Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at ACCA Centenary Conference today (March 20) (English only):
Sam [Wong], Leo [Lee], distinguished guests, ladies and gentlemen,
I am very pleased to join you all this morning to help open the ACCA Centenary Conference. I trust that today's programme will be most rewarding and stimulating.
It seems obvious that reliable financial reporting is of great importance for upgrading market quality and maintaining investors' confidence. And the accounting profession has a noble tradition in this regard. However, behind such recognition comes unique pressure and challenges. In most businesses, "the customer is always right"; accountants, however, are paid for telling their customers when they are wrong.
The environment that auditors are working in has seen drastic changes following a number of striking corporate failures in recent years. The ramifications of Enron, Worldcom and Parmalat are far-reaching. One of the then Big Five even disappeared from the radar screen. Some accounting firms are foregoing audit services altogether. Additional insurance coverage for accounting firms is much harder to obtain, or at least at a much higher premium. Against this background, I for one feel encouraged by the theme of today's conference - "Accountants Reloaded". This theme demonstrates the initiatives of ACCA in reflecting on the role of accountants in this new era, when there are growing public concerns about the responsibility of auditors. You know you cannot be complacent. You are fully aware that something has to be done to regain public trust. You are determined to restore the confidence of the investing public. So, what is the right direction for the profession to follow? Let me offer four sign posts to help guide you.
First, accountability. To whom are auditors accountable? Auditors are ultimately responsible to investors notwithstanding that they are paid by companies. The public expects auditors to detect fraud and errors, not to help cover them up. Auditors, therefore, have to be more proactive in considering the risk of fraud or malpractices when examining financial statements. Whenever accountants are caught in the dilemma of whether to disclose certain information, the decision should be based on what serves the interests of the investing public. Auditors need to demonstrate that they are prepared to tell the truth and nothing but the truth. The profession first and foremost serves the public interest.
Second, standards setting. In order to detect fraud and errors more effectively, the profession has to upgrade the relevant standards and procedures in preparing financial statements. Auditors must ensure that accounting standards are not just a finely negotiated compromise, which serves the short-term interest of fulfilling clients' needs. Rather, the standards should represent the best endeavours of the profession. The standards and guidelines should also be able to reflect the role of the auditors. Therefore, accountants need to offer strong support to the professional accounting bodies in standards setting so as to improve their transparency, quality and credibility. At the same time, co-operation with regulators and law enforcement agencies is also important to ensure that such standards are adhered to.
Third, corporate governance. Although good corporate governance is not the only thing which helps a company succeed, bad corporate governance can definitely ruin a company. Accountancy firms need to take corporate governance seriously, both in respect of their clients and their own firm. Top accounting firms should take the lead in improving their governance, enhancing their transparency and providing channels to allow scrutiny by those who are not involved in the decision-making process.
Last but not least, education and training. The profession has a duty to help improve accounting education so that there will be a greater supply of accountants to help Hong Kong maintain its international financial centre status. Training on the latest trends in accounting standards and practices would also be useful in helping the continued development of the profession.
In stating the high public expectation of the accounting profession, the Government is committed to ensuring an effective, transparent and accountable regulatory regime for the auditing profession. We are fully aware of international developments and the issues confronted by our own accounting profession.
In view of the intense public concerns over the standards and integrity of the accounting profession, the Administration is now considering a proposal from the profession for the setting up of an Independent Investigation Board (IIB) to conduct investigations into alleged accounting and auditing irregularities involving listed companies. The intention is to improve the independence and transparency of investigation procedures, thereby enhancing public confidence in the profession and the integrity of our capital markets. We issued a consultation paper in September 2003 and received over 20 submissions. There is overwhelming support for the establishment of the IIB, although views on the details, such as the institutional set up and sources of funding are diverse. We are in discussions with all relevant parties with a view to sorting out the implementation details.
I am glad to learn that in the midst of all the challenges faced by the auditing profession, the ACCA has deep in its heart a strong commitment to being more than just a good corporate citizen. The organisation of this Centenary Conference represents its dedication to enhancing the quality of the accounting profession, and thereby benefiting the business world as well as the general community.
ACCA is one of the largest and fastest-growing accountancy bodies in the world, and locally ACCA Hong Kong and its members have been contributing to the betterment of our society. ACCA Hong Kong offers free tax advisory services to the general public on completion of individual income tax returns. It also undertakes a number of community service projects. A couple of months ago, I joined many of you at the 7th Charity Fun Day to raise funds for the less privileged. I was really touched by the warm hearts that the cool-minded auditors possess.
Ladies and gentlemen, I am confident that you will continue your endeavour to promote the concept of "responsibility" among your fellow members. And let me assure you that the accounting profession will not be alone in confronting all the challenges ahead. Consider the Government and the regulators as your good partners. With full cooperation and trust, we will be able to develop an open, transparent and effective regulatory regime and provide a level playing field for the profession, thereby further strengthening Hong Kong's position as an important International Financial Centre. And don't forget what the former Premier Zhu Rongji said in Hong Kong in late 2002: "Do not make false accounting statement!"
Ends/Saturday, March 20, 2004