ACCOUNTANTS (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

The Bill before the House mainly seeks to improve the standard of the professional accounting practice in Singapore, as well as to streamline disciplinary proceedings for better regulation of the profession. With the worldwide trend towards greater transparency and disclosure in corporate regimes, there is a need to ensure that our public accountants continually improve their high standards to ensure the continued integrity of our financial system. I believe that the proposed amendments take us a step further in that direction.

The amendments in the Bill arose mainly out of recommendations made by the Accountants Act Amendments Committee and the Public Accountants Board (PAB) Working Committee to Review Accounting and Auditing Standards in Singapore. The two Committees included academics and practitioners from the Nanyang Technological University, the Stock Exchange of Singapore, the Auditor-General's Office, the Attorney-General's Chambers, the Institute of Certified Public Accountants of Singapore (ICPAS), and the Registry of Companies and Businesses.

I will now briefly explain the key provisions of the Bill, starting with those which strengthen the regulatory framework of public accountants, contained in the following clauses of the Bill.

Clause 6: Validity Period of Licence and Prescribed Requirements

Clause 6 repeals and re-enacts section 15, which governs the certificate of registration of a public accountant. The duration of the registration of a public accountant is reduced from three years at present to one year. The Public Accountants Board will then be able to gain more timely information about applicants, and more effectively regulate errant practitioners. Rather than an automatic renewal of the licence once every three years, it is now provided that the Board will renew the certificate of registration of a public accountant only if he has complied with the prescribed requirements relating to continuing professional education (CPE), and meets what is expected in his professional conduct and practice. This re-emphasises the importance of training and practice review to maintain the high standards of accounting and auditing practices in Singapore. It will give legal effect to standards already required of public accountants by ICPAS.

Clause 8: Preliminary Information/Need for Deposit

Clause 8 amends section 20, which governs procedures on complaints. The Board, in the event of a complaint against a public accountant, can now require the accountant to respond to its preliminary inquiries, before the complaint is referred to an Inquiry Committee. A maximum fine of $2,000 may be imposed if the accountant concerned refuses, without good reason, to respond to the preliminary inquiry. To weed out frivolous complaints and abuse of the disciplinary process, the amendment will also allow the Board to require a refundable deposit not exceeding $1,000 to be placed with the Board. This amount may be forfeited in full or partially if the complaint is found to be frivolous or vexatious, or dismissed because the complainant refuses to co-operate with the Board.

Clauses 6 & 9: Suspension and De-Registration

Clause 9 amends section 21 to add to the grounds on which the Board may suspend or de-register a public accountant. Every public accountant who is registered with the Board has to observe the Code of Professional Conduct and Ethics, set out in the Third Schedule of the Board Rules. He has to conduct himself in a manner consistent with the good reputation of the accountancy profession, which demands high standards of integrity, objectivity, independence and moral character. The amendment gives legal effect for failure to conduct oneself properly. Consequential amendment is made via clause 6 to section 19 to allow an Inquiry Committee to be set up for purpose of ascertaining whether an infringement or failure to observe the Code has been committed.

Public accountants will also benefit from this amendment, which provides that any suspension, de-registration or imposition of penalty on a public accountant may take effect only after the expiration of one month from the date on which the appeal against the decision made to the High Court has been determined or withdrawn. This new provision seeks to minimize losses suffered by the public accountant as a result of the cancellation or suspension of his licence. The High Court may also assess any cost charged against a public accountant.

Clause 11: Voluntary De-Registration Upon Complaint/Summary De-Registration

Clause 11 amends section 23 to add to the grounds on which a public accountant may be summarily removed from the Register of Public Accountants. A new provision is inserted to prevent a public accountant from applying to be removed from the Register of Public Accountants if disciplinary action is pending against him or if he is being investigated by an Inquiry Committee. This is a loophole that should be plugged and is a fair amendment.

Since the introduction of the Bill, we have however received feedback from various sources that the other intended provisions may be too harsh. In particular, in the current economic environment, business revenues may be severely affected, leading to unavoidable credit problems. As such, I have decided to remove "insolvency" and "entering into composition with creditors" as grounds for summary removal. Instead, in such cases, we will rely on existing provisions under section 21 of the Act, which requires an Inquiry Committee to be first set up, with its appropriate appeal channels.

