Accounting with Edgar

Auditors get into trouble over these issues

2012-01-23T21:27:00.001+08:00

do the plumbers get complaints for doing this?

Just read this article from ACRA on "Discussion of Past Disciplinary Cases against Public Accountants and Public Accounting Entities". It is to raise awareness of important issues concerning appropriate and acceptable professional conduct; and to make known actions taken by ACRA to uphold professional conduct. I will focus on the former.

What are most of the complaints against the public accountants about?
Usually they relate to allegations of improper or dishonourable conduct. Of course, this would includes (among others) a failure to comply with the Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (the Code).

Examples of main areas of complaints are:-

1. Can the Auditor retain or exercise a lien over the documents till fees (or ransom?) are paid? Similarly, can the Auditor refuse the request from client to release audited financial statements before settlement of fees?

The sad thing is the law or code of conduct does not offer much direction as it takes the position that "Generally, it is a private matter between him and his client".

Confusion would reign in the form of determining auditor's responsibility to client who may suffer financial and/or reputational loss when the client fails to fulfill statutory filing or meeting commercial obligations without the documents or the audited financial statements.

2. Poaching clients of another public accountant who referred work to the public accountant.

Public Accountant A outsourced part of his work from Client to Public Accountant B. Client fell in love with Public Accountant B and asked B to take the job from A all together. What should Public Accountant B do? To me this is pretty obvious. My own guiding principle in the conduct of my business when in B's predicament would be for B to seek permission from A. If A says no, B should walk away. As I do intend to be in the business for long term, protecting my professionalism is of paramount importance on this little red dot of Singapore.

3. Fees disputes.
A pretty common issue that needs to be specifically addressed upfront in the appointment discussion and documentation.

4. Independent issues

I quote - "A public accountant should avoid situations which would give rise to the impression that his integrity and objectivity might be compromised or impaired when he was performing the role as the auditor."
Example cited in the paper - Can a member of an audit team be performing an audit of a company in which a related party is working as a director or a senior position?

My own guiding principle is again simple - When you yourself can have a doubt over a matter that may challenge your independence, please declare to all parties concerned and let the parties concerned decide on your participation or walk away from the situation.

5. Conduct during practice review
ACRA may on many occassions conduct practice review of its public accountants. It is the duty of the public accountants concerned to render the necessary assistance and provide the necessary documents to appointed reviewers. Instead the reviewers receives shouting, foul language, threats and harassment from similarly "harassed and distressed" public accountants, defending their livelihood.

Yes, we should maintain basic civility between fellow human beings, each trying to do their job.

Good day and smile.

Auditing - Crumbling Art Form?

2011-12-03T12:58:00.001+08:00

Audit conundrum?

What is the event that triggers the doomsday scenario for auditing profession?

The US housing crisis before 2009. It sparked off a series of bank collapses or near collapses leading to forced government bailouts for some banks and loss of billions of dollars for many depositors, investors and homeless homeowners.

In October 2010, the European Commission issued "Green Paper Audit Policy - Lessons from the Crisis" to open a debate on two key matters:-

the expectation gap between auditors and the users of financial statements; and
the issue of independence, size and governance of audit firms.

Singapore contributed to the debate through a series of panel discussions organised by ICPAS, ICAEW and SID.

Here are some key comments and observations of the debates and my humble responses to the respective comment:-

1. "Manyof the speakers cast audit and auditors as a misunderstood lot - it is justunfortunate that investors and users of financial statements do not fullyappreciate the value and the limitations of an audit." - Willie Cheng.

Edgar - Audit profession is said to have responded by attempting to EDUCATE the "misinformed" public about what an audit is and what is not. So far in my "baseless" opinion, the "misinformed" public (who are both, your clients and users) has yet to be fully informed/convinced and consequently be fully appreciative of auditor's work. Why?

I guess the "misinformed" public have read and some have been personally hurt when business entities that have been subjected to the vigorous regime of audit procedures, have actually gone bankrupt or going bankrupt, succumbed to frauds etc etc.

In most of these debacles, the auditors have been seen to have been able to walk away from the rubbles unscathed on defences that "an audit is FIRSTLY to just express an opinion on the true and fair view of the financial statement and SECONDLY, not to report on the financial health of the company". Auditors want to be paid for their services but to the "misinformed" public, they do not seem to carry appropriate level of responsibilities and liabilities.

Let me cite a situation from Jonathan Weil's article entitled "Why have auditors at all?", which is unfolding before our very eyes. PwC said MF Global and its units "maintained, in ALL Material respects, effective internal control over financial reporting as of March 31, 2011". MF Global filed for bankruptcy about 6 months later on Oct 31, 2011 with USD1.2 billion of customer's money MISSING!!!. A lot of people who have relied on that audit opinion lost a lot of money.

2. Willie Cheng opined that the key root of auditor/"misinformed" public expectation gap lies in the issue of auditor independence.

What is the problem?
As the "person writing the cheque calls the shots" or "He who pays the piper calls the tune", it is very difficult for the auditors to stand up against the Board of Directors/managements to preserve shareholders' and stakeholders' interests when your rice bowls are at stake.

Counter measures that have been encouraged over the last few years are:-

ensure auditor rotation
limits on fees from non-audit services and;
increasing the role and powers of the audit committees.

Edgar - Are these measures sufficient?
In my "baseless" humble opinion, no. Two further key areas are being addressed. Firstly, we need to tackle the bunch of people who are writing the cheques to the auditors. Secondly, the European Commission want to address the structure of providers of audit services.

What do I mean by the "bunch of people who are writing the cheques to the auditors"? I am referring to the individuals who are appointed directors/senior managers of business entities. Essentially all the current debates on corporate governance, term of directorship, number of directorships, independence/executive/non-executive status focus on strengthening the quality and ethical compass of our limited pool of directors in this small ecosystem of directors and auditors in Singapore.

European Commission is also encouraging an open debate on reforming the audit providers industry. Please consider the possibility of KPMG, Deloitte, Ernst & Young and PwC being required to put their audit and other consultancy services in separate legal entities with "unrelated" branding.

Or perhaps increase the number of "authorised" and "acceptable" audit providers for public-listed entities. The "misinformed" public, like me, seems to have the impression that the Big 4 are auditors of most public listed companies in Singapore. Take for example - When a PLC, currently being audited by Ernst &Young, got into some sort of trouble, one of the other 3 firms would be appointed to conduct the SPECIAL audit. There isn't many alternatives.

