank you.

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^[1] Regional Economic Outlook: Asia and Pacific. IMF (October 2018)
  
^[2] Digital Australia: Seizing opportunities from the Fourth Industrial Revolution: McKinsey (May 2017)

^[3] Asia Rising: Digital Driving. Cognizant (2015)

^[4] IDC Forecasts Worldwide Spending on Digital Transformation Technologies to Reach $1.3 Trillion in 2018.

^[5] Analysis of the IFRS Jurisdiction Profiles: IFRS

^[6] The Economic Consequences of IFRS Adoption: Evidence from New Zealand (2016)

^[7] International Financial Reporting Standards: What are the benefits. Philip Brown (2011)

^[8] Ibid.

^[9] From: president.gov.by/ru/official_documents_ru/view/dekret-8-ot-21-dekabrja-2017-g-17716

^[10] From: www.ccn.com/liquid-assets-south-korea-plans-accounting-standards-crytpocurrencies/

^[11]2015 Agenda Consultation – Overview of Investor Feedback: IFRS staff paper^[12]

From: www.abd.org/publications/asia-infrastructure-needs