However, in cases where the public accountant has already been adjudged a bankrupt through the usual processes, there is really no need for the PAB to go through a further Inquiry Committee. Hence, there are grounds for summary removal in the case where a public accountant is an adjudged bankrupt. I propose to move amendments to clarify these points. With the consent of this House, I will therefore be proposing these changes to the Bill when we are in Committee stage later on.

Clause 13: Imposition of Composition Fines

Clause 13 inserts a new section 56A. This enables the Board to impose deterrent fines on minor offences without having to bring offenders to court. However, offences involving personal misconduct, which will be dealt with under the Board's disciplinary proceedings and subject to due process, shall be excluded.

I now turn to other amendments which will improve the operations and efficiency of the Public Accountants Board.

Clause 3: Adoption of Accounting Standards

Currently, PAB rules already require a public accountant to carry out his professional work in accordance with technical and professional standards expected of him as a public accountant. While the practice of the Public Accountants Board is to adopt the standards issued by ICPAS, its power to do so is implied by section 5(d) as one of the Board's functions is to "control and regulate the practice of the profession of accountancy by public accountants". In comparison, in the United States and United Kingdom, the regulatory bodies for the accountancy profession have the legislative power to prescribe such standards.

Hence an amendment is required to amend section 5 of the Accountants Act to expressly empower the Board to prescribe the standards, methods and procedures that public accountants have to follow in the course of their professional work. Clause 12: De-Regulation of Tax Consultants

Clause 12 amends section 48 to enable persons not registered as public accountants to practise as tax consultants. Tax consultancy should not be the sole preserve of public accountants and solicitors, as currently provided under the Accountants Act. Indeed market forces will drive tax consultants who do not deliver good quality service out of business. In addition, unlike public accountants whose work has a great impact on the public, the argument for the protection of general public interest holds less weight in the case of tax consultancy as it is a service offered exclusively to an individual paying customer. There is thus no specific need for the Board to regulate tax agents. Nevertheless, the Inland Revenue Authority of Singapore (IRAS) will be examining ways of ensuring the continued high professional standard of tax agents, and this will be announced when ready.

Clause 4: Change to Self-Funding Status of PAB

Finally, clause 4 amends section 7 to enable the Board to meet its expenses through Government funding. Presently, the Board is funded solely by fees collected from the registration and renewal of public accountants' licences. This is not sufficient to cover the Board's operating expenditure, especially when legal and inquiry costs need to be incurred. The grant is necessary as the Board's expenditure will continue to be pushed up by rising administrative expenses as well as investigation, prosecution and legal assessment costs for increasingly complex complaint cases. These costs are essential to ensure a thorough, fair and effective complaints inquiry process.

The other amendments are to clarify interpretations and relate to consequential amendments to the Bill.

Sir, I beg to move.

Question proposed.

Dr Lily Neo (Kreta Ayer-Tanglin): Mr Speaker, Sir, I rise to speak in support of the Accountants (Amendment) Bill. I would like, however, to express some concerns over some of the proposed amendments and also to seek clarification on some others.

The new section 21(1)(a)(viii) appears to be very stringent such that the public accountants are not able to pursue other business interests. This does not provide for the entrepreneurial spirit, which our country is encouraging currently. Moreover, this will pose hardship to many part-time and small time public accountants who form quite a substantial portion of the accountant community. They will feel the adverse effects of this amendment as in most cases they do provide other non-accountancy-related services as well.

The new section 23(g) should stop at the word "bankrupt". This is because, with the current economic crisis, a public accountant may need to enter into a composition with creditors and should he be successful, there is no reason why he should be removed from the register.

In section 56(A), there is no consistency in this provision whereby any offences under this Act or any rule made thereunder which is prescribed as compoundable offences may be compounded for a sum of money not exceeding $1,000. This is because certain provisions call for a fine not exceeding $2,000, an example which may be found in section 20(3E). Therefore, this provision may have been better to be in line with the others, ie, a fine not exceeding $2,000 as well.

The amendment in section 19 provides a much wider scope for misconduct for public accountants, unlike the old Act which restricts complaints to professional misconduct only. There is ambiguity in the "improper act or conduct" which brings disrepute to the accountants' profession or which makes them unfit for practice. There is a need for clarification here in the nature and extent in the meaning of "improper act or conduct".