Concluding remark - Questions like "Do we need auditors?", "Why have auditors at all?", "What are the roles and responsibilities of auditors?" will continue to be raised with answers leading to the destruction of existing structures and birth of a better structure (I hope) as part of a necessary evil of natural human thirst to do things better.

References
Willie Cheng, "Change is in the air for auditors", Business Times, Sep 22, 2011.
Jonathan Weil, "Why have auditors at all", Straits Times, Nov 28, 2011.

Acknowledge credit on graphic used
http://www.123rf.com/stock-photo/audit.html

Can bankrupts hold directorships?

2011-11-20T16:58:00.001+08:00

Apparently yes as almost anyone can sign up to be directors of companies.

There is no independent check by ACRA. At least this is the situation when Justice Steven Chong, a High Court judged criticised ACRA in a case reported in Straits Times, Dec 9, 2010 page B10.

It is thus apparent that there is no database linkage between ACRA and IPTO (Insolvency and Public Trustee's Office.

The implication is that an undischarged bankrupt may continue to operate companies for years.

Not sure whether the gap between ACRA and IPTO has since been rectified. Anyone any info on this front?

In similar vein, should there a database linkage between ACRA, IRAS, CPF, Ministry of Manpower and Immigration and Checkpoints Authority?

Monetary Authority of Singapore (MAS) posted a record net loss of $10.9 billion for the year ended March 31, 2011

2011-07-24T18:57:00.001+08:00

I am naturally curious to read on for the cause of the massive loss and that being the 2nd loss in the last 40 years. Here are the info that I reaped STRICTLY from the articles from Business Times and Straits Times on Friday last.

Numbers as published:-

Total loss - $10.9 billions
Investment gains before adjusting for exchange rate revaluation - $12.3 billions.
SGD up against USD by 10% for year ended March 31, 2011.
SGD up against Euro by 5%.
Given the stronger SGD, domestic oil prices up by only 10% as compared to 20% on a global basis.
MAS manages $299.8 billions in assets as at year ended March 31, 2011 with foreign financial assets representing $287.7 billions ie. 96%!!!!

Here are the various key points discussed:-

Headline in BT attributed the massive loss to strong SGD. (Edgar - Thus exchange rate is said to be responsible for $23.2 billions reversal upon valuation of various balance sheet items.)
'With recovery in asset markets over the past two years, MAS' portfolio, excluding exchange rate effects, has more than recovered from effects of the global financial crisis,' Mr Menon said. The loss is hence the result of 'a reporting convention' as per Mr Menon. If MAS reported its financial results in foreign currencies such as the US dollar or SDRs, as some central banks do, it would reflect a 'healthy profit', he noted. (Edgar - I presume he is trying to assure us that the loss is mainly due to a valuation exercise as there is no actual cashflow involved. Are you also telling us that if our reference currency is based on any other weaker currency other than SGD, we would be happy with our performance?)
But is it not a fact that Singapore's purchasing power has declined by $10.9 billions? Mr Menon said no as the INTERNATIONAL purchasing power of our reserves is unaffected by the strength of Singapore dollars. I guess he is trying to say the $287 billions worth of foreign currencies would still buy Singapore the same amount of goods and services.
So what have the stronger SGD and $10.9 billions loss bought for Singapore? MAS has essentially shielded the domestic economy from even higher inflationary pressures as the stronger SGD effectively halved the impact of higher oil and food prices.

New Corporate Governance PROPOSED (Part B)

2011-06-19T17:38:00.001+08:00

Dear friends,

My focus for this posting is the composition of the Board and other specified criteria for directors.

Proposal - Board Composition
Half the board to be made up of independent directors under the following circumstances where:-
a) the chairman and CEO is the same person;
b) the chairman and CEO are immediate family members;
c) the chairman and CEO are both part of the management team;
d) the chairman is not an independent director.

Mak Yuen Teen said the whole long-winded recommendation "can be simplified to just recommending that there should be at least half the directors independent if the chairman is not an independent director" (full stop).

Based on data from the 2010 Governance and Transparency Index, it is estimated that only 14 per cent of SGX-listed companies have an independent chairman and with more than 50 per cent of all SGX-listed companies currently have less than half the board independent. The Council views that a director be deemed non-independent if he has served on the board for more than nine years. The average tenure for all independent directors is 6 years.

Given the statistics presented in paragraph above, I wish to raise again the issue of whether the Council's proposals can be effectively carried out given our limited pool of qualified and experienced directors.

Proposal - Director with multiple directorships
The Council has decided (ie. chicken out, don't know or just being flexible?) not to spell out an 'ideal' number of directorships any one director should have. (Hong Kong has suggested a limit.) But Council has chosen to delegate that responsibility to the nominating committee "to decide if a director can carry out his duties, bearing in mind his commitments".

In my opinion, Mak Yuen Teen opines that this proposal would be inconsequential as board with directors. with many directorships. would have its nominating committee setting higher limit, vice versa. Anyway by the time we do the next review, the next Council would be able to harvest the experience of last few years in determining the ideal limit.

Proposal - Appointment of alternate director
The Council suggests that directors should avoid appointing alternate directors - except for limited periods in exceptional cases. Why? Alternate directors may not be as well-prepared nor able to perform as well as full-time directors.

This suggestion could be attributed to Mak Yuen Teen's vigorous exchanges with Christopher Chong in Sep 2010 on Xpress Holdings' the nominating committee endorsing the appointment of an alternate director for one of its independent directors.

Reference

Michelle Quah, "Cracking the code of Corporate Governance", Business Times, June 15, 2011.

Michelle Quah, "Will bold proposals survive the fate of 2005?", Business Times, June 16, 2011.

Mak Yuen Teen, "Now let's see the practical impact", Business Times, June 16, 2011.

Mak Yuen Teen, "Unticking the box", Business Times, September 6, 2010.

New Corporate Governance Guidelines PROPOSED (Part A)

2011-06-18T20:40:00.003+08:00

Dear friends,

My intention here is to bring together key ideas and comments I can gather so far on each of the proposal.

Background
Singapore's Corporate Governance Council (CGC) was appointed by the Monetary Authority of Singapore (MAS) in February 2010 to review the 2005's version of corporate governance guidelines accepted by Ministry of Finance (MOF). On June 14, 2011, CGC has proposed bold changes to existing corporate best practice guides for MAS acceptance by end 2011.

