ACCOUNTANTS BILL

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ACCOUNTANTS BILL: Order for Second Reading read.

The Second Minister for Finance (Mr Lim Hng Kiang): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

Introduction

This Bill before the House seeks to repeal and re-enact with amendments the Accountants Act (Cap. 2), in conjunction with the establishment of the Accounting and Corporate Regulatory Authority, or ACRA.

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Public Accountants Oversight Committee

ACRA will be responsible for administering the Accountants Act. This includes the registration of public accountants, accounting corporations and accounting firms, as well as the regulation of the auditing practice.

Part II of the Bill sets up a Board committee, to be called the Public Accountants Oversight Committee, or PAOC for short. The Committee will comprise representatives from the public and private sectors, including at least one public accountant. The PAOC will assist and advise the main ACRA Board on matters pertaining to the regulation of public accountants. The main ACRA Board will focus on strategic and policy-related issues.

Regulatory framework for public accountants, accounting corporations and accounting firms

Parts III to VII of the Bill strengthen the regulatory framework for the audit profession in Singapore.

Accounting firms

First, this Bill sets up a Register of Public Accounting Firms, in line with the regulatory framework already in place for individual public accountants and accounting corporations. It allows ACRA to take disciplinary action against errant accounting firms. This is consistent with the practices in leading jurisdictions, such as the US and UK.

Second, the new Accountants Act will require only two-thirds, rather than all, of the partners of an accounting firm to be public accountants. This allows firms that engage in tax or corporate secretarial work, in addition to audit work, to register as accounting firms. As long as two-thirds of the partners in their firms are already registered as public accountants, partners

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who do not perform audit work no longer need to register as public accountants.

Third, this Bill deregulates the "Certified Public Accountant", or "CPA" title. All accountants, including public accountants, will be free to use titles indicating membership of professional organisations or accountancy degrees. As a safeguard against fraudulent representation, the Accountants Act will prohibit a person, body corporate or firm who is not registered by ACRA from practising as, or holding out to be, a public accountant, accounting corporation, or accounting firm.

Registration criteria for public accountants

The registration criteria for public accountants will continue to include qualifications, practical experience and membership in a professional association. With regard to membership in a professional association, the Institute of Certified Public Accountants of Singapore, or ICPAS, will be the only professional association recognised for this purpose, at least for the time being.

ICPAS will transit from a statutory body to a non-statutory society for the accounting profession in Singapore. This is consistent with the practices in other leading jurisdictions such as the UK, the US and Australia, and will be similar to the approach that we have adopted for other professionals, including the architects, doctors and engineers. The Bill transfers ICPAS's assets, liabilities, employees and members to its successor entity. To further facilitate the transition, the current ICPAS Council will serve as the interim governing committee of the successor entity until new elections are held.

Practice monitoring programme

Part V of the Bill formalises the Practice Monitoring Programme, or PMP.

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This is a key provision in strengthening the regulatory framework for public accountants. Through the PMP, the PAOC will monitor the professional standards and practice of public accountants.

Clause 34 provides for the establishment of a Practice Monitoring Sub-committee to assist the PAOC in designing and implementing the PMP. PAOC will have the powers to take action against public accountants who fail PMP reviews, including the recommendation of remedial steps to improve professional practice, restriction of practice, suspension and de-registration. The Bill also provides public accountants an avenue of appeal to the High Court against decisions of the PAOC.

Two-tier disciplinary process

Let me now turn to the two-tier disciplinary process. Part VI of the Bill sets up a two-tier disciplinary process comprising the Complaints Committee and the Disciplinary Committee to process complaints against public accountants. The improved disciplinary process is modelled after the legal and medical professions in Singapore.

All complaints will first be evaluated to determine if a prima facie case has been established for the setting up of a Complaints Committee. The Complaints Committee will review the case to determine whether the case is to be dismissed or whether it necessitates a letter of advice or warning to the errant public accountant, accounting corporation or accounting firm. If the case requires further investigation, the Complaints Committee will recommend to the PAOC to constitute a Disciplinary Committee to hold a formal inquiry. The Disciplinary Committee will recommend to the PAOC the appropriate disciplinary action, including de-registration, suspension,

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restriction of practice, imposition of penalty and censure.

