Public Consultation By Disclosure And Accounting Standards Committee

Scope of DASC's Review

• The Disclosure and Accounting Standards Committee ("the Committee") was established with the following terms of reference:

• a) To review the process by which accounting standards are set, maintained and regulated in Singapore, compared with overseas jurisdictions, taking into account the role and function of the Institute of Certified Public Accountants of Singapore ("ICPAS");
  
  b) To review the Singapore Statements of Accounting Standards ("SASs") with a view to aligning them with the International Accounting Standards ("IASs"), or higher, as a matter of policy except where there are special reasons to deviate; and
  
  c) To review the approach, development and promotion of best practices in disclosure requirements amongst publicly listed companies in Singapore.

• Members of the Committee include distinguished representatives from various professional groups and the corporate sector - directors, lawyers, accountants, fund managers, investment bankers, and regulators.

• In the course of the review, the Committee had undertaken a study of the different models of reporting and disclosure requirements in various major jurisdictions (e.g. United States, United Kingdom, Australia etc) and examined the local requirements for Singapore-listed companies.

• The Committee is of the view that Singapore market should move towards a predominantly disclosure based system of regulation in order to provide the impetus for it to become a market driven securities market with greater transparency, a high standard of disclosure, and a market friendly regulatory regime. A disclosure based regulatory regime will work effectively only if there is a strong regulatory framework to protect the integrity of the securities market and the interests of investors. A strong regulatory framework is also necessary to raise the standard of disclosure, increase the transparency and certainty of rules and to provide remedies for enforcement.

Key Recommendations

• After due consideration, the Committee has come to some preliminary views:
  
  - In order to achieve consistent and high standards of disclosure, corporate legislation should contain a general obligation for all listed companies to make continuous disclosures, as these are necessary to enable investors to arrive at informed decisions. A legal obligation, rather than a contractual or voluntary obligation, will emphasise to the listed companies and their directors and advisers the importance of making adequate and timely disclosure to the market.
  
  - In line with other leading jurisdictions, the Committee is of the view that compliance with prescribed accounting standards should be legislated. Currently, compliance with accounting standards and its enforcement rests with the accounting profession, which then uses its leverage over its practising members, who are auditors of companies, to enforce compliance with accounting standards. In practice, however, auditors often encounter difficulties persuading companies and their directors to comply with accounting standards.
  
  - Both the IASs and United States Generally Accepted Accounting Principles ("US GAAP") are recognised by the global capital markets as acceptable reporting financial standards. Many countries have already endorsed the IASs as their own national standards either without any amendments or with minor modifications. As such, IASs and US GAAP should be the prescribed accounting standards in Singapore, without the need to reconcile between the two. In addition, IASs should be adopted in their entirety.
  
  - A review panel with representations from the various private sector market intermediaries should be charged with the responsibility of perpetuating the process of reviewing, monitoring and enhancing reporting and disclosure standards.
  
  - Adequate and timely information is needed to enable management to make effective decisions to compete in today's dynamic environment. On this basis, investors also require timely and meaningful information to make investment decisions. As the Committee considers half-yearly interim reporting to be insufficient, all listed companies should be required to make interim financial announcements on a quarterly basis. In addition to the current reporting requirements, information such as management discussion and analysis on the financial performance, state of affairs and business operations should be disclosed.
  
  - Having a financial interest in an audit client would, prima facie, be seen to impair the independence of the auditor. The public accountant and all the staff who are directly involved in the audit of a client company should be prohibited from holding shares in that client company.
  
  - In addition to providing audit services, public accountants normally provide certain non-audit services which could impair their independence vis-a-vis their audit clients. Companies should disclose in their annual statements, certain information about these non-audit services provided by their auditors during the last financial year.

Public Consultation Website

• The Committee recognises the importance of seeking views and ideas from the public in order to enhance reporting and disclosure standards and to protect investors' interests.

• The DASC consultation paper will be posted on the web on 6 December. We invite interested parties to visit the public consultation website at www.mof.gov.sg/cor to provide their comments and feedback on the consultation paper. The website will be hosted on the Ministry of Finance homepage with links from the Registry of Companies and Businesses and the Monetary Authority of Singapore homepages. The public may send in their comments via email to dasc@mof.gov.sg or via fax to 337 4134.

• The Committee hopes to receive comments by 7 January 2001. It will consider all feedback, and finalise its recommendations by the first quarter of 2001.

MINISTRY OF FINANCE