Proposal - Independence of independent directors
Stricter definition of independence for independent directors (to now include independence from substantial shareholders)

The Council seeks to define "independence" by defining when a director is not independent. How?

The council suggests that a director be deemed non-independent if he is or has been directly associated with a substantial shareholder of the company in the current or any of the past three financial years.
The CGC also suggests that a director be deemed non-independent if he has served on the board for more than nine years (the first time a tenure for an independent director has been mentioned.)

The CGC intends to put the respective board, on the spot, by recommending that they should identify, in the company's annual report, each director it considers to be independent.

Comments
Michelle Quah of BT reminded us that the definition of an 'independent' director (to include independence from substantial shareholders) was proposed and rejected by MOF in the last review of the Code in 2005 on the basis that firstly, there was insufficient ground to assume association with substantial shareholders could impair independence as compared to principal-agent relationship for executive directors. Secondly, MOF further assume that there would be an alignment of interest between the substantial shareholders and the REST of shareholders. (I strongly beg to differ. CH Offshore - substantial shareholders sold but the remaining shareholders get nothing. May I also cite the case with Pacific Century.) Michelle recognised that as possible 'expropriation of minority investors' interests by large investors'.

MOF could not take that more stringent definition of independence then possibly due to the fact Singapore's pool of qualified and quality directors is very limited and that possibly almost every one of them, in one way or another, has or had dealings with one another.

But HK and Malaysia have adopted (but is it enforced?) the more stringent definition by making it mandatory ie. as part of listing rules, instead of Singapore's more flexible approach as "guidelines".

Mak Yuen Teen said you can come out with the guidelines and talk about independence but he suggested the following approaches to ensure "independence".

We allow minority shareholders greater say in the election or re-election of independent directors.
We must extend the range of sanctions against independent directors who fail to properly discharge their duties and to be more active in taking action against such directors.

But he concedes that these approaches are beyond the scope of current discussion.

Proposal - Greater disclosure of board and executive remuneration
The CGC suggests that companies disclose the exact remuneration earned by each individual director and the CEO on a named basis, instead of within bands of $250,000 in the current Code.

Michelle again reminded us that the same was proposed and rejected in 2005. The main reason offered by MOF then was to prevent poaching of good directors and consequent escalation of directors' fees. Huh.. are we still living in stone age? Whether a talent would stay on course would depend on many factors beside money. Furthermore, some of the largest listed companies in Singapore have actually been disclosing the exact remuneration of directors and senior management.

For minority shareholders like myself, we need the information to determine value for money paid. I always find it disturbing to see the substantial shareholders, acting as directors and senior managers, paying themselves more than the profit the company made in a financial year. Another example of expropriation of minority investors by large investors?

Reference
Michelle Quah, "Cracking the code of Corporate Governance", Business Times, June 15, 2011.
Michelle Quah, "Will bold proposals survive the fate of 2005?", Business Times, June 16, 2011.
Mak Yuen Teen, "Now let's see the practical impact", Business Times, June 16, 2011.
Mak Yuen Teen, "Unticking the box", Business Times, September 6, 2010.

Forecasting and budgeting

2011-06-11T11:55:00.001+08:00

Question - Are government officials in the budgeting department poor in forecasting?

The following are Hong Kong government's experiences:-

In 2009-10 budget, Financial Secretary John Tsang Chun-wah predicted a HK$39.9 billion deficit. But strong growth in income from stamp duty on property and stock transactions, the government may end up with a surplus of more than HK$10 billion.
In 2006, then finance chief Henry Tang Ying-yen predicted a surplus of HK$5.6 billion for the 2006-07 financial year but recorded a HK$58.6 billion surplus.
In 2001-02 budget, the then financial secretary Donald Tsang Yam-kuen predicted a HK$3 billion deficit. The government eventually recorded a HK$63.3 billion deficit.
The best forecast was made by Donald Tsang in 2000. He predicted a HK$6.2 billion deficit for the 2000-01 financial year. The administration ended up with a deficit of HK$7.8 billion.

With another forecast of a budget deficit set to be proved wrong, a senior accountant has suggested the government carry out more frequent reviews of its financial position.

Capitaland and Singapore's new revenue recognition standard

2011-06-08T12:16:00.000+08:00

where was i?

Effective on 1 Jan 2011, Singapore’s Accounting Standards Council requires that revenue be recognised when control of a property has passed on to the owner. Thus previous year's figures have to be restated to allow for fair comparison. (Yes, this is additional work for everyone involved in the preparation of financial reporting.)

The purpose of this article is an attempt to understand the possible impact of the standard change to a company in the business of property development and management such as CapitaLand.

Quantify the change
Here are the figures reported by ST April 27, 2011 on CapitaLand's performance for quarter ended March,

Sales revenue
2010 - $440m ($687.3m before restating)
2011 - $611.5m

Profit
2010 - $29.8m ($115.4m before restating)
2011 - $101.5m

Edgar's observations and analysis
Both sales revenue and profit for Q1 of 2010 declined significantly by 36% and 74% respectively after the change in standard. Thus when you compare current quarter's performance with that of previous year's quarter, the management is able to report significant positive change in both sales revenue and profit.

The question is how much of the sales revenue and profit reported for current quarter could be due to revenue and profit "deferred" from previous quarters which we now captured due to the change in accounting standard.

The share price has hardly moved on the reporting. Edgar would like to speculate on possible reasons.

Efficient market hypothesis that we learned in class stated we assume the market is semi-strong in terms of efficiency in the share price reflecting all past, currently and publicly available information. Has the market been able to quantify the possible impact on CapitaLand's bottomline since the announcement of its new standard adoption last year?

The lack of reaction to the strong figures could be due to other news, prevailing in the market, that are distracting the investors. Since the completion of the Election, property sector has been deemed to have been earmarked for radical changes deemed not conducive for investors.

Taking the more pessimistic stand, we should question whether investors understand the impact of the change in accounting standard. This was highlighted to me by an industry veteran who was very wary of earnings volatility due to the change in standard. The uncles and aunties type of investors may sell their shares unnecessary when a property firm is reporting losses in the current year due to "deferred" recognition of sales revenue and profit.

We await for more clarity.

How to prevent auditors from assessing your financial records?

