Thank goodness, the day of reckoning has finally arrived albeit a bit late but better be late than never.

I applaud the International Auditing Standard Committee for setting out a more detailed and specific responsibilities for company directors concerning financial statements via the audit report and I sincerely hope that ICPAS with all its wisdom through our capable and experienced vice-president Dr Ernest Kan would be steadfast and firm in its resolve to ensure that what the accounting and auditing fraternity consider fair and appropriate is implemented even if this requires the support of the highest authority in the country in order that we are seen to fulfil our motto 'Without fear or favour'.

The objective of this discussion is not to give the general public a lesson on the duties and responsibilities of directors and auditors which have already been detailed in the Companies Act and Statement of Auditing Standards. Rather it is to bring home the following points:

1. Whoever is paid to do the job should carry out his responsibilities with due care and diligence.

2. Those responsible should not hide behind the veil of self-perceived ambiguity and give excuses for not carrying out their job properly.

3. Both the directors and auditors concerned are appointed to safeguard the interests of shareholders and those who rely on financial statements for investment and decision making.

4. The primary responsibility for the preparation of financial statements rests on the directors. The auditors are paid to determine if such financial statements show a true and fair view of the results and the state of affairs of the company at a specific date.

Directors are trustees of the company and its shareholders. As trustees, their fiduciary duties and responsibilities are burdensome and onerous and these are what they are paid for. While they are not expected to do everything themselves, they could delegate their duties and responsibilities to their staff or qualified professionals after ascertaining that they are qualified, experienced and reliable to carry out the work.

To say that the new rule makes it 'far too onerous' for them gives the impression that there should be someone else who should carry out the work and be responsible for it. The auditors cannot do it, they are appointed merely to express their opinion on the financial statements. Those who are delegated to do the work cannot be made answerable to the shareholders. If the directors shirk their duties and responsibilities, who then should carry out the work?

Who should:

>>design, implement and maintain internal control system?

>>ensure that the financial statements are free from material misstatements whether due to fraud or error?

>>make accounting estimates that are reasonable in the circumstances?

It is obvious that the directors who are paid to do the job as trustees should carry out the work and be responsible for it. However, they could delegate their job to their staff or qualified professionals but at the end of the day they are still responsible for it. They cannot shirk their responsibilities.

The new rule is nothing more than amplifying the duties and responsibilities of directors as laid down in the Companies Act. It therefore has to be specific so there is nothing to be 'sore' about it.

The code of corporate governance also spells out in sufficient detail rules to remind directors of their duties and responsibilities. Even if the rule was not implemented in Singapore, should there be a case of negligence against directors, the court would certainly draw upon the practices and experiences of major countries in coming to a decision. Words have their limitations no matter how elaborate they are; it is the spirit and clear understanding of the duties and responsibilities of directors which should be clearly understood before anyone accepts the post as director.

The line of demarcation between the duties and responsibilities of directors and auditors is very clear and these are spelt out in the Companies Act and legal precedents. Unfortunately hitherto, the mental shift seems to be invariably towards the auditors when something is amiss in the financial statements. This is obviously due to the misunderstanding of the duties and responsibilities of directors and auditors.

It is therefore worthwhile to reiterate that the responsibility for the preparation of the financial statements rests squarely on the directors. The auditors are appointed to form an opinion on them. The auditors do not prepare the financial statements. They are responsible for significant misstatements if they did not carry out their work with due care and diligence expected of them before expressing their opinion.

In this case the directors are also responsible as they prepare the financial statements and they express their opinion that the financial statements show a true and fair view.

On the question of 'greater legal exposure', it makes no difference whether their duties and responsibilities are more comprehensively stated or otherwise as the directors are expected to carry out their implied duties and responsibilities accordingly.

The new rules therefore do not 'make it tougher for companies to attract directors' as there is in fact nothing new. If the directors have a misconception about their duties and responsibilities they should seriously consider resigning before anything untoward befall them.

Ian Gan