Institute of Certified Public Accountants of Singapore3 December 2002 Mr Jonathan G Katz
(By post and email: Rule-comments@sec.gov) Dear Secretary Katz THE SARBANES-OXLEY ACT AND SINGAPORE AUDITORS The Institute of Certified Public Accountants of Singapore (ICPAS) appreciates the opportunity to provide some feedback and comments on the recent passage by the United States Congress of the Sarbanes-Oxley Act of 2002 and the promulgation of rules like the Certification of Disclosure in Companies' Quarterly and Annual Reports and the Framework for Enhancing the Quality of Financial Information Through Improvement of Oversight of the Auditing Process by the Securities and Exchange Commission. The Institute of Certified Public Accountants of Singapore is committed to retaining investor and public confidence in the auditing process and in corporate governance. We agree with the need for increased authority and responsibility for Independent Audit Committees and we equally agree with the additional benefits to investor confidence that an independent oversight board or boards would bring. The Sarbanes-Oxley Act is a response by the US legislature to the loss of confidence in US corporate governance. Singapore has and continues to consider possible changes to its national financial reporting systems and corporate laws, rules and regulations. The US legislation is based on the strong principles of independence, transparency and oversight and encompasses many initiatives already in place in Singapore. For example, it places discipline of auditors outside the profession through the Practice Monitoring Programme and the licensing requirements of the Public Accountants Board (PAB), a statutory body set up under the aegis of the Singapore Ministry of Finance. Singapore's auditing, ethical and accounting standards are already in line with international best practice as determined by the International Federation of Accountants and the International Accounting Standards Board. In view of this, we would like to seek exemption from the requirement for Singapore Certified Public Accountants, who are already registered with the PAB and ICPAS to be registered with the Public Company Accounting Oversight Board and to be subject, amongst others, to annual quality reviews. The grounds for our request for exemption are as follows: Registration of Auditors In Singapore, approved company auditors are required to be registered with the Public Accountants Board. The Public Accountants Board is a statutory body under the purview of the Singapore Ministry of Finance which, inter alia, maintains a Register of Public Accountants and a Register of Public Accounting Corporations, controls and regulates the practice of the profession of accountancy by public accountants and accounting corporations, determines and develops standards of Professional Conduct and Ethics of the accountancy profession and discourages dishonourable conduct and practices. Approved company auditors are also required to be registered with the Institute of Certified Public Accountants of Singapore as practising members or practising CPAs. Practising CPAs or approved company auditors are subject to the rigorous rules and regulations of both the PAB and the ICPAS. For example, the PAB had recently suspended a practising CPA, Mr Patrick Tay, for 18 months for his role in the audit of Singapore-listed Amcol Holdings. Another practising CPA, Mr Cheong Khee San, was imprisoned for 18 months and struck off as a practising CPA for his role in the audit of Singapore-listed Cam International. Rigorous Standard-setting Process In Singapore, accounting standards are known as Statements of Accounting Standard (SASs) and have been hitherto promulgated by the Institute of Certified Public Accountants of Singapore, a body established under the Accountants Act. From August 2002, the corporate legislation in Singapore, the Companies (Amendment) Act 2002, has been amended to require financial statements to comply with `prescribed accounting standards', which are to be prescribed by the Council on Corporate Disclosure and Governance. To position Singapore as a key business and financial centre, there is a need to give investors the confidence that companies registered in Singapore present true and fair financial statements that are in accordance with internationally accepted accounting standards. The recent developments in other jurisdictions have also highlighted the importance of having good corporate governance and disclosure practices, especially among companies that raise capital from the public. The terms of reference of the Council on Corporate Disclosure and Governance are:
The Council, whose members are appointed by the Minister for Finance, is chaired by Mr J Y Pillay, Chairman of the Singapore Exchange. The Council's composition includes representatives from businesses, professional bodies, academic institutions and government. The ICPAS issues Singapore Standards on Auditing or SSAs which are based on the International Standards on Auditing issued by the International Federation of Accountants. The ICPAS expects members who assume responsibilities in respect of financial statements (both members in industry as preparers as well as practising members as auditors) to comply with SASs and SSAs as appropriate. The ICPAS may inquire into apparent failures by members to comply with SASs and SSAs as appropriate or to disclose departures from SASs. ICPAS members who act as auditors play a significant role in ensuring compliance with SASs. Auditors give an opinion on whether a company's financial statements are prepared in accordance with the Companies Act and SASs so as to give a true and fair view. Where there has been a material departure from SASs, auditors are obliged to qualify that opinion accordingly. It is possible that the directors of a company and the auditors concur that it is necessary to depart from SASs in order to give a fair presentation. In such extremely rare circumstances, certain disclosures have to be made as specified in the SASs. Monitoring and enforcement The Institute's processes for monitoring compliance and the enforcement of professional pronouncements include the Financial Statements Review Committee (FSRC), which regularly reviews financial statements for compliance with SASs and other regulatory requirements, a mandatory practice monitoring programme, and the disciplinary committees. The FSRC has three sub-committees each reviewing the financial statements of listed companies, private companies and companies that are required to publish their financial statements in the Gazette (e.g. property developers). This is a 20-member strong committee. There is also the Public Accountants Board (PAB), which is the regulatory agency that licenses practising public accountants. The ICPAS and the PAB work very closely together. In practice, the PAB adopts the professional pronouncements, including any updates and amendments, issued by the Institute. The PAB takes disciplinary action as appropriate against practising CPAs who do not comply with the compliance requirements. Recently, the PAB had suspended a practising CPA, Mr Onn Ping Lan for two years for not complying with the PAB rules. Strong Corporate Governance Singapore has a strong bedrock of corporate governance practices and these are mainly encompassed in the Code of Corporate Governance issued by the Ministry of Finance. In addition, agencies like the Registry of Companies and Businesses and the Monetary Authority of Singapore play an important role in the regulation of businesses in Singapore. In short, the PAB, whose members are mainly non-CPAs and which receives independent funding from the Singapore government, is as independent and strong, if not more, as the Public Company Accounting Oversight Board. We would like to appeal to you to consider our request for exemption and shall be pleased to discuss our comments and views with the Commission or its staff. Yours sincerely, TAN BOEN ENG
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