2011-05-02T21:47:00.001+08:00

Dear Friends,

I was just catching up on my reading of some old newspapers after a hectic couple of months when I come across this interesting article.

Sino Techfibre firstly announced that there were some issues pending from its year-end audit. While the management was in the process of arranging with E&Y for an expanded audit review of its operations in China (as informed in newspaper), Sino Techfibre reported that there was an early morning fire at its office premises in Shandong office which destroyed books and financial records. While the office premises were said to be damaged, the remaining production facility in Shandong province remained intact. Of course, the fire is being investigated by local police but the records have been destroyed forever.

Another interesting way to prevent auditor from reviewing financial records was to get the lorry carrying those records STOLEN while the driver was having lunch. This actually happened in 2009 with PwC having issues with verfying cash balances of China Sun Bio-Chem.

Source - Straits Times, April 25, 2011 page B13

China Gaoxian has also appointed PwC to verify cash and bank balances, the underlying sales and purchases and capital expenditures for its two subsidiaries in Zhejiang and Fujian provinces for quarter ended March 31. Luckily, the factory operations in the two respective provinces are still operating for now.

Other S-chips with similar accounting irregularities are Hong Wei Technologies and China Hong-xing.

Source - Business Times, April 22, 2011 page 6

Singapore to have own accountancy qualification. Why?

2010-11-05T13:47:00.001+08:00

who says accountants are boring?

What will be happening in 2011?

Singapore will soon have its own post-university professional accountancy qualification.

The Pro-Tem Singapore Accountancy Council is currently developing the programme with the Institute of Certified Public Accountants of Singapore (ICPAS) in consultation with accounting bodies in the UK, Australia and the Association of Chartered Certified Accountants.

Why is described as “post-university… qualification”?

The certification process will be open to GRADUATES from non-accountancy backgrounds and foreign students. Theoretically a history graduate could go through a “bar exam” before being officially conferred the title of being a “qualified accountant”. [ACCA has done that for me and probably for majority of the accountants in Singapore ie. allows an Economics graduate to become a trained accountant which is internationally recognised.]

Why are we doing this?

Firstly, this is supposed to help Singapore to achieve a leading global accountancy hub status in Asia Pacific by 2020.

In the words of Second Finance Minister Lim Hwee Hua, she said accountancy professionals here and in the region will have an avenue to develop their careers by obtaining credentials that are globally recognised. [Singapore should become the top of mind place to get an accounting qualification that would be recognised by countries in the region.]

She said: "The objective is to develop accounting professionals who are not just deep problem solvers in the core area of accountancy. We also want our accountancy professionals to be equipped with the skills to interact with other specialists and understand technical issues from a wide range of disciplines and functional areas."

Secondly, the Pro-Tem Singapore Accountancy Council is also looking into alternative niche areas for accountants here to specialise in instead of just focusing on the traditional areas of auditing, accounting and tax.

"We've already formed a committee to look at the different specialisation pathways in terms of risk management, for instance, development of CFOs (Chief Financial Officers), internal audit, valuation, taxation. These will be the specialisation, so called qualifications, that we can look at," said Bobby Chin, chairman of Pro-Tem Singapore Accountancy Council.

Other areas of specialisation such as management accounting or forensic accounting may be introduced later.

Singapore wants to achieve the status of being a talent hub where “travellers from universe can land in Singapore and seek the necessary talents to perform whatever tasks needed”. Remember Han Solo in Star Wars? So if you are looking for a pilot to fly a interglactic spaceship or people to value a tree or to perform due diligence on a nuclear plant acquisition, we should have them here.

Source - http://www.channelnewsasia.com/ / Jonathan Peeris

Exposure Draft on Deferred Tax

2010-09-26T12:56:00.001+08:00

Current practice
Companies must state if they intend to rent out or sell the property in future. Appropriate taxes are then applied ie. 17% deferred tax on rental income or 0% on capital gains from disposal of properties.

Proposed change
The respective country's capital gains tax would be applied to all properties.

Assessed impacts

Since Singapore has no capital gains tax, past and future deferred tax provision would not be necessary before the end of 2010.
Net asset values of property firms could go up by 5 to 8% as per Mr Choo Eng Beng, PwC. Share price of property firms could subsequently go up too due to higher valuation.

Can I have a Partnership with one Partner?

2010-09-24T09:58:00.008+08:00

Dear friends,

Consider ths situation.

You started a partnership with a friend and you named it "Ah Kow & Partners". For some reasons, your friend decided to leave the partnership and you continue to run the "partnership" singularly and without a change in business name. Is this acceptable by law?

The Court of Appeal ruled as follows in Orix Capital vs Chor Pee and Partners:-
a) Requested the Law Society to be more transparent about law firms and partners operating which each firm given existing rules within legal profession forbid firms from using names that are misleading and;
b) Chor Pee and Partners was found to be not liable for the debt of $263,000 to Orix Capital as the contract was deemed to have been signed by an individual ie. Lim Chor Pee and NOT by the partnership.

I am wondering why registration of law firms is not under the jurisdiction of ACRA ie. just like any other business entities in Singapore. Please note that the above could be peculiar ony to law firms and not those partnerships under the ambit of ACRA. (I am speculating here. Can someone correct me if I am wrong.)

Bottomline - You cannot have a partnership of one person. But who should make sure this happen?

ACCA Conference 2010 - Cheong Pui Yuen

2010-09-18T23:48:00.001+08:00

Pui Yuen's mentor

Mr Cheong Pui Yuen presented an interesting and honest paper entitled "Transforming the Public Accounting Profession - A Practitioner's Perspective".

He attempted to outline some ideas of how we (as an auditng entity, as a member of the public accountants, as customers/clients to audit firms and as accountancy body like ACCA) can respond to the impending changes as highlighted in the CDAS report.

As an auditing entity, you may to seriously think about the following:-
a) expanding scope of services offered;
b) consider gaining scale by working together in local and regional markets
c) explore increasing its capital base given the relax rules governing ownership
d) scenario planning with different audit exemption threshold ie. what if the threshold is increased current $5m to $10m etc
e) scenario planning with increased costs from higher quality expectation (and possibly with limited price increase)

As for customers/clients of auditing entities, Mr Cheong advised as follows:-
a) expect higher service quality;
b) pay a fair fees for service rendered;
c) don't encourage fees cutting;
d) work with progressive/quality audit entities;
e) and lastly and very checkily he said, "pls don't take away our resources unnecessarily".