As regards section 15, firstly, subsection 5(b) on "appraisal of the public accountant's professional conduct and practice" calls for further clarification on the operational methods to ensure effective and credible judgement and, secondly, in subsection 5(c) on "any other matter which the Board considers relevant" embodies too much and the nature of these matters should be specified and should be confined to technical, professional or moral issues.

The amendments in section 5 appear to prepare the way for the Public Accountants Board to prescribe the accounting standards, methods and procedures to be followed by public accountants when doing any work in the course of their profession. I would like to seek clarification on the kind of resources which will be committed to this function in order to benefit the general public.

Sir, I support the Bill.

Mr Gerard Ee (Nominated Member): Mr Speaker, Sir, I rise in support of the Bill. I would like to declare my interest as a practising public accountant, as a Council member of the Institute of Certified Public Accountants of Singapore, and as someone who has participated in some of the discussions earlier on over some of these amendments.

Today, I would like to state that I am expressing a personal view. When I first read the Bill for the first time as an individual, as anyone else would have been looking at the text of the Bill, I had this feeling that the amendments were rather draconian. Then I read it a second and third time, but this time as a practitioner, as a public accountant, and I realise that the amendments really were to bring the Accountants Act in line with other Acts regulating the other professionals. In some respect, because it is a more recent amendment than the Act regulating, say, the solicitors, we have actually improved on it. We have included composition for very minor offences as well.

I am quite convinced that the amendments have been made not to make life more difficult for public accountants, but to help public accountants maintain their stature. I am in support of the Bill but there are some areas of concern that I feel need to be addressed.

Section 15(5)(a) on continuing professional education and section 15(5)(b) on the appraisal of the public accountant's professional conduct and practice are two of the areas for compliance that will be considered by the Board for the annual renewal of their certificate. I think there will be some problems here because Continuing Professional Education (CPE) is being monitored for compliance over a 3-year period. The practice review to appraise the public accountant's professional conduct and practice is also done in cycles. Perhaps there is a need to add that compliance in these two areas is assumed unless there is evidence to the contrary.

I am glad that there is going to be an amendment to the amendment because I was quite concerned over the inclusion of the condition of insolvency and of a composition with any creditor for a public accountant to be struck off. Especially in current times, a public accountant having bought a home with a bank overdraft, and with the fall in the property market, may well find himself to be technically insolvent. But I think it is now water under the bridge as there is now a proposed amendment. So overall, yes, I find it is more stringent on the public accountants but it is a profession, the stature is respected and should be maintained.

I am particularly glad with the amendment in section 48 which now allows non-accountants to practise as tax consultants. For some time now, I feel that it does not make sense that a person, who has passed all the vigorous examinations of the Institute of Taxation, and perhaps even with experience practising taxation, or perhaps has been in employment of the Inland Revenue Authority, cannot come out and practise as a tax consultant. I think now this addresses that issue. However, having opened it up, there is a need perhaps for regulation to control and maintain the standards of tax consultants in the interest of the public. It would be a sad day if the public is represented by someone holding himself up to be a tax consultant and who is not competent, and therefore results in huge losses.

With the amendments to the Accountants Act, the public accountant is well regulated, and I am sure some will feel that we are being over-regulated. I am very sure over the next few months, some public accountants will be arguing and debating over the amendments. The question that remains is: who then regulates the accountants in commerce? After all, they cause financial statements to be prepared and often are the ones who prepare the financial statements themselves. I think there is a need also to control the conduct and the standard of accountants in commercial practice. If the work of both the commercial and public accountants is of a high standard, they become complementary. But, as it stands now, in some cases where the standards do differ, the respective positions of the commercial accountants and the public accountants can then be adversarial to the detriment of all parties.

In conclusion, I do support the Bill, Sir.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I would like to thank Dr Neo and Mr Ee for their comments and points raised and I will try to address their concerns.

First, disciplinary proceedings. Dr Lily Neo has commented that section 21(1)(a)(viii) is too stringent and may deter entrepreneurship. She also feels that it will pose hardship, especially on small time accountants, since in most cases they do provide other non-accountancy related services.

She is also concerned that section 19(1) may be too wide as the grounds for an Inquiry Committee to be set up have expanded beyond professional misconduct, and now include an "improper act or conduct" which brings disrepute to the profession or makes them unfit for practice. I will address these two concerns together, as they are related.

