In 2008, then Member of Parliament for Hougang SMC, Low Thia Khiang, had asked about the People’s Association (PA) being given an “adverse opinion” rating by its auditors for its Financial Statement.
Here is the parliamentary question he posed, and the answer given by the then Minister of State for Finance, Mrs Lim Hwee Hua:
Mr Low Thia Khiang:
Madam, the financial statement of the People's Association ending 31st March 2007 has been qualified with an adverse opinion by the auditor. This was because PA did not provide audited financial information on its more than a thousand grassroots organisations (GROs) in its financial statement. The auditor is unable to assess the financial impact on the financial statement of the PA arising from the non-inclusion of the financial statements of the GROs. These qualifications are in relation to non-compliance with Singapore's Financial Reporting Standard 24 as well as FRS 27, consolidated and separate financial statements. I understand that this arises from the Ministry of Finance allowing statutory boards to be exempted from certain disclosure requirements of related parties through its minutes or circulars.
Madam, Singapore is proud to have an efficient and transparent public sector. However, such qualified audited report of the PA does not help to enhance the reputation of the public sector. Moreover, PA handles hundreds of millions of dollars of public funds. I would like to ask the Minister:
- What is the rationale for MOF to exempt statutory boards from certain disclosure requirements in FRS 24?
- What has prompted the MOF to issue such an exemption against international standards? Even the private sector listed companies are not exempted from such disclosures of related party transactions.
- How would this impact the transparency of statutory boards, given that many Government functions are now performed by them as agents of the Government?
- Does the Ministry of Finance accept that the financial statement of GROs under the management and supervision of the PA be left outside of PA's financial statements and, effectively, out of the public's scrutiny and accountability?
The Minister of State for Finance (Mrs Lim Hwee Hua):
Madam, let me now move on to Mr Low's cut on the statutory boards. Mr Low Thia Khiang has asked for the reasons for change in disclosure requirements for statutory boards and comments by auditors on the People's Association's accounts.
Before November 2007, MOF, through the Accountant-General's Department, issued finance circulars to prescribe the accounting standards for statutory boards. The key guiding framework used has been the Singapore Financial Reporting Standards, or the SFRS. However, these standards are designed primarily for profit making entities in the private sector. Therefore, the relevance and the appropriateness of each standard to statutory boards has [sic] to be examined first before they can be adopted.
In November 2007, this House passed the Accounting Standards Bill, and the Act came into effect, empowering the Accountant-General to prescribe accounting standards for statutory boards. A committee of independent members with representatives from the Auditor-General's office, the statutory boards, the academic community and the public accounting firms, has been formed to advise the Accountant-General.
New SFRS and amendments to standards will continue to be examined for their relevance and appropriateness to the statutory boards. As such, there has been no change in the substance of preparation and presentation of accounts by statutory boards. Neither has there been any move to change the disclosure requirements of statutory boards. Our arrangements are similar to the UK where the Treasury prescribes the standard for public sector entities.
As regards PA's non-consolidation of grassroots organisations' accounts, the auditor, PriceWaterhouseCoopers, has qualified the financial statements of People's Association on the basis that the accounts of the grassroots organisations were not consolidated. PA's view is that the accounts of grassroots organisations should not be consolidated for the following reasons.
Firstly, the funds in these accounts belong to the grassroots organisations. Secondly, the Government grants and the cost of staff support are already accounted for in PA's financial statements. Thirdly, the grassroots organisations are operationally self-funding through revenues from activities, courses and donations. Fourthly, the grassroots organisations decide on how their money should be spent for the benefit of the residents. And, finally, proper procurement procedures, financial control and good corporate governance practices apply to the grassroots organisations.
I would like to clarify that this adverse opinion pays more emphasis to the FRS27, than to the FRS24, which is the general exemption granted to all statutory boards on account of the onerous work that would otherwise be involved in the disclosure of related party transactions. This is because related party transactions are much more onerous for statutory boards compared to private sector entities due to the wide range of Government related entities. I should also add that other countries have similarly found a need to depart from the FRS24. For example, Australia fully exempts its not-for-profit public entities from such disclosures as well. The Accountant-General's Department and the Ministry of Finance are discussing this FRS27 issue with PA.
(Photo by Lawrence Chong)