For accountancy bodies like ACCA, he opined that it should continue to step up its profile, collaborate with other entities from government, trade, other accountancy bodies etc etc. He stressed that it is very important for ACCA to differentiate itself so as to give a reason for its members to continue renewal of their membership.

ACCA Conference 2010 - Tim Hird, Robert Half International

2010-09-18T23:13:00.002+08:00

Dear friends,

Tim Hird presented his findings of a joint ACCA/Robert Half research entitled "Talent and Skills in Finance & Accounting Survey 2010 - Uncovering the Challenges".

May I highlight some of his main points:-

Skills that are lacking in finance & accounts related staff are:-
a) management and leadership skills;
b) interpersonal skills / ability to work within a team and;
c) communications skills.

For employers, the top three retention strategies for staff are:-
a) improve salary package;
b) offer promotion or better career development and;
c) offer flexible hours / work from home.

I understand that the full report will be released by end of month.

Burger King vs Sinar Mas/Golden Agri over green issues

2010-09-05T11:47:00.002+08:00

In today's Sunday Times, I read that Burger King cancelled its contract to buy palm oil from Sinar Mas Agro Resources and Technology (SMART). This is said to be a move to protest over Sinar Mas not adopting sustainable farming practices and destroying rainforests in generating the palm oil.

This is a timely reminder of the importance of "Green Reporting"/sustaintability reporting and SGX's recent issuance of guidelines (ie. non manadatory) on disclosure of social and environmental aspects of business.

Boards and management of companies are slowly and surely being made accountable to all stakeholders. Many years ago, they were said to be only responsible to shareholders for financial results. Now given emphasis on sustainable reporting, management are now being queried on how they achieve those results and the impact they have on the communities within which they operate in.

While I personally hope for such information to be made available on a statutory basis, I am however happy that SGX has taken the first move to "encourage" such reporting.

Bursa Malaysia is ahead of SGX when it legislated (ie. by law) that such reports be made compulsory back in 2007!!! According to ACCA survey as reported by Darryl Wee, CEO of ACCA Singapore, 49 companies in Malaysia generated sustainability reports in eight years. In comparison, Singapore lagged behind with only 21 companies.

P/S - SMART operates all palm oil plantations for Golden Agri Resources, a company listed in Singapore Exchange.

Proposed changes to Accounting for Leases

2010-06-20T11:26:00.009+08:00

it pours and pours

What is the proposed change?
For lessees, FASB and IASB believe that all lease contracts should be treated in a manner similar to the treatment of finance leases. Thus removing the existing requirement for lessees to differentiate leases as finance or operating leases.

Why the proposed change?

Firstly, current rules which determine lease classification may result in similar transactions reported very differently, leading to lack of comparability and significant amounts of off balance-sheet finance not being recognised.
Secondly, the right obtained by the lessee in a lease contract is the right to use the leased asset during the lease term. This right meets the definition of an asset. The lessee incurs an obligation to pay rentals in a lease contract, and that this obligation meets the definition of a liability. ("Right of Use" model)

Details of proposed change for LESSEE under "Right of Use model"

Leases would be measured at cost initially ie.the present value of the lease payments, including initial direct costs incurred by the lessee.
Present values would be calculated using the lessee's incremental borrowing rate as the discount rate.
Expense to lessee would be interest expense on instalments paid. (Existing treatment is rental expense.)

Possible consequences

For the lessees, interest expense would thus be higher in the early years of a lease (compared with the current straight-line treatment for rent expense) ==> impact on accounting ratios / loan covenants / profitability / credit ratings and other external measures of financial

For the lessors, a significant chunk of their business could disappear overnight if the lessees decide to buy the assets themselves instead trying to rent.

Source - Accounting and Business Singapore 06/2010

F1, F2 and F3 Changes due in Dec 2011 Exams

2010-06-16T00:21:00.007+08:00

orange juice from Bali

There will be changes to almost all exam papers effective Dec 2011 exams.

That would mean you have 2 paper-based tries based on current exam format left before the change.

So what are the changes due for F1, F2 and F3?
In short, the exam format will change from a pure multiple choice question (MCQ) format to a combination of MCQ and short questions basis format.

Paper F1, Accounting in Business
Section A - 16 x one-mark short objective test and 30 x two-mark short test questions.
Section B - 6 x four-mark longer version objective questions with one taken from each objective test questions of the six sections of the syllabus.

Paper F2, Management Accounting
Section A - 35 x two-mark short objective test questions
Section B - 3 x 10-mark longer version objective test questions – one taken from each of the budgeting, standard costing and performance measurement sections of the syllabus.

Paper F3, Financial Accounting
Section A - 35 x two-mark short objective test questions
Section B - 2 x 15 mark longer version objective test questions with one question based on group accounts and the other on preparation of financial statements (which may include an element of interpretation of accounts)
[Edgar says it looks like old topics will be re-introduced to the syllabus.]

Source - ACCA

After ACCA and CPA, how to get CoC?

2010-06-07T01:30:00.002+08:00

It was the first initiative announced by ACRA in April 2010. It is the introduction of the colour-coded compliance rating and issuance of the Certificate of Compliance.

How to get the Certificate of Compliance?
First get the GREEN tick. Green tick will be given only when a company complies with ALL of the following requirements as enunciated in the Companies Act, Cap.50 ie.

1. Hold its AGM once in every calendar year and not more than 15 months
after the last preceding AGM (section 175). For a new company, the period is 18 months after date of incorporation.

2. Provide the members/shareholders with the financial statements that is not more than 6 months old at the date of the meeting. For a public listed company the financial statements must not be more than 4 months old at the date of the meeting.

3. File its AR within 1 month from the date of the AGM (section 197).

Once your company gets the GREEN tick, you pay $5 for a copy of Certificate of Compliance. Failing to comply, you will get the RED cross. All the GREEN ticks and RED crosses will be displayed next to your business entities' name for all to see in the free Directory of Business Entities.

What can I do with the Certificate of Compliance?
1. Show to banker to demonstrate that your company is behaving and ask for a discount on the interest costs.

2. Attached it to your resume as you present yourself to the next prospective employer as the key person in keeping the company neat and tidy.

3. Attached it to your performance appraisal as you discuss for a bonus.

4. Show to auditor. Try asking discount on ground that ACRA is certifying compliance already. No audit work is necessary there.