Penalties on professional misconduct

The Bill increases the maximum penalty that may be imposed on an errant public accountant, from $5,000 to $10,000. In addition, the Bill sets at $100,000 the maximum penalty that may be imposed on an errant accounting firm. The higher penalties are necessary to serve as a deterrent against professional misconduct.

Conclusion

Sir, in closing, I would like to thank the Institute of Certified Public Accountants of Singapore for giving valuable feedback in the drafting of the Accountants Bill. ACRA will continue to work with all its stakeholders to ensure a smooth transition and to uphold a forward looking regulatory framework for the auditing profession.

Sir, I beg to move.

Question proposed.

Mr Andy Gan Lai Chiang: Mr Deputy Speaker, I rise in support of the Accountants Bill.

This Bill seeks to further refine the Accountants Act (Chapter 2) and include in it more powers to control the practice and standards of the accounting profession. I support this move as it seeks to establish the image and standing of the accounting profession among other established countries. Although this Bill seeks to protect the investing public rather than setting the standards for excellence for accountants, it should positively spur the profession into setting its own standards for the investing public to rely on.

Sir, the accountant's job has been misunderstood often, and it is important

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that it be put in the right perspective. The accountant's job is not merely to apply the facts against preset standards and make a judgement, but to exercise his personal judgement and expertise to determine whether the information provided is "true and fair". Indeed, the accounting profession in the United Kingdom survived for over a century on the personal ethics of its members. Accountants in UK, other established economies and in Singapore were held in high esteem by the public then, and I hope it still is.

However, while much of this independent professionalism remains, times are changing. Political power has now influenced accounting standards, as have capital markets and international efforts for harmonisation. This has been brought about in a great part by the collapse of companies in UK, USA and Australia, owing to the lack of judgement from well-known accounting firms. Hence, the introduction of this Bill should in some way restore the public's confidence in the accounting profession which has been eroded by high profile failures of public companies.

One marked change of this Bill will be the new Public Accountants Oversight Committee, as stated under clause 4. It shall in addition have its functions and duties conducted by members who may not be accountants, thus removing any possible conflicts of interest and lack of independence in setting standards and enforcement. This will further enhance the accountants' integrity and trustworthiness in the performance of their duties.

However, Part VI of this Bill also provides for errant accountants to be disciplined and for complaints to be reviewed by a Disciplinary Panel. While this provides comfort to the investing public, it will also act as a deterrent for those accountants who may be tempted to sway from the straight and narrow

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path.

On this note, I hope that the Oversight Committee will have the wisdom to distinguish professional negligence of accountants as opposed to corporate management negligence when fingers start pointing as a consequence of corporate failures.

Corporate failures, such as when a period of economic difficulty follows a bull market, when managements make unwise assumptions about the future prospects of the business, poor management of company finances which may lead to financial collapse and the temptation to hide or distort reports of poor financial performance, are natural consequences of the market system. Furthermore, in these fast moving times when businesses react to changes in the market with light speed as compared to the days before the introduction of the Internet, no degree of regulation will overcome the certainties that corporate failure is inevitable and public accountants will inevitably be blamed.

Furthermore, what we are facing in Singapore is that our corporations are going global. In such an increasing international scenario, regulation within Singapore, or for that matter any individual country, cannot reduce the risks attendant on the need for public accountants to rely upon auditors in other less regulated environments. In this aspect, the Accountants Act may expose the Singapore accountants to greater professional liabilities than accountants practising in other less regulated regimes. This may thus create a high risk environment which may stunt the growth of a healthy professional body of accountants. If this does happen, the high risks associated with being a public accountant versus not being one will see a lack of supply of accountants following economic growth in a country. This will not bode well for Singapore as it pursues

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to build local talents in accountancy to supplement the Big Four international accountancy firms that are the market leaders at the moment.

Under the Sarbanes-Oxley Act of 2002, the Public Accounting Oversight Board is considering registering all foreign accounting firms that perform audit for US companies outside the US. This means that these foreign accountancy firms have to make sure that they meet the standards set by the US regulators before they can provide accountancy services to US-registered corporations. Perhaps, the Public Accountants Oversight Committee under the Accountants Bill in Singapore can also come up with a scheme to ensure that our listed corporations with subsidiaries in other countries are also audited by overseas public accounting firms with similar standards set. As more listed companies, both local and foreign, spread their operations outside Singapore shores and these business operations need to be consolidated with the accounts of the parent companies in Singapore, I would be grateful if the Minister will respond to this treatment of non-Singapore auditors.

