Distinguished speakers, ladies and gentlemen. On behalf of the SIDC and the SC, I would like to welcome all speakers and participants to this Seminar on Managing International Financial Reporting Standards in Critical Times: Learning form Global Experiences.  For those of you who travelled far to be here today, a very warm welcome to Malaysia.

I am pleased that the Securities Industry Development Corporation and Deloitte are jointly organising the series of programmes on IFRS. I am sure the presence of experts from the region to share your expertise and experience will be extremely beneficial to us all.   Even at the best of times it makes immense sense to learn from the experience of others, what more in critical times like today.  We at the SC are firm believers and practitioners in learning from others – whether on regulation, investor protection, governance standards and the like.  In fact as our market gets more interlinked with other markets and as investors scan the globe for best returns on investments and issuers do the same for lowest cost of financing, learning from the experience of others is neither a luxury nor an option. It is the only way forward.

Compared with the 1990s, when many countries in the world had their own accounting standards, it is a credit to the profession that there has been significant progress in harmonization. This is a major achievement. At the recent London G-20 Summit, governments called for a single, high quality set of accounting standards that all companies will use to file their results. The natural candidate to meet their demand is the IFRS with more than 100 countries already using them.  Brazil, Canada, Chile, India, China, Japan, and Korea are all committed to adopting them. Past holdouts, the US recently made definitive steps toward this change. 

The IFRS is thus the de facto international backbone on which global accounting and financial reporting will be based. It will become an integral part of the way companies around the world are assessed and compared, making it an essential ingredient in the development of capital markets and the provision of comparable information to millions of investors around the world.

In this context, financial and capital markets have become an increasingly major component of most economies. With dramatic increases in financial transactions across borders and corresponding increases in the value of financial assets, the regulatory significance of accounting standards has definitely grown in stature. Accounting standards now have a significant impact on global financial stability as reflected by fact that fair value accounting now occupies centre stage in recent debates on regulatory reform.

In the events leading to the global financial crisis, the innovation of new complex financial products and transactions complicated the fair value measurement process, resulting in considerable latitude given to financial institutions to undertake valuations on a mark-to-model rather than a mark-to-market basis. The outcome was a considerable expansion in financial leverage as financial institutions actively pursued regulatory arbitrage and loophole mining activities with respect to the measurement process and rising asset prices.

The problem arises when the reverse process occurs with asset prices and market liquidity falling. In this regard, financial reporting standards or measurements as under “fair value” accounting are now the major determinant of whether financial institutions have sufficient capital to meet minimum prudential requirements. If the rules are applied strictly, then global financial institutions might have to further deleverage with the risk that the process could trigger contagion. If too much leeway is provided to depart from valuing assets based on their market prices, then the risks is that it could undermine the reliability of the measurement as a reflection of “fair value”.

Accounting standards also now forms the basis for public confidence in the integrity of markets and the companies that issue debt or securities. In this regard, securities regulators regard financial reporting as an important aspect of meeting our statutory mandate to protect investors.

To quote Sir David Tweedie, the International Accounting Standards Board (IASB) Chairman:

“The implementation of such standards would boost corporate governance and benefit investors who relied on companies’ financial reporting in making their investment decisions.”

The point to note is that not only does IFRS promotes good corporate governance but that today, countries that wish to compete for Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) have to adopt international standards that are in line with good corporate governance practices.

This view was reinforced by the findings of a survey conducted two years ago by the International Corporate Governance Network. Survey respondents comprise institutional investors accounting for over USD5 trillion of assets under management. The survey found that:

• First, overall financial reporting standards have improved. The reasons given for this are perceived quality improvement in process, stricter regulation and prescription, and the fear of public sanctions.
• Second, there is strong support for a single set of global financial reporting standard. The major reason was to promote efficient transnational evaluation.
• Third, investors want to be more involved in setting standards for financial reporting and regulation both at the local level and also on a global basis.

So as you deliberate on the challenges of managing IFRS in critical times, it is important to ensure that the views of investors, as an important stakeholder, are given sufficient consideration. In this regard, the challenge sometimes is for the financial reporting fraternity to reduce the complexity of the standards where possible. As the experience with derivative instruments have shown, complexity can lead to opacity. And opacity has a tendency to lead to transgressions.

We are privileged to have Deloitte’s experts from different countries in the region to share their experiences of the pitfalls and issues that can affect the seamless implementation of IFRS. Careful planning ahead is obviously critical, but there are always surprises and rather than having to experience them first hand, Deloitte’s experts will be sharing with you what can happen and how to deal with such surprises to get it right first time.  At the end of the day there will also be an important panel discussion with representatives of the accounting industry who will also share their views on the dangers of unprepared implementation.

I would like to thank Deloitte’s for making their experts available for today’s event. It demonstrates the importance and urgency of the task at hand. It is also a testament of the good working relationship between the regulator and key market participants in taking our capital market forward.  So, let me not get in the way of the sharing and learning experience.  I am sure that you will all have an illuminating and successful day, repaying in full the investment of your time.