5. The auditors too can use the CoC to check on their prospects first before accepting appointment.

Good morning to you. Cheers

FASB and IASB to delay their marriage?

2010-06-03T23:33:00.004+08:00

view from an office in Jakarta

Yes, there will be a delay of 6 months from the original date of June 30, 2011.

This is despite the fact that their family members from the G-20 group of industrial and emerging countries have been pushing them to stick to the original date since FASB and IASB announced their engagement in 2006.

So why the delay?

Firstly, FASB cannot keep up the pace preparing for their marriage.

To meet the deadline, FASB and IASB would have to release about 10 proposals in the next two months and rushing through the due process of public comment, blah blah blah, reconsideration by the respective board and adoption.

2. Both FASB and IASB want their marriage only after aligning major areas of the accounting rules, such as revenue recognition, leases, financial instrument accounting and financial statement presentation.

3. FASB is 38 years old now but it has never worked so hard before in its life to get ready for the marriage. FASB has never released more than three or four proposals at a time for public comment.

4. FASB and IASB's preparation were distracted by the financial crisis in 2008 and 2009. Both were forced to activate more resources to make changes to accounting rules related to the financial crisis. FASB dedicated one third of its 60 professional staff members during the crisis. IASB has a slightly smaller staff than the FASB.

ACRA - Changes to note

2010-04-18T12:56:00.004+08:00

my lunch place in Jakarta

Dear friends,

The Accounting and Corporate Regulatory Authority (ACRA) has announced that it will be implementing several initiatives as an impetus for locally incorporated companies to comply with corporate regulatory requirements as well as to acknowledge companies who have made the effort to comply.

For a start, ACRA will focus on the preparation of the annual financial statements, the holding of Annual General Meeting (AGM) and the filing of the Annual Returns (AR). The initiatives are as follows:-

a) Launch of "Colour-coded Compliance rating". This is a rating system that recognises companies with a good record for holding its AGM on time, tabling and filing up-to-date financial statements and Annual Returns for the year in question with a positive compliance rating (in the form of a green tick) which makes them eligible for a Certificate of Compliance; while those which were non-compliant in their filing would be given a negative rating (in the form of a red cross). The compliance rating record and other relevant information for all locally incorporated companies will be reflected on ACRA’s free online Directory of Registered Entities for inspection by the public.

b) Issuance of "End of Financial Year Reminder" to provide an earlier alert to companies of the requirement to table up-to-date financial statements and to hold AGM timely with our new End of Financial Year (FY) Reminder, and

c) "Shortening of the Extension of Time" which will reduce the maximum allowable period for extension of time to hold AGM from 3 months to 2 months.

My comments

The rating system (just like for the hawker stalls) - What are the purposes? Firstly, of course to encourage compliance. Secondly, could the rating be used to guide your corporate customers' and suppliers' decision as to whether to deal with your company? For hawker stalls, would a C-rating discourages people from patronising your stall? We will wait and see the effect of this.

The reminder system to comply - In my opinion, this is the most useful aspect if implemented properly. ACRA should introduce even easier ways for companies to comply by simplifying further the filing processes.

I am looking forward to that.

(Announcement copied from ICPAS's email to members for your information.)

Misnomer between FRS12 and FRS40?

2010-03-21T00:01:00.001+08:00

a new hotel taking shape

The second part of Tan Eng Juan/Tan Kai Guan's article on Accounting for Deferred Tax in Sep/Oct2009 Singapore Accountant touched on the following areas:-

What if disposal of investment properties "attracts a badge of trade" ==> Consequently, gain/loss from such transactions would be subject to tax. Both professors got no issue with that.

The two professors are however unhappy with when such entities SHOULD have started accounting for deferred tax on these properties. They posit that:-
a) deferred tax should have been provided for when FRS12 was adopted in year 2001 and;
b) accounting for deferred tax should not started only year 2007 ie. the year FRS40 was adopted.

Why?

1. SAS12 to FRS12 effected on April 1, 2001
Assuming gain on disposal is taxable, SAS12, in the past, said deferred tax has to be provided for IF the timing differences affect P&Ls.
But now FRS12 said we must provide for deferred tax on ALL temporary differences, regardless or not they affect P&Ls.

2. FRS25 to FRS40 effected on January 1, 2007
Under the extinct FRS25, revaluation surplus is taken to reserve (ie. never to P&L).
Under the currently in force FRS40, fair value gain is taken to P&L.

The simple point is that while FRS12 has been in force about 6 years earlier than FRS40, have most companies been accounting for deferred tax as tax expense in P&L since 2001? The two professors seem to imply that most did not. During those 6-7 years, deferred tax on revaluation of investment property will be debited to "revaluation reserve" (instead of P&L).

Impact? - Profit figures are overstated over those years while the overall value of shareholders' equity remain neutral.

Director fined for lodging false data

2010-03-20T11:22:00.004+08:00

Who did it? CSI team, pls check for finger prints and DNA.

Dear Staff of Corporate Secretarial firms, directors-wannabes and of course, Directors of companies,

Please be informed that a local director was recently fined $21,000 for changing the addresses of foreign directors to a local address, with full knowledge that the information is false.

Why did she, Ragini Dhanvantray of Rivkin Consultancy, do that for?
She is currently the local director of companies with foreign directors.
The Companies Act stipulates that every company must have at least one director ordinarily resident in Singapore.
Perhaps (I speculate here, without basis) she is thinking of quitting as local director of these companies as these foreign directors/shareholders may have gone missing and have not be meeting their obligations to her and the companies.
She came up with the idea of changing the addresses of these foreign directors and subsequently follow with her resignation as director.

Points to ponder

How were these false information found out?
As the Companies Act is currently under review, should the relevant authority/committee consider possible improvement to the stipulation for a local director and specify the roles and responsibilities of these directors? Less will come forward to offer themselves as local directors if these directors are constantly hauled to Court, ACRA, IRAS, creditors, customers, employees etc etc to answer queries on companies abandoned by these foreign shareholders cum directors. If less are willing to come forward, what are implications to Singapore as a business hub?

We were repeatedly reminded that you have no lesser responsibilities as a local director or a nominee director. A director is a director! Oxymoronic?

