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Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the IASB World Standard Setters' Conference today (November 18):

Sir David (Tweedie), Distinguished Guests, Ladies and Gentlemen,

I am both honoured and delighted that you have invited me to give an opening and welcoming speech for today's IASB World Standard Setters' Conference.

Let me, first of all, welcome you to Hong Kong. As an international financial centre, Hong Kong is honoured to be the host city for this important conference, as well as the meeting of the Board of Trustees of the International Accounting Standards Committee (IASC) Foundation. We are indeed delighted to be involved in the commendable work of the IASB, and its parent entity, the IASC Foundation, which has significant implications for the global financial community.

As you well know, the IASB is both a prestigious and powerful international body with the mission of harmonizing accounting standards and encouraging their application and enforcement throughout the world. The Board of Trustees of the IASC Foundation, chaired by Mr Paul Volcker, the former US Federal Reserve Board Chairman, and composed of eminent world figures of influence, provides the oversight for the body and is responsible for financing the effort and appointing the members of the IASB and its Standards Advisory Council and the International Financial Reporting Interpretations Committee.

The IASB, under Sir David's leadership, assumes the role of the international accounting standard setter. It is the driving force behind the development and promulgation of a single set of high quality accounting standards that can command respect around the world. These standards need to be understandable and enforceable, and require transparent and comparable information in general purpose financial statements. The IASB has been able to count on the expertise and professionalism of its members who, at present, come from nine countries and have a variety of functional backgrounds.

Moreover, the IASB goes through a rigorous, open due process when setting accounting standards. Emphasis is put on independence from political and outside pressures and from purely national considerations, as well as opportunities for its constituencies to make their views known during the process. The IASB also cooperates with national accounting standard setters to achieve convergence in accounting standards around the world, for example, through close co-ordination between its due process and those of national standard setters. Such cooperation and co-ordination are important to the success of the IASB's mandate.

The work of the IASC Foundation and IASB has never been more important. Globalization in recent years, coupled with the trend towards a knowledge-based economy, has been a major factor. The need for a set of high quality international standards is no longer confined to the conceptual level as there is a practical dimension to it. We subscribe to the views that these standards will unify accounting practices around the world, simplify listings across national boundaries, and address the needs of national and international markets. If markets are to function properly and capital is to be allocated efficiently, investors require transparency and must have confidence that financial information accurately reflects economic performance. Investors should also be able to make comparisons among companies in order to make rational investment decisions, particularly in a rapidly globalizing world.

The need for international convergence in accounting standards has emerged ever stronger in view of the recent high-profile corporate failures. There are a number of lessons to be learnt on how to avoid a repeat of these failures. The failures have highlighted again the critical importance of corporate governance, putting under the limelight issues such as the accountability of the board of directors and the audit committee, independence of auditors, quality of their audits in relation to a listed company, and not least the quality of accounting standards. Indeed, I cannot emphasize more the importance of high quality accounting standards and the application of such standards by a profession which is able to meet the new demands of the future. These are vital elements to instilling investor confidence in our increasingly globalised financial community.

It is therefore encouraging to note the recent decision by the IASB and the US Financial Accounting Standards Board to work together toward greater convergence between the US Generally Accepted Accounting Principles (GAAPs) and International Accounting Standards (IASs). As a first step, the bodies have announced that they will use their best efforts to propose changes to US GAAPs and IASs that reflect common solutions to certain specifically identified differences. They expect to issue an Exposure Draft to address some, and perhaps all, of those identified differences by the latter part of 2003. This underscores a significant step in the IASB's partnership with national standard setters to reach a truly global set of accounting standards. A successful outcome of this exercise would dramatically improve the efficiency of global capital markets: costs would decrease, comparability would improve and corporate governance would be enhanced.

In Hong Kong, our accounting standards, the Hong Kong Statements of Standard Accounting Practice (SSAPs), are set by the Financial Accounting Standards Committee (FASC) of the Hong Kong Society of Accountants (HKSA). The FASC is tasked with ensuring that the SSAPs are of high quality and introduced only after a due standard setting process.

Since 1993, it has been the HKSA's policy to harmonize its SSAPs with the IASs. It is only under rare circumstances, such as conflicts with local legal requirements, that departures from IASs would be accommodated. Moreover, the HKSA has put in place arrangements to ensure that future harmonization work is conducted efficiently and effectively. The FASC will be considering issues virtually concurrently with the IASB. For example, when the IASB issues an Exposure Draft for comments, the Hong Kong constituency will comment on that Exposure Draft as if it is a Hong Kong Exposure Draft and provide comments to the FASC and/or IASB before the deadline. Following the publication of IASB's final approved standard, the FASC will consider the changes made by the IASB with a view to recommending to the HKSA Council the approval of an equivalent, if not identical, SSAP. This harmonization work conducted by the HKSA and its FASC has the full support of the Government.

In 2001, as part of an ongoing Corporate Governance Review, the accounting standard setting process was examined to ascertain the extent to which it should be improved. The conclusion was that Hong Kong did not need an independent accounting standard setting body given that the SSAPs were closely modelled on the well-recognised IASs. This said, it was recommended that the composition of the FASC should be widened to cater for more involvement of the public. I am pleased to know that the HKSA will take on the recommendation.

Today's conference gives the chairmen from the world's accounting standard setters a very good opportunity to address the issues and challenges facing them in a rapidly globalizing world. The international investment community look to all of you for leadership and guidance. It has been said that the value of knowledge and information lies in the sharing. In a very short while, the very inspiring Sir David Tweedie will share with us his insights on the experience and perspectives of the IASB, followed by a sharing session with distinguished speakers on international convergence in accounting standards. National accounting standard setters would find today's Conference thought provoking and would bring home with these refreshing ideas on how to tackle the challenges ahead.

May I once again thank the IASB for giving me this opportunity to meet you this morning. As I have said at the outset, the work of the IASC Foundation and IASB has significant implications for the global financial community. A single set of high quality international accounting standards is very much in the public interest, be that on the international level or national level. It assumes particular importance in the global drive towards better accounting and corporate governance practices. We are fully behind these efforts and, in particular, IASB's commitment to working with the US Financial Accounting Standards Board towards greater convergence between the IASs and US GAAPs.

Lastly, I wish the IASB and you every success at today's Conference. Thank you.

End/Monday, November 18, 2002

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