financial crisis, wide - ranging financial reforms were undertaken to strengthen the financial systems of the region. the building of sufficient capital and liquidity buffers during good times provided the ability to support the continued credit intermediation process. improved regulatory and supervisory approaches, underpinned by enhanced governance and risk management practices, have enhanced financial stability in the region. enhanced surveillance arrangements and a wider range of policy tools have placed policymakers in better state of readiness to deal with problems in the financial system pre - emptively. macroprudential policies have also been extensively relied upon to mitigate the risks from excesses and imbalances in the financial system. continued efforts were also made to further advance financial sector development in the region. in particular, the development of the domestic bond market has served to reinforce the foundations for financial stability in asia. financial activities have also remained generally anchored by productive real economic activities. in addition to the region ’ s strong external position, high international reserves and more flexible exchange rates have also enabled asia to absorb and adjust to changing external conditions. the increasing cohesiveness of asia is also a core strength and source of stability for the region. steps have been intensified during this recent decade for greater financial integration. the motivation for greater financial integration is not only to unlock the growth potential of the region, but to achieve more effective and efficient intermediation of funds in the region, particularly by channelling the large surplus funds in the region to productive investments in the region. this would also support regional economic integration. while asia ’ s trade with economies outside the region has doubled since 2000, intra - asia trade has tripled. now, more than fifty five percent of asia ’ s total export is within the region. intra - regional investment activity has also increased significantly during this decade. it is important to recognise that the approach to a more integrated asia is different from that adopted by europe. in the early 2000s, a study undertaken by the asean ten economies concluded that the region did not have the preconditions for a single currency. a different route would therefore be taken to achieve greater integration. for the asean region, it would involve a sequenced liberalisation of the financial sector and capital account, and the development of regional financial markets and financial infrastructure including the regional payments and settlement system. this arrangement also allows for a gradual pace of integration to ensure domestic readiness and the flexibility to take into account the prevailing conditions and stage of development of the participating financial system. regional collaborative efforts also

where they were not traditionally expected. for example, consider the changes we have seen in financial reporting quality of corporations in all industries. in 2005, there were approximately 1, 200 restatements of previously filed financial statements by publicly traded companies - - twice the rate for 2004. the complexity of gaap accounting standards and a more stringent, literal interpretation of the application of those standards by auditors and regulatory bodies, primarily the securities and exchange commission, are two major factors that have led to the restatements. examples of prominent restatements include fas 133 hedge accounting and lease accounting issues. in the area of hedge accounting, the restatements generally resulted from the misapplication of the " short - cut " method. the organizations in question did not satisfy all of the criteria for use of the shortcut method but, nonetheless, utilized hedge accounting treatment allowed by this method. in the area of lease accounting issues, most companies simply failed to apply longstanding accounting standards related to revenue recognition reserves, accruals and contingencies, and equity accounting. most companies believed they were actually reporting correctly prior to the restatements. virtually all of these companies were audited by auditing firms that are now registered with the public company accounting oversight board ( pcaob ). the pcaob's inspection process, which involves close scrutiny of registered firms, may be a factor in the increased number of restatements. section 404 of the sarbanes - oxley act of 2002 requires each annual report of a public company to include a report by management on the company's internal control over financial reporting. looking only at banking organizations, as a result of restatements, the number of material weaknesses in internal control for the 2004 reporting period has been revised up to 52 from the 37 originally reported. this increase implies a significant amount of operational risk associated with the accounting process. generally, examiners review the sarbanes - oxley 404 process to determine whether the organization has a clear understanding of the roles of the audit committee, management, internal audit, and the external auditor and whether the organization has implemented an effective plan to achieve the objectives and requirements of sarbanes - oxley 404. examiners also review the sarbanes - oxley 404 process to determine whether the organization has an effective follow - up strategy for the remediation of significant deficiencies and material weaknesses. examiners are encouraged to utilize the results of the sarbanes - oxley 404