Accounting for Deferred Tax - A Mispractice

2010-03-03T16:03:00.006+08:00

chingay 2010 colours

Tan Eng Juan and Tan Kai Guan, two Associate Professors from NTU wrote a very interesting article on "Accounting for Deferred Tax on Investment Property in Sep/Oct2009 Student Accountant.

Their paper argued that we should NOT provide for deferred tax on investment property if the gain on disposal of those properties is NOT taxable. If gain on disposal is a badge of trade ie. such gains are thus taxable, then deferred tax should be accounted for.

Their supporting arguments in favour of their position:-

a) FRS12 said deferred tax should only be accounted for if and only if "it is probable that recovery or settlement of that carrying amount will make future tax payments larger (smaller) ..." ==> In the absence of capital gains tax in Singapore and if the profit/loss on disposal has no tax implication, then why are we wasting time accounting for deferred tax?

b) If fair value adjustment to asset values have no tax implications on disposal, then why are we accounting for deferred tax? We should NOT account for deferred tax for reason that the fair value adjustments are reflected in P&L and thus affect the current profitability and thus tax expense.

c) Even if higher fair value is due expected higher rental for its properties, there is still NO basis to account for deferred tax on the higher fair value. Why?
As the higher rental income for each future period would be subject to income tax and thus higher tax expense for that future period, there is thus no basis to subject changes in fair value to deferred tax.

If both these professors are correct, what are the implications for entities that had been accounting for deferred tax all these years on non-taxable gains even if they were to be realised in the future?

Position available soon - IASB Chairmanship

2010-02-18T00:42:00.007+08:00

wish you a roaring new year

I understand the current IASB chairman, Sir David Tweedie will stand down in June 2011 upon expiry of his contract. Headhunters have been activated to look for a successor. I am thinking about applying for the position. What are requirements of the job?

Sir Tweedie has spent a decade in transforming an obscure committee into a board whose rules are effectively law in over 120 countries, including the European Union. If I were successful in getting the job, I must be able to deliver at least another 120 countries within the same time frame. I am sure it will be one of many thousands KPIs. What are other possible things in store for me?

I will need to be a skilled diplomat and yet comfortable debating the intricacies of financial reporting with technical experts.

Diplomacy is necessary as you attempt to cajole acceptance of IASB rules that may not fit the respective circumstances of each member country.

I must always remember to express my gratitude to European Union for giving IASB the kick start it needed.

I must be able to appease the Americans of their fear of surrendering regulatory control over financial reporting issues to Europe and the rest of the world. [Just like why they are keeping United Nations in New York?]

Besides Europe and US, I must be able to give the remaining stakeholders in form of Asia, with rising economic powers, a voice in the making of the rules.

I must be nimble to be able to "siam" the pots, pans and shoes that could be thrown at myself if the world faces another financial crisis in the future and blame IASB for it. Just like what they did to "Fair Value".

I had the pleasure of meeting him once from about 20 feets away. He gave such an entertaining speech fully peppered with typical British jokes ie. subtle yet effective. I will always remember the newspaper-in-the-highland-of-Scotland joke. Tell you when I see you.

In short, Stig Enevoldsen, chairman of the European Financial Reporting Advisory Group (EFRAG) said, 'If you look at requirements for the new chairman, the only thing that is not included is that he should be able to walk on water.'

So assuming if Edgar can do all the above and can walk on water, he will definitely get the job entitled "Accounting Ayatollah" or "Accounting Czar"....

OECD wants country-by-country tax reporting

2010-02-06T15:03:00.003+08:00

after 10.15pm

Impacts of such a move:-
It would shake up how multinationationals present their accounts.
It aims to cut back tax avoidance and transfer pricing in developing countries.

Organisation for Economic Cooperation and Development (OECD) will present guidelines that could force MNCs to reveal profits and tax paid/payable in every country they operate in.

The MNCs are worried that the transparency will provide civil groups, citizens and governments of such countries in which the MNCs have operated / are operating in, may have been short changed in tax revenue.

As they are just guidelines for the moment, OECD is pushing IASB to formalise it.

FRS for SMEs - Definition issue

2009-10-19T12:18:00.005+08:00

shenton way last week

The International Accounting Standards Board (IASB) published the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs, or Standard) on July 9, 2009.

The Professional Standards Group of Foo Kon Tan Grant Thornton made an obervation of South Africa's experience in preparing for the adoption of an SME standard. It observed that 90% of the queries on the ED were on who could apply the ED.

Thus getting the definition of the term SME right is of paramount importance. Let me present some definitions offered by the various authorities thus far.

The Standard is designed to meet the financial reporting needs of entities that:-
(1) do not have public accountability and
(2) publish general purpose financial statements for external users.

Spring Singapore defines SMEs as those entities with:-
(1) less than $15mio of non current assets in manufacturing sector or;
(2) employ less 200 workers in non manufacturing sector.

Last year, Accounting Standards Council (ASC) proposed that an entity would qualify as a SME if it satisfies two of the three size criteria below.
(1) net assets do not exceed $15mio;
(2) annual turnover does not exceed $15mio and;
(3) average number of employees does not exceed 200.

What are the possible practical application issues on the definitions?

(1) Non current assets
- Based on historical purchase price of asset? Can revalued? Impairment?
- Based on net book value? Thus it could depend on depreciation method adopted?
- Classification "mess" between NCA and CA?

(2) Annual turnover
Currently an exempt private company with less than $5mio of annual revenue is already exempted from the need for audited financial statements. Is there not a conflict with the $15mio criteria?

(3) No. of employees
- Who is your employee? Those on CPF contribution list? Part time?
- Can manipulate to meet criteria by moving from "contract for service" to "contract of service"/outsourcing?

Source - ACCA Singapore, FOCUS Quarter 3 - 2009

Lack of professional scepticism = "boh chap"?

2009-08-25T23:36:00.005+08:00

golfing or auditing?

At ACRA's annual Public Accountants Conference on Aug 19, 2009, ACRA presented their findings on public accountants as follows:-

On the larger audit firms ie. auditors of public interest companies lack 'professional scepticism' while experienced audit partners often take a hands-off approach on actual audit (Edgar's cheeky remark - Partners take a hands-on approach on golf?)

What do you mean by "lack of professional scepticism"? ACRA noted the following:-

the larger audit firms have generally failed to assess related-party transactions, management assumptions and forecasts, and the risk of fraud or misstatements.
junior audit staff doing most of the key audit work.

