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ENFORCEMENT OF CORPORATE GOVERNANCE AND ACCOUNTING

STANDARD IN ASIA: A COMPARATIVE ANALYSIS BETWEEN


SINGAPORE AND HONGKONG

Le Bao Cam
FA-2012-B-44
Vietnamese-German University
baocam94@gmail.com
30/10/2015

Table of Contents
1. INTRODUCTION...............................................................................................................I
2. ECONOMIC BACKGROUND..........................................................................................II
2.1. From 1960-1980...........................................................................................................2
2.2. From 1980-2015...........................................................................................................2
3. CORPORATE GOVERNANCE AND ACCOUNTING STANDARD...........................III
3.1. SINGAPORE...............................................................................................................3
3.1.1 Code of practice...............................................................................................3
3.1.2 Accounting standard........................................................................................3
3.2. HONG KONG.............................................................................................................3
3.2.1 Code of practice...............................................................................................3
3.2.2 Accounting standard........................................................................................3
4. CONCLUSION.................................................................................................................IV
BIBLIOGRAPHY.............................................................................................................V

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1. INTRODUCTION
What are the roles of corporate governance and accounting standard in corporation ?. This
is the question that recently has been raising massive attentions and controversies. Many
researches and surveys carried out to explain the influence of corporate governance and
accounting standard on a firms suscess. According to the information gathered, the original
idea of corporate governance first appeared in the late 1300s. In 1900s, it was described as a
set of policies and rule in which corperations are directed by Aldof. A. Belf and Gardiner
Means1. The accounting concept also exist for thousands of years but only developed into a
system lately in 1930s. Nowaday, it is a common knowledge how important it is to have a
good governance and accounting system. However, not until the 1980s constant corporate
collapse did people realize the need to dig deep into the meaning behind that simple thought.
This paper aims to provide a detail look at how the enforcement of corporation governance
and accounting standard are taking place in Singapore and Hong Kong. In addition, there will
be some evaluations and comparisions between these two largest financial centre of AsiaPacific.
2. ECONOMIC BACKGROUND
Both Singapore and Hongkong bear considerable similarities. With small size and scarce
natural resources, two countries rely on import even the most basic necessities. Based on the
data collected , the import of Singapore reached an all time high of 43577 million in January,
2012 while Hong Kong import peaked at 382355 HKD million in September, 2014.
According to current exchange rate, the average import in both places equal to around 10000
million USD during 1960-2015. Geographically, two countries are seperated from the
mainland by waterway. Singapore keeps a votile relationship with the mainland since mid1960s when it was expelled from Malaysia. This results from racial difference and disputes
over water delivery, island, etc... HongKong, on the other hand, benefits from its mainland
China with cheap labor and potential market.
One significant resemblance in Singapore and Hong Kong is the fact that the two countries
were both under a hundred-year control of the British colonial. After World War II, Singapore
1

Berle, Adolf A and Gardiner Means. The modern Corporation and Private Property. Harcourt, Brace &
World, Inc, 1932.

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and HongKong soon declared independence and started reconstructed the economy.
Nevertheless, the political and economical influence brought along during the reign of the
British Colony remained. The economic development of Singapore and Hong Kong can be
seperated into two states: during 1960-1980 and from 1980 onward.
2.1. From 1960-1980
In the first period, both countries achieved significant economic gain but through different
approaches. After becoming independent in 1959, Singapore restructured from a trade port to
a manufacturing base, achieved phenomenal sucess later on During the first period (1965
1980), Singapore achieved an outstanding GDP growth rate of 9.7%, of which 81.1% was
due to capital accumulation and the rest from contribution of labor...2.
The goverment intervention in the labor market during this period is proactive, extensive
with the purpose to attract more foreign investment. The same thing goes for Hong Kong.
This nation experienced rapid expansion in manufacturing in 1960s followed by the industrial
diversification in 1970s. The table below shows the annual growth rate of GDP and GDP per
head from 1961-19813:
Table 1
Year

GDP

GDP per head

1961-66

10.9

8.0

1966-71

7.6

5.4

1971-76

8.8

6.8

1976-81

12.4

9.5

1961-81(average)

9.9

7.4

It can be infered from the table the rate of economic growth in Hong Kong is high during the
period. Contrary to Singapore, its economic sucess was achieved without fiscal growth and
with less government intervention. The government only continued its involvement in
provoking competitiveness. However, the intervention was reactive, usually to handle a
problem that already happened, reluctant and selective.

