ACCOUNTING AND CORPORATE REGULATORY AUTHORITY BILL

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ACCOUNTING AND CORPORATE REGULATORY AUTHORITY BILL: Order for Second Reading read.

5.05 pm

The Second Minister for Finance (Mr Lim Hng Kiang): Mr Speaker, Sir, I beg to

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move, "That the Bill be now read a Second time".

Background

Currently, the Registry of Companies and Businesses (RCB) is responsible for the incorporation of companies and the registration of businesses. It seeks to ensure that companies and businesses comply with the relevant laws, and maintain a repository of financial reports and business information. The Public Accountants Board (PAB) registers and regulates public accountants who are qualified to sign off companies' accounts as auditors. It also maintains professional auditing standards.

Rationale for merger

As part of our efforts to promote a more conducive business environment, we have been moving towards a disclosure based regime for business regulation. This requires enhancing our regulatory framework for monitoring and enforcing companies' compliance with disclosure requirements and accounting standards.

Sir, it is with this objective that the Government announced its plans to merge RCB and PAB in May last year. The merger will achieve synergies between the monitoring of companies' compliance with disclosure requirements and the regulation of public accountants performing statutory audit. This merger will consolidate within a single Government entity the expertise to carry out these functions effectively.

Accounting and Corporate Regulatory Authority

The Accounting and Corporate Regulatory Authority Bill provides for the formation of this new statutory board on 1st April 2004. To reflect its role as a regulator of corporate entities, businesses and public accountants, the statutory

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board will be called the Accounting and Corporate Regulatory Authority, or ACRA for short.

ACRA's mission will be, "to provide a responsive and forward looking regulatory environment for companies, businesses and public accountants, conducive to enterprise and growth in Singapore." ACRA will maintain a strong focus on issues concerning businesses, such as developing the corporate law framework, accounting, and corporate governance. It will also register and regulate public accountants who act as auditors of companies.

As a regulatory agency, a substantial part of ACRA's work will be to ensure that companies, businesses and auditors observe relevant standards and comply with legal requirements. However, an effective enforcement regime cannot rely solely on tough penalties for offenders. ACRA will promote greater awareness and understanding of the requirements and standards. It will engage its stakeholders regularly through public consultations.

Another important aspect of ACRA's work is to promote a business-friendly environment. This is fundamental to our drive to make Singapore an attractive global hub for business. ACRA will support the work of the Council on Corporate Disclosure and Governance, a private-sector led committee set up to prescribe accounting standards in Singapore and advise the Government on corporate governance and disclosure matters. ACRA will also work closely with other Government agencies as well as professional organisations such as the Institute of Certified Public Accountants of Singapore and the Singapore Institute of Directors to maintain high auditing standards and to help companies adopt good disclosure and corporate governance practices.

To achieve its mission and meet the

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challenges ahead, the ACRA Board will comprise private sector representatives and professionals as well as people from the public sector and academia.

Main povisions in the Bill

Sir, I shall now highlight the main features of the Bill. Parts I and II of the Bill establish ACRA as a statutory board under the purview of the Ministry of Finance. Specifically, clause 5 empowers the Minister to appoint up to a maximum of 16 Board members, with two appointed in their capacity as representatives from the Institute of Certified Public Accountants of Singapore.

Part III sets out ACRA's functions and powers which are essentially those already undertaken by RCB and PAB today. In addition, ACRA will represent the Government internationally on matters relating to the registration and regulation of business entities and public accountants, and promote public awareness on new business structures, compliance requirements, and corporate governance practices.

Part IV of the Bill sets out the provisions for the appointment of the Chief Executive and officers of the Board. It also gives protection from personal liability to an officer or employee in discharging his duties in good faith.

Part V specifies that ACRA will be set up as a self-funding statutory board with full revenue retention. Clause 16 of the Bill requires ACRA to submit a copy of all annual estimates and supplementary estimates to the Minister for Finance, and to publish a summary of the estimates in the Gazette.

Part VI of the Bill provides for the transfer of property, assets, liabilities and employees to ACRA. Existing staff of RCB

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and PAB will be transferred to ACRA at no worse-off terms than today. Part VII contains legal provisions for the effective functioning of the Authority.

Sir, in closing, let me reiterate that the formation of ACRA will synergise the expertise of RCB and PAB. ACRA will be well placed to advance our corporate governance, financial reporting, and disclosure standards.

Sir, I beg to move.

Question proposed.

Mr Andy Gan Lai Chiang (Marine Parade): Mr Speaker, Sir, I stand in support of the Accounting and Corporate Regulatory Authority Bill.

In these days of complex business environment governed by various laws and regulations and, in some ways, confusing to our new businesses, it will be convenient for corporations to refer to one authority for answers on company matters and for accountants to refer to it for clarification when circumstances require it. Since businesses have to follow the frequent changes to the Companies Act as well as the rules governing accounting and its reporting, the Accounting and Corporate Regulatory Authority should be the agency to reach out to for clarification.