Public accounting firms often offer a range of tax services. With this Bill, many public accounting firms are concerned that some other services they offer may fall outside the definition of this Bill. If non-accounting firms are allowed to offer traditional services, such as corporate secretarial, book-keeping and tax services, and such companies need not comply with the regulated demands of this Bill, it may lower the standards of the accounting profession, which has to be kept high for continuing public confidence in Singapore companies.

Just as the Government is trying to help our local small and medium-sized corporations grow in size to provide a

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strong base for enterprise in Singapore, and also to be strong enough to venture abroad, assistance must also be made to help our local public accounting firms grow in size in order to provide audit and other public accounting services to our growing SMEs. At the moment, most of our local businesses will switch to larger international public accounting firms before seeking listing on the Singapore Stock Exchange. It is perceived that this will provide credibility in the eyes of the authorities and hasten the approval process for a listing to take place.

Such public accounting services can easily be provided by our local accountants if support can be given to level the playing field for these local public accounting firms to compete with larger international firms. Perhaps some Government-related companies can lead the way by casting their net wider and engaging the services of local public accountants, instead of just relying on the Big Four.

Some have also raised concerns about the costs of compliance with new rules for smaller firms. While it is important that the Accountants Bill leaves little gaps in governing our financial reporting system, it is also important for our regulators to conduct an appropriate cost-benefit analysis in crafting those regulations.

In conclusion, Mr Deputy Speaker, Sir, I would like to add that this Bill, while recognising the importance of keeping the investor community, the issuer community, the accounting profession and the interested public informed of developments by the Public Accountants Oversight Committee when it carries out its duties, must establish a general practice of conducting its rule making in a public forum and seek public comment on proposed rules. Such a robust rule change process will instill further confidence in building a thriving business environment where accounting standards can be tested and followed by others. I

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look forward to our building a stronger and forward-looking community of accountants through this Bill.

Mrs Fang Ai Lian (Nominated Member): Mr Deputy Speaker, Sir, as the only public accountant in this House, and also as a council member of the Institute of Certified Public Accountants (ICPAS), it is my duty to comment on these Bills.

First, to set the tone right, I would like to thank the Ministry of Finance for its close consultation with the Institute of Certified Public Accountants in drawing up the Bills which affect the accounting profession. As earlier said, the Accounting and Corporate Regulatory Authority Bill will see the merger of the Public Accountants Board, which used to regulate public accountants, and the Registry of Companies and Businesses into one body, the Accounting and Corporate Regulatory Authority. This Bill, in addition, will also see the reconstitution of ICPAS into a society.

Let me preface my comments by also recalling the role of auditors which has evolved since the early days of industrialisation. The primary role of auditors is to provide assurance to financial statements to stakeholders, ie, shareholders, creditors and the public at large. It also acts to serve as a check on management, so that they will continue to act in the best interest of all parties concerned. This reporting function of auditors is very crucial to the proper functioning of financial markets because it will help to ensure that reliable and relevant information is provided to stakeholders and fund providers to help them make informed decisions as to where to place their financial resources. So, it all contributes to the effective and efficient functioning of financial markets because, without checks, management will have a free rein, and auditors come in to make sure that that does not happen. Management would want to present a

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much more robust and positive picture of the businesses they run, but stakeholders require an objective view.

Sir, the responsibility of providing this objective view rests on auditors and this helps to instill public trust in financial statements of companies. I would like to say that the Institute of Certified Public Accountants is committed to maintaining this public trust not only in the accounting process but also in the auditing process as well.

The accounting profession is an important constituent and pillar of the business community and the capital markets, as Mr Andy Gan has pointed out, and it is therefore important that the Institute, which has some 16,000 members, is strongly supported by the business community and the Government. It should be regarded as an important beam in the economy to support capital markets. Therefore, the reconstitution of ICPAS as a society should not be perceived as diminishing the role, standing and pride of the Institute and the profession. In this regard, I would like to thank the Ministry of Finance for its understanding and support. As quite rightly pointed out, very large corporate failures as well as investor losses have heightened the need to restructure the regulation of the accounting profession. I may not be entirely objective here, but I would say nonetheless that some of these losses and failures have sometimes been unfairly blamed on accountants, because it should be noted that there have also been great lapses in institutional structures and opportunism reflected in managerial conduct.