Khuong , Vu M. Sources of Singapores Economic Growth (1965-2008) : Trends, Patterns and Policies
Implication. December 2011.
3

Hong Kong, Census and Statistics Departmen., Estimate of Gross Domestic Product. 1983

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2.2. From 1980 up to now


Singapore and Hongkong entered a new phase (1980-2015) facing numerous threats from the
economic instability. In Singapore, over-regulation led to a distorted economy, quickening the
decision to reconsider its development strategy. The beggining of 1980 saw a divisification of
the economy from high-tech manufacturing to financial service. At the same time, the
government adopted some policies to reduce its intervention in the business and labor issues
...The government responded to economic downturn by recognizing adverse effects of
excessive intervention and introducing a number of corrective measures... switched to new
emphasis of managing the economy through partnership, contributed to productivity increases
and 30% drop in production costs. By 1988, the economy rebounded 4.
In contrast to Singapore, the uncertainty of what would happen in Hong Kong after 1997 had
led to political and economic instabilities and drove the government into become more
interventionist. In the failure of Sino-British negotiation in 1982, the government tried to
prevent public panic by linking Hong Kong Dollar (HKD) to USD to restore stability. In
1993, the Hong Kong Monetary Authority was established to oversee the linked exchange rate
as a main part of its functions, signalling intervention in the money market. In addition, its
economic direction in second phase was a shift of resource from manufacturing into financial
sector just like Singapore. Putting aside all differences in goverment policies , the economic
approaches of both countries became increasingly similar since 1990 as both were in the race
to become the largest Financial Centre of Asia.
3. CODE OF PRACTICE AND ACCOUNTING STANDARD
As mentioned above, both Singapore and Hong Kong are at a disadvantage of natural
resource. Together with the late development into an international hub for business services, it
no doubt raised the need for more foreign inflow of investment. Liberal policies were set up
toward Foreign Direct Investment (FDI), with no limitation on foreign ownership, especially
in banking. In such an environment, it is expected that corporate governance and accounting
policies would evolve dramatically similar to those in UK5.
The regulatory framework of corporate governance called Code of best practices was first
introduced in 1992 by a committee chaired by Sir Adrian Cadbury from UK. Since then, there
4

Lam, M. K Newman. Government intervention in the economy: a comparative analysis of Singapore and Hong
Kong. December 20, 2000.
5

Jensen, Micheal C, and Richard S. Ruback. The market for Corporate Governance: the Scientific Envidence.
April 1983

have been many modifications but the basic components of the Code remain the same. The
accounting standards of both Singapore and Hong Kong principally bases on International
Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board
(IASB).
3.1. SINGAPORE
3.1.1. Code of practice

The Code of corporate governance in Singapore was brought up in 2001and later evolved into
many versions to adapt the changing investor environment, some of them borrow elements
from other legislations like Australia6. The latest version has the following areas: board
structure, remuneration, shareholder communication and accountability.
Each area sets out principles and code provisions. For example, according to documents about
Corporate Governance, responsibilities of the Board are long-term goal and cooperation with
Management to reach the ojective. There should be a clear separation of duty between the
Chairman and the Chief Executive Officer (CEO). No concentration of power should be
presented. A formal process is necessary for appointing directors and for annual evaluation of
the Board performance. No individual should involve in remuneration on his own. Every
company should reveal its remuneration policies and process in the Annual Report. The
compliance is high, although companies listed on Stock Exchange of Singapore Dealing and
Automated Quotation market tend to meet only minimum requirement of the code since it is
not mandatory. The government is the main player, control a significant amount of
incorporated companies in stock market. However, this may reduces the chance of exposure
its companies to competitive market and creates moral hazard problems. Thus, there is urgent
need for better monitoring and accounting system of those government-based firms. For
instance, Temasek Holdings Limited is a government holding company that acknowledged
corporate governance as top concern. It had plans to approach good governance with greater
scrutiny of diversification plans, closer vetting of board appointments, and encouraging the
separation of the CEO and chairperson roles.7 Though, it is still unknown whether these
changes will improve the governance of Temasek or not.
3.1.2. Accounting Standard

