The Public Accountants Board issues Rules on Auditor Independence

1. The Public Accountants Board ("PAB") will issue a set of rules on auditor independence later this month. The rules will take effect from 1 October 2002. Public accountants and their current audit clients will be given a transition period of 12 months to make the necessary adjustments to their current arrangements.

2. This announcement was made by the Minister for Health and Second Minister for Finance, Mr. Lim Hng Kiang, at the Institute of Certified Public Accountants of Singapore ("ICPAS") annual dinner on 20 September 2002. Please see Appendix 1 for a copy of Mr. Lim's speech.

3. Following the report of the Disclosure and Accounting Standards Committee ("DASC"), PAB set up a committee to undertake a review of its existing rules and regulations governing auditor independence. Please see Appendix 2 for the list of committee members.

4. The committee did a comprehensive study of the practices in the leading jurisdictions, such as the US, UK and Australia. It issued the draft rules for public consultation during April 2002, before submitting its final report to the PAB. The government has accepted all the committee's recommendations. Some of the key recommendations include:

a) Provision of non-audit services - Auditors of public companies will be prohibited from providing certain non-audit services to their audit clients. These non-audit services include book-keeping, specialist valuation, management recruiting, corporate finance, IT and internal audit. To ensure that the rules are not overly onerous, appropriate exceptions have been provided for these non-audit services.

b) Gifts and hospitality - Auditors and members of the audit team should not receive gifts and hospitality from audit clients, unless the value of the gifts and hospitality are clearly insignificant.

c) Fees - To prevent undue reliance on a single client, the auditor should conduct a review to ascertain that his independence is not compromised, if the fees from a particular audit client exceed a certain percentage of the audit firm's total fees (5% for public companies and 15% for private companies). To prevent undue reliance on non-audit fees, the auditor and client should each do a review when the amount of non-audit fees is 50% or more of the audit fees. The outcome of the reviews will be disclosed in the client's annual report

MINISTRY OF FINANCE