That being said, the market, as it is today, and particularly in the US, is challenged by this multifaceted lack of trust in the corporate system, and corporate reputation, which has taken a long time to build, has been diminished and needs rebuilding. It will take some

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time - as we often say, it will get worse before it gets better - but there are global efforts amongst those who see an urgent need to gear up on damage control. Of course, the US, where all these took place, is at the forefront of reforms and initiatives, and a significant outcome, as mentioned by the Minister as well as Mr Andy Gan, is this Sarbanes-Oxley Act of 2002 which introduces sweeping legislation targeted at the core issues of accounting, auditing and corporate reforms. Elsewhere, as has been mentioned, in the UK, Canada, Australia, the European Union, they are all actively engaged in all these reforms. So, our changes are indeed in line with international capital market initiatives. And I would say that, because Singapore aspires in this globalised world to further enhance its standing as a financial centre by taking a leading role in raising standards and so on, it will surely bode well for Singapore as a whole.

In 1999, the Ministry of Finance set up three committees to look into corporate governance practices, standards of disclosure, and the legal and regulatory framework. As a result, we have the Corporate Governance Code in 2002, the establishment of the Corporate Disclosure and Governance Council in 2002, there have been revisions and further ongoing revisions to the Companies Act and also to the regulatory framework not only to accord with, as we say, best practices in terms of governance, but also to promote a much more competitive economy. The Accountants Bill further introduces the Practice Monitoring Programme and sets out consequences for accountants who fail the practice reviews.

It is common knowledge that the Sarbanes-Oxley Act in the US is a reaction to the situation there. Many consider this Act to be an over-reaction. So, the point to be made here is that, in

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formulating regulations, it is always good to have good necessary regulation and not over-regulation because, by taking on very strict rules, the flip side is that there is always a cost to it and it can also retard entrepreneurship.

Having said that, I suppose we can take comfort that these failures and losses are a distance away, and we can comfortably take and read the signal signs and implement preventive measures, which we are doing. As Singapore aligns itself with the major and more developed markets, it should be noted that this heightened scrutiny, an environment of stricter controls, will become global facts of life for accountants in Singapore. Already, much has been introduced, eg, audit exemption for dormant companies; for companies with turnovers below a prescribed amount, there is now no longer a requirement for qualified secretaries; accountants now have to go through the Practice Monitoring Programme, and so on. Whilst we understand and acknowledge the spirit and intentions which underlie these reforms, it should be noted that it is a fact that these reforms do impact on the accounting profession and will affect the smaller companies in particular.

Globalisation will bring about increasing dominance in terms of self-interest in the conduct of corporate events. We acknowledge that change is needed and provisions will have to be made for a much more far-sighted accounting profession to adapt to these changes. Here again, ICPAS, as demonstrated in the restructuring process, is very willing to work with the Government and other constituents of the capital markets to ensure that the profession continues to gain the confidence of the various parties concerned. Having said that, it should again be noted that the accounting profession was imposed on the corporate system in order to promote trust and order. The

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accounting profession has evolved and has been transformed over many years. Now, the Institute will have to redefine itself but it can always continue to actively act as an agent of societal regulation and continue to contribute in many ways. As a vehicle of communication between the Government and its members - as I have said, ICPAS is a professional body with 16,000 members - a united voice would be preferred in negotiation and compromise. It can continue to render its expertise to various wings of Government, get actively involved in the establishment of accounting and auditing standards, and ensure competency, professionalism and ethical standards, especially in a world of changing values and ideals. It can do all these and more.

Sir, I would like to conclude by saying that the financial market will benefit from all these improved arrangements. Nevertheless, the Institute has to work with constituents of the market to ensure confidence and trust in the corporate system.

On that note, Mr Deputy Speaker, Sir, I support the Bill.