6
7

Campbell, Dennis. Trends and Developments in Corporate Governance. 2003


Phan, Philip H and Toru Yoshikawa. Corporate Governance in Singapore: Development and Prognoses

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In 2002, Singapore government created the Council on Corporate Disclosure and Governance
(COCD) to become the accounting setter for all companies. Nevertheless, it was soon
replaced by the Accounting Standard Council (ASC) in November, 2007. It was established
by the Accounting Standard Act with a responsibility to prescribe standards not only for
companies but also charities, co-operative societies. It has the authority to issue Singapore
Financial Reporting Standard (SFRS) for adoption. The concept underlying accounting
practices under SFRS are set out in the Framework for the preparation and presentation of
financial statement. The government believes that the creation of ASC is a positive step
towards ensuring consistency in accounting standard, facilitating statement between different
entities . In December, 2010, ASC introduced the SFRS for small entities based on the IFRS
in European. An entity is eligible to apply SFRS for small entities if it is not publicly
accountable, publishes general financial report for external users and must meet one of the
following criteria:
-

Total annual revenue is not higher than 10 millions in local currency

Total gross asset is not more than 10 millions in local currency

Total number of employees do not exceed 50

In comparison with IFRS, there are still differences between the two. For instance, SFRS 16
Property, Plant and Equipment permits one-off revaluation of such assets taking place
between 1984-1996 but IFRS does not. Some disparities exist between IAS 28 and SFRS 28
in accounting for investment in associates and joint ventures. Another example is the
amendment to SFRS 36 in January, 2013 to reverse unintended disclosure. It states that the
recoverable amount of impaired assets is required to be disclosed only when the impairment
loss has been recognized. Last point worth mentioning is some IFRS that have not been
adopted yet, including IFRS 3, IAS 27 (all revised 2008).
For years, Singapore has been following the path of converging SFRS into IFRS for listed
companies in Singapore. Like many other nations in Asian, it has adopted practically all IFRS
issued by the IASB as SFRS, altering in different effective date and transition requirements.
Nevertheless, the timeline for full convergence will have to wait till the developments in
major fields of revenue recognition, financial instruments and impairment loss model take
place. Given the expected mandatory effective date on 1 January 2017 or 2018 for revenue
recogniton and finacial instruments, the Government has decided to make a new accounting
framework which is similar to IFRS available for both listed and voluntary non-listed
companies in Singapore.

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3.2. HONG KONG


3.2.1.

Code of practice

Like Singapore, Hong Kong inherited the Code of best Practice from Britain. Therefore, it
also conducts the comply or explain approach8 . The Code contains two tiers of
recommended board practices and covers five basic aspects : Director Board, remuneration,
accountability, delegation by the Board, shareholder communication. Most of the principles
are similar to those in Singapore Code. Most companies in Hong Kong are family-based, with
control held tightly within the family generations or mainland China-based corporations. The
HongKong authority issued some rules affecting the corporate governance like voting by poll
is required for resolutions at shareholder meetings and there must be at least three
independent non-executive directors. However, judging from the power concentration in
Hong Kong companies, the heads of some family see little value in those rules.
In recent articles, it was reported that only a few listed companies complied strictly with the
Codes guideline on disclosure of remuneration of the directors, two-third of companies have
no division between the Chairman and the CEO. This is an alarming fact of bad corporate
government, which is the chief culprit leading to several financial scandals. One of them is
the notorious case of GOME Electrical Appliances Holding Limited. From the man holding
millions of USD in his hand to a criminal facing 14 year sentence, the founder of GOME
Wong Kwong yu was accused of bribery, insider trading and illegal business dealing in 2010.
The bad corporate governance could not prevent the acency problem, since that man and his
wife had stolen millions from GOME to use for personal purpose for years without being
noticed. After that incident, a whole reconstruction of the Board took place and the decision
to abolish Wang management control of GOME was made by the shareholers. Two years
later, the company stock rose again, revealed a 477.5 million revenue.
3.2.2.