First, in moving the amendment, I had earlier informed the House that every public accountant has to observe the Code of Professional Conduct and Ethics and has to conduct himself or herself in a manner consistent with the good reputation of the accountancy profession. The Code already imposes the requirement that public accountants should not be substantially engaged in any other business, other than that of a public accountant. This is to pre-empt situations where public accountants are put in a position where their independence is compromised, and there is a conflict of interest between his professional responsibilities and the pursuit of wider business interests.

The amendment to section 21 merely picks up on these professional obligations which are, in fact, being observed already. Section 21 sets out the grounds for the PAB to suspend or cancel a public accountant's licence, following investigations by an Inquiry Committee. It thus establishes the legal recourse (of suspension or deregistration) for failure to act professionally and independently, resulting from a range of causes, including that of engaging in business at odds with the demands of the profession. I am therefore confident that the amendment should not in any way hinder entrepreneurship, as public accountants would remain quite free to carry on non-accountancy-related services, as long as there is no conflict of interest.

The proposed amendments to section 19 are really consequential to the broadening of the causes for deregistration in section 21. The amendment will allow an Inquiry Committee to be set up when a public accountant brings disrepute to his profession, by behaviour in areas beyond his professional capacity. Some may say that this appears draconian, but let me assure Members that the provisions will not be triggered when a public accountant has committed an improper act per se. An inquiry can only proceed if the act has an adverse impact on the general standing of the profession, or shows that the public accountant is unfit for his profession. This is a fair application of the law, in order to safeguard and uphold the integrity of the accounting profession.

The powers are crafted broadly in the statute in order to ensure that the PAB has a wide enough remit to achieve its objective. But I expect the PAB to be circumspect in its administration. Members may also be interested to know that largely similar provisions exist in the Legal Profession Act, where "misconduct unbefitting . an advocate or solicitor" is also grounds for discipline by the Courts.

On the issue of renewal of certificate of registration, both Dr Neo and Mr Gerard Ee have asked for clarification on how the new provisions in section 15 on the renewal of certificates of registration will work in practice.

As I said earlier, renewal of certificates will no longer be automatic, but conditional on satisfying "continuing professional education" (CPE) and "appraisal of the public accountant's professional conduct and practice". In response to Mr Ee's question, the annual CPE records of public accountants will be considered by the Public Accountants Board when the renewal of public accountants becomes due. But given the three-year compliance rule, consideration will be given to whether or not the public accountant has fulfilled the requirements for the preceding three-year period on a rolling basis.

For practice reviews, the Board shall consider only the reports of accounting firms for which the review has been completed in that year. Only the public accountants of these particular firms will have the renewals of their licences to be subject to the practice review reports being satisfactory. However, over a three-year cycle, all public accountants will be covered as it is intended for all public accounting firms to be reviewed. The practice review of accounting firms with public listed companies as clients will be more regular.

For both CPE and practice review requirements, if a public accountant does not satisfy either requirement for the first time, he will be issued with a warning letter. Only if he persists in failing to meet the requirement will the licence not be renewed.

The PAB's Rules will be suitably amended to incorporate the new provisions in due course. As for Dr Neo's concern that section 15(5)(c) is overly wide, I would like to assure her that the Board will continue to confine itself only to technical and professional issues. There is no intention to deliberately make it more difficult for public accountants to renew their licences.

On the issue of composition fines, Dr Neo has commented that the new section 56A, which allows PAB to compound offences of up to $1,000, is inconsistent with provisions in the Accountants Act on other offences, some of which can result in fines of up to $2,000.

I think there should be a clear distinction between a compoundment of an offence and a statutory fine. A composition sum is that which the authority administering an Act allows an offender to pay, in lieu of prosecuting him in the court for the offence, whereas a statutory fine results from a conviction in court, and covers more serious offences. Thus, the penalty for compounded offence should necessarily be lower than that of a statutory fine, as the two are not equivalent. Compounding is really for more minor offences or offences where there are mitigating factors, such that a prosecution is not warranted.

Without an option to compound fines for minor offences at a lower amount, the High Court may be clogged up with even the most minor offences. If the composition fine is raised, offenders may find it more attractive to fight it out in court in the hope of getting undeserved acquittals. This would defeat the whole purpose of the compoundment provision.