Mr Lim Hng Kiang: Mr Deputy Speaker, Sir, I would like to thank both Members for their contributions. I would like to add my voice to the message which they have conveyed, which is the importance of the accounting profession in maintaining trust and in helping us to compete in the global financial market, not just the accounting profession in general but also, in particular, the role of the auditors. I also agree with them

that the accountants and the auditors are important pillars. They are also important when they are supported by other participants in the market where there are management and other professions like lawyers, board of directors, etc. Everybody must play his part if we want to make the market efficient and we want to maintain the

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trust of the investing public.

The changes that we are making in the Accountants Bill is to reinforce this trust in them. The changes in making ICPAS from a statutory body to a professional association should not be seen in any way as a diminution of their standing or role. ICPAS will continue to play a very important role, working with the Government, with the regulatory agencies as well as with the private sector, to develop the accounting profession in Singapore and to continuously upgrade the profession.

We will recognise ICPAS as the only professional association in the Accountants Act and the Government will continue to work closely with ICPAS in areas such as auditing, mutual recognition agreements with regulators of public accountants in other jurisdictions and in other initiatives to enhance the professionalism of public accountants in Singapore.

I agree entirely with Mrs Fang Ai Lian that there is tremendous advantage in having only one professional association representing the accountants in Singapore. A body with 16,000 members is a very effective body. Our experience so far has been very good in working with ICPAS to review and upgrade standards.

Both Mrs Fang and Mr Andy Gan raised the issue of the problems of the small and medium accounting firms in having to adjust to these changes. I think this is unavoidable. The global market is changing and standards are being reviewed. On the one hand, we are relaxing some of these statutory requirements so as to lower business cost because we do not see the necessity for making private exempt companies to put up statutory reports. But I would like to assure the small and medium accounting firms that this does not mean that there is no need for such reports. Many

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companies, whether it is private exempt or other small companies, if they are in the market for loans or for other requirements, as Mrs Fang explained just now, investors and other parties would like to have auditors to provide a view of the company to give a fair, impartial and objective assessment of the company. So the role of the auditors and accountants has not diminished even if the Government removes the need for this statutory report. I think the market will continue to require such reports even if the Government removes the statutory requirement.

But we do recognise that there will be changes. Our small and medium accounting firms will have to adapt, just like the small and medium companies have done so in other jurisdictions where such statutory reports are not required as well. For this, the small and medium accounting firms will have to look into increasing their revenue from other practices, both domestically and overseas. This may require consolidation and expansion into other jurisdictions.

Mr Andy Gan asked whether a stricter Accountants Act in Singapore will expose Singapore accountants when they practise in other countries or where they consolidate reports with the subsidiaries from other countries. Let me take this opportunity to explain that this is not something new. When the parent company in Singapore has to consolidate its reports with the accounts of the subsidiaries overseas, the audit firm in Singapore will have to make an assessment of the validity and objectivity of the accounts of the subsidiaries. Of course, it depends on where these subsidiaries are located, and on the reliability of the audit companies of these subsidiaries in the other jurisdictions. This is not something new. What the Act offers is better clarity. I do not think it in

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any way exposes Singapore accountants to greater risk.

Mr Andy Gan also highlighted that we should be mindful of regulatory cost. We will definitely do so. The whole idea of making sure we strike the right balance between regulatory requirements and making sure we are competitive will require us to keep a very close watch on the regulatory cost on companies.

Mr Andy Gan would also like to know how the Public Accountants Oversight Committee (PAOC) would go about its work. I would like to assure him that the PAOC, which includes non-accountants, ie, other professions in the corporate world, will make sure that when we make changes to the rules, we seek the views of all the participants. The public consultation process that we have put in place when we reviewed these rules in the past 4-5 years, would be the standard practice when we go forward and when we make changes to rules in future. I would like to assure Members that the interest of all participants in the financial and capital markets will be taken into account and they will be asked to help when we review such rules. We are very mindful that when we make these changes we do not over-react. There is a range of things that we can do. We want to improve the regulatory regime but, at the same time, we are mindful that we should not over-react and, in so doing, cause higher regulatory cost on our people.

With these comments in mind, I hope that the Members will be reassured that the changes are necessary to make sure that accountants and, in particular, public accountants, continue to be a major pillar of our markets and our businesses.

Question put, and agreed to.

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

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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.