Accounting Standard

In 2005, the latest version of Hong Kong Financial Reporting Standards arrived, consisted of
all HKFRS, Hong Kong Accounting Standards (HKAS) and the Interpretation issued by Hong
Kong Institute of Certified Public Accountants (HKICPA). The HKFRS comes up with
measurement, presentation and disclosure requirements dealing with important transactions.
There are a total of 41 accounting standards, 9 financial reporting standards and several other
interpretations in HKFRS. Each of them accounts for a specific topics like inventories,
8

Campbell, Dennis. Trends and Developments in Corporate Governance. 2003

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tangible and intangible assets. The precursor of HKFRS is the Framework for the Preparation
and Presentation of Financial Statements, which describe the concepts underlying information
presented in general purpose financial reports9 .
In August of the same year, the government introduced a set of rules and standards for small
and medium-sized entities known as the SME Financial Reporting Framework (SME-FRF)
and Financial Reporting Standard (SME-FRS). HKFRS states that a company is qualified if
only it has no public accountability and reaches the following criteria:
-

The total annual revenue must be below 50 million HKD

The total assets of the company worth less than 50 million HKD

The maximum employees in a company is 50

After years of adaption, Hong Kong FRS and IFRS are currently almost the same. Though
there are some distinctions between them. One example is the amendment in HKAS 16
Property, Plant and Equipment (PPE) that exempt certain entities carrying PPE at revaluated
amounts before September 30, 1995 and not having revalued since the regular revaluation.
Generally, HKAS 39 does not permit retrospective application, whereas IAS (International
Accounting Standards) 39 does. Other differences lie in HKAS 36 and HKAS 39 is about the
impairment of asset and intangible one.
4. CONCLUSION
A good Corporate Governance ensures better corporate performance and better relationship
with stakeholders, where the proper practice of accounting standards assumes a lot of
importance as it leads to the effective disclosure and thus, providing satisfaction to the
investor. In view of the dramatic liberalization and globalization in Asia economy, it is
indispensable to obtain the most appropriate corporate governance and accounting system for
entities to survive in a competitive environment. However, the question of how to avoid bad
governance and self-interested problems in many nations remained unsolved

for the

economists. May be it will last for one year, two years or even a decade, no one know. But as
long as the world keep on evolving, as long as corporate governance and accounting system
keep on altering towards perfection, some day we may reach the answer for that.

Zhjiun, Xu. Comparing Hong Kong and Singapore Accounting Standard . (June 26, 2015): Accessed
October 28, 2015.
http://www.chinabriefing.com/news/201506/26/comparing-hong-kong-singapore-accounting-standards.html

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BIBLIOGRAPHY
(1) Berle, Adolf A and Gardiner Means. The modern Corporation and Private Property.
Harcourt, Brace & World, Inc, 1932.
(2) Campbell, Dennis. Trends and Developments in Corporate Governance. 2003.
(3) Crittenden II, Carl A and William F. Crittenden, The accounting professions role in
corporate governance in frontier market: a reseach agenda. 2014.
(4) Jensen, Micheal C, and Richard S. Ruback. The market for Corporate Governance: the
Scientific Envidence. April 1983.
(5) Hong Kong, Census and Statistics Department. Estimate of Gross Domestic Product.
1983.
(6) Khuong,Vu M. Sources of Singapores Economic Growth (1965-2008) : Trends,
Patterns and Policies Implication. December 2011.
(7) Lam, M. K Newman. Government intervention in the economy: a comparative
analysis of Singapore and Hong Kong. December 20, 2000.
(8) Lau, Alex and Angus Young. Corporate Governance in Hong Kong: The State of
Affairs.
(9) Phan, Philip H and Toru Yoshikawa, Corporate Governance in Singapore:
Development and Prognoses.
(10) Tricker, Bob. Corporate Governance: Principles, Polices and Practices. June 2012.
(11) Zhjiun, Xu. Comparing Hong Kong and Singapore Accounting Standard .
(June 26, 2015): Accessed October 28, 2015.
http://www.chinabriefing.com/news/201506/26/comparing-hong-kong-singaporeaccounting-standards.html.

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