CLOSING ADDRESS BY THE HON. JOHN DALLI, MINISTER OF FINANCE, AT THE MALTA INSTITUTE OF ACCOUNTANTS CONFERENCE ENTITLED "SHAPING OUR PROFESSION"

Ladies and Gentlemen,

I am indeed grateful to the Malta Institute of Accountants for the opportunity to address such a distinguished audience of local and international personalities from the Accountancy Profession. As an accountant, I feel quite at ease sharing my thoughts with fellow professionals on ‘shaping our profession'.

The profession in Malta has come a long way within a fairly short period of time and has distinguished itself among the various professions as being innovative and international-oriented. At the time of the enactment of the Accountancy Profession Act in 1979, accountancy in Malta was already well-established but over the past 20 years it has developed into a more organized profession providing a wider and deeper range of services to the business community. Today, with just under 1,000 warrant holders, the local accountancy profession can boast of being a solid institution built on high international standards and providing a range of specialized services in Malta and beyond. For such a small island state, this is no small achievement given our inevitable limitations. Credit must go to the various institutions and professional bodies, like the Institute, the University and the Accountancy Board, as much as to the individual warrant holders themselves who strive to uphold and promote the profession's ideals.

Now, more than ever before, Malta needs to have a strong accountancy profession.

We are today witnessing an acceleration of the phenomenon of globalisation which brings in its wake both threats and opportunities. For a small country pursuing a policy of gradual trade liberalization while seeking full membership of the European Union, the internationalization of business could bring opportunities of foreign investment. In the current environment of cross-border mergers and acquisitions and the relocation of businesses around the globe seeking optimal economic returns, Malta's geo-political advantages and significant economic attributes are likely to become more visible and relevant. Investment is badly needed to boost our productive capacity and therefore increase incomes to the levels enjoyed by our northern neighbours.

But globalisation also exposes local businesses to greater competition. World markets for goods and services face constant price reductions due to cost efficient technologies and productivity augmented by optimal resource allocation through world trade. In today's environment, a country's economic growth must ultimately depend on its international competitiveness. Not unlike other more developed countries, we have significant rigidities in both the labour and product markets which, if not properly addressed, are likely to limit our ability to compete in the future. We know that given the necessary investment and sound management, we have the potential to succeed as is currently being demonstrated by our manufacturing export industries. But as we liberalise further our economy, the locally-oriented sectors of both service and manufacturing industries will be exposed to more competition.

Macro economic management and policies are not sufficient to attract foreign investment although they will induce the required economic restructuring that enhances our international competitiveness. Government's efforts must be complemented by the actions of all social partners acting within their respective micro-economic spheres. And this is where I feel our profession is really adding value to society. Accountants assist the business community in taking sound investment decisions and in managing economic activity and this is why the profession must be strong in technical competencies and skills.

The privatization of public entities will also give a further boost to the development of the local capital markets and even here the accountant's role is vital. The financial community expects both competence and integrity from our profession in its work within the business community and among individual investors. The Malta Stock Exchange has made significant progress in these few years since it was established. But now, more than ever before, it depends on a sound base of businesses issuing a steady stream of securities to provide the much needed supply of investment opportunities. The development of the capital markets must not be driven purely by demand pressures but also by a careful process whereby local businesses come to market to fund worthy projects that add real value to our economy.

Malta needs the profession to turn the local entrepreneurial talent and management drive into real economic growth.

I must also refer to the valid contribution that the profession is making to the development of Malta as an international financial centre. The hard work and investment of accounting firms working on their own or through their international connections has certainly been an important input in the process which has helped to establish Malta as a reputable and well regulated financial centre. This process must go on and, as one of the main beneficiaries of this economic activity, the profession must strive to ensure that the high standing and reputation which Malta's financial community enjoys is maintained. Malta is benefiting from having a highly regulated regime of financial services, a reputation which is currently being sought by the many blacklisted tax havens competing for business. We have a grave responsibility to preserve this reputation through our individual professional conduct characterized by high standards of competence and integrity.

Another reason for a strong accountancy profession in Malta is the need for further fiscal discipline. In setting up the Tax Compliance Unit, government has reiterated its resolve to reduce tax evasion in the interest of ensuring fairness in the collection of taxes and in the distribution of welfare benefits. We all have a duty to honour our social obligations so that the burden of taxation is fairly distributed. Moreover, it is widely acknowledged that where tax evasion is widespread it creates distortions in the workings of the price mechanism of the economy and results in the sub-optimal utilization of scarce resources. The evils of tax evasion are obvious to everyone and there is hardly the need to elaborate. Now government will want to rely on the accountant to assist his employer or client in complying with the law and at the same time, to dissociate himself from any unprofessional behaviour.

The government needs to be constantly reassured that it can rely on an independent and well-regulated accountancy profession in its work to ensure fiscal discipline.

I could go on to list more reasons why Malta needs to have a strong accountancy profession but I think that I would only be stating the obvious. But my emphasis on this national need is really to underline the importance of a sound development of the profession in the future.

Yes, we have come a long way over the past 20 years. But now we are witnessing a rate of change that is so much faster in every sphere of our economic and social development. I have mentioned the globalisation phenomenon and its effect in the internationalization of businesses as well as capital markets. Information technology is also adding fuel to the fire of change, also thanks to internet technology. Globalisation has also brought about the institution of international regulation, especially in financial and commercial activities, that supersedes even national legislation. Malta is part of the global village, not only because of greater economic interdependence but also because it has to conform to foreign codes as a pre-requisite to participate in the global market.

Our profession already benefits from the fact that it is already quite internationalized. But, as I said, change is happening fast and it is imperative that accountants realize the need to maintain their high professional standards through continued professional education. The demands on the profession are becoming more and more specialized and in many instances it is not enough to have a general understanding of the issues. The responsibilities of the practitioner are becoming heavier and increases with the broadening of the securities markets and the increase in regulations. Similarly, the profession must be strong in upholding its principles of integrity and independence. Both attributes are likely to be severely tested as financial markets become more and more sophisticated and as share ownership becomes more popularized. Society will expect higher standards of corporate governance from those entities seeking public share ownership and will be looking up to the accountancy profession to give the necessary assurances of fair play and sound management of their lifetime savings!

In this respect, I personally hope that the profession will demonstrate leadership in setting new standards to better meet the public's expectations. I hope that the profession will not be afraid to develop its public service to meet these expectations. I understand there is serious concern within the profession about the increase in expensive lawsuits. But the proper reaction to this should be to improve standards and establish a clearer definition of responsibilities. Curtailing those responsibilities by turning away from social demands will only hurt the profession. If they frustrate those demands because of the greater chance of litigation, accountants will, at best, risk being accused of shirking responsibility while earning lucrative fees and, at worst, risk becoming irrelevant and unnecessary. The profession must meet this challenge by addressing the true issues: the fact that lawsuits are becoming more frequent and more expensive should not be the main focus of the debate on defining professional responsibilities. The real issue is whether accountants can or want to meet the professional standards required to meet the demands from today's society.

When I think of the rapid progress that the profession has made over the last few decades, I feel confident that it will meet the challenges it faces at the start of the new millennium.