The formation of ACRA will also help the Authority understand the business risks that accountants and businessmen take, as well as the regulatory web that businesses have to go through in their pursuit for profits. This is now possible as clause 6(1)(a) allows ACRA to administer both the Accountants Act and the Companies Act together.

Reaction to changes in the Companies Act will influence the way accountants advise their clients, especially when it comes to external reporting. Complying

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with the latest standards in financial reporting would be easier to encourage when it becomes enforceable under the powers possessed by ACRA. In the United Kingdom, statutory standards in accounting are set by the Companies Act, which provides detailed provisions governing accounting and auditing of companies. Such close correlation between the Companies Act and its reporting requirements makes it easy to respond to market changes and demands.

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]

5.14 pm

The formation of ACRA will mean that the Government regulatory arm will be far-reaching in respect of influencing how businesses report their financial performance and as to how businesses govern their affairs. The collapse of corporate icons of Enron and WorldCom has shown that corporate disclosures in the US and other jurisdictions are lacking and that there is plenty of room for improvements. Furthermore, the ACRA will no doubt be emphasising more on matters such as corporate disclosure in response to the introduction of the Sarbanes-Oxley Act of 2002 in the US. The next question on everyone's mind would now be on the style and manner which ACRA would take in influencing changes and enforcement of regulatory requirements.

Public reporting is a public interest activity and places the responsibility on all participants in the process. These include corporate management and board of directors who have the primary responsibility in public reporting. Auditors, standard setters

and regulators all have a part to play to improve the information process to the public. Let us also not forget the lawyers, investment bankers, analysts and credit agencies. It is only when everyone places primary

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importance on this role, and subsequently a change in attitude to responsibilities, will the credibility of financial information be raised. Such recognition will also lead towards better business ethics and a strengthened business culture.

Sir, I would like to suggest further that the Singapore approach to greater responsibilities in public reporting be much less dependent upon regulation, but to try to strike a balance between regulation imposed by authorities and reliance on market mechanisms. Legal requirements should be viewed as a necessary minimum, while self-regulation should still be encouraged wherever possible. Statutory regulation still has a part to play but should not be the mainstay of the new Authority. Primary legislation, for example, should contain a general (rather than a specific) obligation on the part of listed companies to make continuous disclosures. All these can also lead to less bureaucratic costs when transparency is not via the legalistic route but instead by self-regulatory market mechanisms.

There is also the question of speed in introducing new laws. It has been known that lawmakers and standard setters have been engaging in a catch-up game in the mushrooming use of innovative derivative products. While the time taken to produce innovative derivative financial instruments may only take months, the time taken to implement new security legislation to govern their use, and accounting rules to determine how one should report them in the company accounts, can take years. Thus, putting excessive confidence in a legalistic approach may lead to a less innovative business environment when corporations fear using new instruments without the comfort of the law.

Furthermore, under the legalistic approach, there may be a reduction in performance reporting from companies to investors as they do not try to understand

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what information is needed to communicate to investors, in order to most effectively explain their business model. Instead, they focus on what regulators have set out as important to investors. In such a reporting environment, there is little room for best practice since satisfying regulatory requirements is all that is needed.

Looking at the countries around us and the competition posed, we have to ask, how much attention will East Asia play to the rush to be more transparent and to take corporate governance seriously. I believe that a lot will depend on the political will of each government. But the introduction of this Bill will hasten the need for other countries to follow suit, not because it is a legal requirement but because good corporate governance will help to draw new capital. Take, for example, when CalPERS (California Public Employees Retirement System), one of the largest institutional investors, in February 2002 pulled their investments out of companies in Indonesia, Malaysia, Thailand and the Philippines, citing concerns over corporate governance, badly needed capital dried out. I believe that the competition for new capital will push the need for good corporate governance among the countries in this region.

Finally, when ACRA exercises its role in the marketplace, we must not allow it to remove the risks associated with investing. Capital market works well with the presence of risks, and ACRA should instead ensure that every corporation play by the rules with investors having access to reliable information needed to make prudent decisions, and that everyone who violates the law is held accountable.

Sir, I look forward to a more dynamic marketplace with the passing of this Bill.

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Dr Gan See Khem (Nominated Member): Sir, with the introduction of ACRA, I would envisage that the authority will enhance and improve the grounds for greater corporate governance that is the order of the day. I hope that an enlarged entity will provide the requisite resources that will further the development and encourage a culture of good governance and reward systems for good behaviour in the regulation of companies. This will result in immense benefit to the corporate and business scene in Singapore. Furthermore, potential synergies or other efficiencies that will arise from the merger of the various functions may provide for a more efficient regulatory and administrative service.

I would like to express my support for the proposed Accounting and Corporate Regulatory Authority Bill. However, Mr Deputy Speaker, Sir, there are some areas that I would like to seek further clarification from the Minister.

The former Registry of Companies and Businessess served a mainly administrative function. But it appears from the provisions that the new authority is meant to be granted greater policing powers. I would like to know how the authority is meant to exercise its powers in a regulatory manner when other bodies, like the SGX and SIC, already administer and enforce certain elements of the aforementioned Bill. How is the authority supposed to complement the existing regulatory authorities with regard to the Bill?