On regulation of tax consultants, Mr Gerard Ee has asked who will regulate the tax professionals. As I have mentioned in my Second Reading speech, the Inland Revenue Authority of Singapore would be examining ways of ensuring the continued high professional standard of tax agents, and this will be announced when ready. Under the Tax Acts, where there are errors (and omissions) in tax returns, IRAS can prosecute those who flout the law. If the error is due to negligence of the tax agent, he would be required to pay penalties.

On regulation over non-practising accountants, Mr Gerard Ee also feels that there should be greater regulation and control over non-practising accountants who are the frontline people preparing or influencing the preparation of financial statements. I think this is a fair statement. But control already exists in the Institute of Certified Public Accountants of Singapore (ICPAS) as it regulates non-practising accountants who are its members. For example, ICPAS has also made continuing professional education (CPE) hours mandatory for such members, who can also be deregistered from ICPAS for various offences.

ICPAS, however, has no hold over non-practising accountants who are not its members, and it is unclear that such regulation should be mandated. This was debated at length by the PAB Working Committee to Review Accounting and Auditing Standards, whose rationale was as follows. As non-practising accountants generally work for companies, it is more of an employer-employee relationship. And since it is the responsibility of company directors to ensure that the proper records are kept and that accounts are properly drawn up, it is less imperative that such accounts preparers be directly regulated.

On PAB resources, Dr Neo has commented on the amendment to section 5, which provides for PAB to prescribe the accounting standards and procedures to be followed by public accountants. She would like to know what kind of resources will be committed to this function.

At present, the Institute of Certified Public Accountants of Singapore prescribes auditing and accounting standards, and as earlier explained, the amendment will expressly empower the PAB to adopt such standards. Therefore, I do not expect this to result in a significant increase in resources required for the PAB. Nonetheless, I wish to point out that I have already introduced, by way of clause 4, a change to the self-funding status of the PAB. The Government is prepared to extend operating grants to PAB, and this co-sharing of regulatory costs signifies the Government's commitment towards strengthening the integrity of the financial system.

I believe that this, and other proposed changes, will all contribute to a major enhancement of the regulatory framework for the accounting profession, and deserve the support of this House.

On the issue of summary removal due to composition arrangement with creditors, I have already addressed this in my Second Reading speech, and I believe that Dr Neo and Mr Ee should be pleased with the outcome.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee.

[Mr Speaker in the Chair]

Clauses 1 to 8 inclusive ordered to stand part of the Bill.

Clause 9 -

The Chairman: As the notice of amendment is out of time, I give my consent to the Minister to move the amendment. Has the Minister the general assent of Members to move the amendment?

Hon. Members indicated assent.

Dr Richard Hu Tsu Tau: Mr Speaker, I beg to move,

In page 6, after line 10, to insert - "(c) by deleting the words "has been adjudicated bankrupt or" in sub-paragraph (v) of subsection (1)(a);". Members will recall that I had touched upon this in my speech earlier. The reason behind the amendment is that for cases where the public accountant has been adjudged a bankrupt, summary removal of his name from the Register of Public Accountants without the need for further inquiry is an appropriate course of action.

Amendment agreed to.

Clause 9, as amended, ordered to stand part of the Bill.

The Chairman: The consequential amendments will be made: In page 6, to re-letter paragraphs (c) and (d) as paragraphs (d) and (e), respectively.

Clause 10 ordered to stand part of the Bill.

Clause 11 -

The Chairman: As the notice of amendment is out of time, I give my consent for the amendment to be moved. Has the Minister the general assent of Members to move the amendments?

Hon. Members indicated assent.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, may I have your approval to move the two amendments together?

The Chairman: Yes.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I beg to move,

(1) In page 7, line 22, to leave out "become insolvent or who has".

(2) In page 7, lines 23 and 24, to leave out "or who has entered into a composition with any creditor".

Again, Members will recall that I had earlier explained that due to the current economic environment, business revenues may be severely affected leading to unavoidable credit problems. As such, insolvency when entering into composition with creditors should not constitute grounds for summary removal. These words should be omitted from the Bill. Instead it is proposed that such cases continue to be referred to the PAB Inquiry Committee, which is currently the practice and already provided under section 21 of the Act.

Amendment agreed to.

Clause 11, as amended, ordered to stand part of the Bill.

Clauses 12 to 15 inclusive ordered to stand part of the Bill.

Bill reported with amendments, read a Third time and passed.