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Saturday, 4 April 2009
Financial reporting should go beyond minimum: CPA
Go beyond the financial reporting rulebook and give shareholders the extra information they find useful, urged Chaly Mah, president of CPA Australia’s Singapore division.
Go beyond the financial reporting rulebook and give shareholders the extra information they find useful, urged Chaly Mah, president of CPA Australia’s Singapore division.
‘There needs to be a significant mindset change by the managements, boards, CFOs and preparers of financial statements,’ said Mr. Mah. ‘They need to think about what information they should put out there in the marketplace for their stakeholders for them to understand the company better.’
Only then can we say we have the best practices, he added.
Very often, companies disclose only what is required by accounting standards instead of considering what other information would be useful to their shareholders, said Mr. Mah.
For example, just look at how disclosure of risk management tends to get embedded in boilerplate paragraphs in financial statements.
‘It is unfortunate that they are there just to comply with the requirements of the accounting standards,’ he noted. Rather, companies should be thinking about some of these risks and consider how they are managing them.
Given the pivotal role of risk management in corporate governance, Mr. Mah suggests that companies’ boards consider setting up risk management committees to focus on this whole area of risk. Current corporate governance guidelines require the setting up of nomination, remuneration and audit committees but not a risk management committee at the board level.
The Governance and Transparency Index (GTI) shows that few companies have separate board-level risk management committees or provide detailed information about the key risks and how they are managed.
As in the case of companies dabbling in collateralised debt obligations (CDOs), there was no earlier indication of the risks that they were taking, he pointed out.
Mr. Mah also took issue with the system of executive remuneration that has drawn flak in the United States for encouraging excessive risk-taking to meet short-term financial goals - one of the factors blamed for bringing many financial institutions to their knees.
‘In determining the quantum of bonuses, one shouldn’t just look at financial rewards and performance but also the risk management processes that have been put in place,’ he said. ‘In any financial reward system, risk management should be part of the criteria.’
On the whole, Mr. Mah noted that since the implementation of the Code of Corporate Governance guidelines in 2005, the standard of corporate governance here has improved.
However, the ‘comply or explain’ principle in implementing these guidelines by the stock exchange often results in a checklist approach among companies. ‘The problem with the checklist approach is that it lacks substance,’ Mr. Mah said.
‘If we want to talk about corporate governance best practices, then management and board should decide what is best for the company,’ he added. ‘So, my challenge to corporates in Singapore is to go beyond the minimum requirement of all regulations.’
But the challenge among companies now is finding well-trained independent directors willing to take on the onerous task and qualified audit committee members who are well-versed in finance.
‘Where are we going to get them? It’s a good question. I don’t think there are enough good, well-trained independent directors today in the Singapore marketplace’ he said.
In this area, the Singapore Institute of Directors (SID) has a role to play, he said. The SID has organised courses with the Singapore Management University (SMU) to train directors on their roles and duties, assessment of management and finance.
Training, sharing of experiences and the best practices guidelines, such as the Guidebook for Audit Committees launched last October, are steps in the right direction, Mr. Mah added. And hopefully, the audit committees will use the guidebook and decide what they need to implement in the organisation that will suit their needs.
As encouragement to companies, Mr. Mah believes that those that persevere in corporate governance and are transparent in their disclosure of information will be rewarded by shareholders.
‘Hopefully, it will translate to better financial performance of the company, which will translate to better share performance,’ he said. ‘It is important for shareholders to understand the thinking process behind why the company is doing certain things and the timeliness of information that is disclosed.
‘I hope companies will look at the GTI and aspire to be at the top quartile.’
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Financial reporting should go beyond minimum: CPA
By LYNETTE KHOO
3 April 2009
Go beyond the financial reporting rulebook and give shareholders the extra information they find useful, urged Chaly Mah, president of CPA Australia’s Singapore division.
‘There needs to be a significant mindset change by the managements, boards, CFOs and preparers of financial statements,’ said Mr. Mah. ‘They need to think about what information they should put out there in the marketplace for their stakeholders for them to understand the company better.’
Only then can we say we have the best practices, he added.
Very often, companies disclose only what is required by accounting standards instead of considering what other information would be useful to their shareholders, said Mr. Mah.
For example, just look at how disclosure of risk management tends to get embedded in boilerplate paragraphs in financial statements.
‘It is unfortunate that they are there just to comply with the requirements of the accounting standards,’ he noted. Rather, companies should be thinking about some of these risks and consider how they are managing them.
Given the pivotal role of risk management in corporate governance, Mr. Mah suggests that companies’ boards consider setting up risk management committees to focus on this whole area of risk. Current corporate governance guidelines require the setting up of nomination, remuneration and audit committees but not a risk management committee at the board level.
The Governance and Transparency Index (GTI) shows that few companies have separate board-level risk management committees or provide detailed information about the key risks and how they are managed.
As in the case of companies dabbling in collateralised debt obligations (CDOs), there was no earlier indication of the risks that they were taking, he pointed out.
Mr. Mah also took issue with the system of executive remuneration that has drawn flak in the United States for encouraging excessive risk-taking to meet short-term financial goals - one of the factors blamed for bringing many financial institutions to their knees.
‘In determining the quantum of bonuses, one shouldn’t just look at financial rewards and performance but also the risk management processes that have been put in place,’ he said. ‘In any financial reward system, risk management should be part of the criteria.’
On the whole, Mr. Mah noted that since the implementation of the Code of Corporate Governance guidelines in 2005, the standard of corporate governance here has improved.
However, the ‘comply or explain’ principle in implementing these guidelines by the stock exchange often results in a checklist approach among companies. ‘The problem with the checklist approach is that it lacks substance,’ Mr. Mah said.
‘If we want to talk about corporate governance best practices, then management and board should decide what is best for the company,’ he added. ‘So, my challenge to corporates in Singapore is to go beyond the minimum requirement of all regulations.’
But the challenge among companies now is finding well-trained independent directors willing to take on the onerous task and qualified audit committee members who are well-versed in finance.
‘Where are we going to get them? It’s a good question. I don’t think there are enough good, well-trained independent directors today in the Singapore marketplace’ he said.
In this area, the Singapore Institute of Directors (SID) has a role to play, he said. The SID has organised courses with the Singapore Management University (SMU) to train directors on their roles and duties, assessment of management and finance.
Training, sharing of experiences and the best practices guidelines, such as the Guidebook for Audit Committees launched last October, are steps in the right direction, Mr. Mah added. And hopefully, the audit committees will use the guidebook and decide what they need to implement in the organisation that will suit their needs.
As encouragement to companies, Mr. Mah believes that those that persevere in corporate governance and are transparent in their disclosure of information will be rewarded by shareholders.
‘Hopefully, it will translate to better financial performance of the company, which will translate to better share performance,’ he said. ‘It is important for shareholders to understand the thinking process behind why the company is doing certain things and the timeliness of information that is disclosed.
‘I hope companies will look at the GTI and aspire to be at the top quartile.’
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