Second, although I understand that the administration of a company is very much linked to that of accounting practices, I would like to hear from the Minister the specific advantages for merging an accounting regulatory body with a corporate regulatory body. At first glance, these roles are as different as chocolate and cheese. I would like to ask the Minister how he proposes to

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implement these two distinct roles into one body.

The other point I would like to seek some clarification on is the fact that there is specific legislation in the proposed Bill that grants an officer or employee of the authority certain police powers. In addition, the Bill provides that when an offence under the proposed Bill is committed by a body corporate and is later proven to have been committed with the consent, connivance or neglect of a director, manager, secretary or similar officer of that body corporate, that officer of the company will be guilty of an offence. I would like to know whether this means that, firstly, the protection offered by the corporate veil has been lifted in respect of these offences committed under the law; and, secondly, whether the authority now has certain police powers and may bring proceedings against individuals as well as companies. And, if this is the case, to what extent are the officers of the authority allowed to exercise their authority, and exactly how does this fit in with the existing policing activities such as the Corrupt Practices Investigation Bureau? Does this mean that two separate police regimes will exist with regard to companies and their officers? And will offenders be liable to be charged under two separate bodies?

I would further like to ask the Minister what it means for the authority to be able to conduct its own proceedings as stated in clause 33 of the Bill. Does this mean that the authority may hold its own court and convict an individual or company for offences committed under the Bill which the authority is meant to administer? And if the authority is allowed to conduct its own court proceedings, would this not be taking away some of the authority of our judicial courts and the Attorney-General? At any rate, it would be good to understand the position of the authority and where it fits in with that of our judicial courts and the Attorney-General,

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and whether the Bill might take away, perhaps inadvertently, some of the inherent authority of these two legal bodies. If there are two separate regimes of enforcement, will offenders likely to be charged two times and receive two penalties?

The last issue I would like to raise is related to the fact that under the new Bill, the authority is allowed to form companies and enter into stakeholdings with existing companies. Given the fact that the authority is supposed to administer and police the Companies Act and related Acts, I would like to ask what is the rationale behind allowing the authority to enter into such transactions. How will the authority police companies in which it has an interest? Natural justice dictates that no appearance of bias should be present and therefore to allow the authority to enter into such transactions and police such companies itself may seem to be a case of conflict of interest.

Mr Deputy Speaker, Sir, save for the further clarifications and understanding I have sought from the Minister, I would support the efficiency that is brought about by the creation of ACRA.

Mr Lim Hng Kiang: Mr Deputy Speaker, first, I would like to thank the Members for their support and for raising the concerns and clarifications.

First, let me assure the House that the setting up of ACRA will not in itself lead to the imposition of more regulations or greater enforcement actions on companies and businesses. That is not our intention. Our intention of combining the two entities really is because we see complementarity in the way they execute their functions and therefore it makes greater sense to put the two entities together. Putting the two entities together will enable us to create a statutory board of about 100 people, which gives us a decent size to attract

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talent, provide better career development and have a repository of expertise to follow international developments, keep up with best practices and so maintain the right regulatory environment for Singapore.

I would like to assure Dr Gan that all the concerns that she has about greater policing powers and offences, prosecution of offenders and ACRA conducting its own court proceedings are unfounded. The whole idea of merging these two is to get the efficiency and to make sure that we are able to keep up with international practices more speedily, like what Mr Andy Gan suggested. So, putting the two entities will not create more onerous responsibilities on the companies or businesses. What we want is a single entity, as Mr Andy Gan alluded to, that allows companies to refer to, interact with, for interpretation of the Companies Act, for we will have a single entity to champion the changes that we need to keep up with the developments around the world.

Where would the complementarity or synergies be derived? As I said, if we have two separate groups, we in fact have two very small entities - the Registry of Companies and Businesses and the Public Accountants Board. In fact, they need people from the small background - accountants, lawyers, professionals - and putting them together gives us a better structure to manage the career development and the professional training and upgrading of their staff. We also need a mechanism by which the single entity can interact with the private sector through committees, councils and public consultations, so that the private and public sector work closely together in dealing with the new and changing global environment. As Mr Andy Gan pointed out, there is greater competition, and for Singapore to succeed as a hub for global

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businesses, if we are able to establish clear rules, a very conducive pro-business environment, good practices, good corporate governance, I think that will add to our competitive advantage.

So that is the whole idea of ACRA. ACRA will work with the private sector and make sure that we strike this balance of having the right regulatory rules in place, proper observance and compliance of these rules, and at the same time not making it too onerous

so as to make sure that we have a very competitve environment.

So I think, with this assurance, I hope both Members will feel that the creation of this entity would lead to further promotion of business in Singapore and not be seen as a further obstacle.

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. - [Mr Lim Hng Kiang].

Bill considered in Committee; reported without amendment; read a Third time and passed.