As to the smaller accounting outfits, they struggle to maintain audit quality with a very very competitive fees environment. Some faults noted are:-

some small outfits still do not search for unrecorded liabilities and do not perform work to test foreign currency translation.
increasing demands of the audit environment coupled with difficulty to attract quality audit staff and resources to provide adequate supervision.

Punishments done to date

Since 2004, seven public accountants have had their professional practice licences suspended or cancelled by ACRA as reported by Ow Fook Chuen, deputy CEO of ACRA.

Less severe cases have been dealt with by way of reprimand, mandatory peer review requirement and regulatory course.

I have the opportunity of meeting a few fellow members undergoing "remedial classes" in the last 2 weeks. One has told me of their uncertain fate even after attending their 3-day programme.

Any idea to resolve?
Ms Penelope Phoon, Singapore Country Head, ACCA provided some directions. She said the "anomaly in audit fee levels and the volume of work are therefore locked in a vicious cycle that increases the propensity of firms to overlook critical matters and lose their professional scepticism occasionally".

One of the keys to breaking this vicious cycle is to understand in a clear way why companies in are paying much lower fees for, many would argue, comparatively higher quality audits.

Do you have any other ideas?

SGX proposing local auditor and governance adviser

2009-08-24T22:54:00.004+08:00

Singapore Exchange CEO Hsieh Fu Hua in a speech at the annual Invest Fair on last Saturday proposed the following regulatory changes:-

Companies with foreign operations audited by an overseas accounting firm may need a joint sign-off by a local auditor;
New listings may need to hire governance advisers for two years after their initial public offering (IPOs).

The costs of listing and costs of maintaining a listing status in Singapore for an entity with foreign operations have just gone up.

The devil will be in executing the above changes.

Some issues of the top of my head would be:-

Local auditor signing off would also be in a position to decide which foreign auditor to appoint?
Will this eventually lead to local auditor taking over the audit of foreign operations as well?
What is the level of responsibility of local auditor signing off?
What are the responsibilities of governance advisers? Is he or she a board level personnel? Can a staff hired to do internal control duties be designated a governance adviser?
Actually who is a qualified governance adviser? Lawyers or accountants?

I would like to hear SGX proposing some control and maintenance measures to be done by them. I really hope SGX is not attempting to propose measures that would eventually "outsource" their control function to local auditors and governance advisers at the expense of the listed entities.

Will this happen to Accountants too?

2009-08-23T15:29:00.009+08:00

What is the issue about?
The case involves lawyer Bachoo Mohan Singh, 61, who was convicted two years ago of helping to file a false claim - an offence which carried a mandatory jail term.

Having failed in his appeal to the High Court (which usually is the end of legal route), he took an unusual route of getting the Registrar to have his case heard by the Court of Appeal (Singapore's highest court). On what ground, you may ask.

The hearing will allow the three-judge Court to consider this issue of concern to the legal community here, ie. the extent to which lawyers are responsible for verifying claims made by their clients which may turn to be false subsequently.

What is the current practice? Lawyers take most statements given to them by clients based on good faith, and assume them to be true.

The Court's view on the case could put both lawyers and their clients on notice.

Edgar, what has this piece of news got to do with Accountants and Auditors? Try replacing "lawyer" with "accountant / auditor" in the above paragraphs, do we wish to be in the same position as Mr Singh? As a tax agent, we could be filing GST returns based on client's information.

The ruling is due soon. I just hope the Court will not seek "refuge" under the "reasonable man rule".

Airocean's directors in Court

2009-08-16T11:10:00.003+08:00

What is the case about?
The indepedent directors of Airocean have been charged for breach of duty when they are alleged to have given misleading announcements over the nature and details of investigation of Mr Thomas Tay, the former CEO of Airocean by Corrupt Practices Investigation Bureau (CPIB).

Ms Lorraine Tay, the Vice President of SGX's issuer regulation unit and the team leader in charge of Airocean's compliance issues, was queried by Mr Davinder Singh, Senior Counsel, acting for one of the independent directors in the early proceedings.

Lorraine said SGX was informed by MAS then that the announcements may not be accurate and that MAS was unable to disclose why. Mr Singh queried whether this was informed to the directors.

What information did SGX have at that point in time?

What were the precise circumstances leading to SGX to conclude that the announcements then at that point in time were misleading

And whether the same information was conveyed or made available to the directors?

And when the directors became aware of the information, did the directors, to the best of their abilities, attempt to rectify any "misannouncements" made earlier to the investing public?

SGX's position - Announcements must always be the responsibility of the directors.

MAS's role with CPIB and MAS's role with SGX - Beyond my realm of understanding at the moment.

CPIB's role - To investigate any wrongdoing. But could they be expected to tell the whole world who and what they are investigating and may end up compromising their investigation?

Let us await for more news on this case.

Reference - BT, Aug. 15, 2009

Liquidator and her independence

2009-08-10T01:15:00.003+08:00

Background
Singapore-based Fustar Chemicals Pte Ltd owes FCL (Hong Kong) a debt of $614,560.71. Mr Ng Cheong Ling owns FCL (Hong Kong) while Mdm Wong Ser Wan owns the Singapore entity.

The Singapore firm came under voluntary liquidation in 2004, mired by a matrimonial dispute between them. Mdm Wong appointed Ms Ong Soo Hwa to be the liquidator.

Ms Ong rejected the existence the debt on the basis of absence of primary documents even though secondary documents such as audit confirmations and "qualified" audited accounts were submitted.

The dispute went to court.

Decision

The High Court agreed with Ms Ong's decision not to admit the debt. The Court of Appeal, led by Justice VK Rajah, disagrees and overturns the earlier decision on the following grounds:-

"weight should be given to the fact that the accounts in question have been audited' and there was no evidence to conclude that the audited accounts may be inaccurate or incorrect."
"It must be obvious to anyone with accounting background that the doubtfulness about the collectibility of a debt by a creditor has no effect on a legal obligation to make payment by the debtor"

Justice VK Rajah expressed stern words on Ms. Ong's performance as a liquidator.

"A liquidator must not only act independently, but be seen to be independent." She is seen to be biased in favour of her appointers.

Though the accounts were qualified by auditors, the debts are still part of the audited accounts of the company as the accounts were approved by the directors and shareholders at annual shareholders' meetings.

As punishment, The Court of Appeal told Ms Ong that she can only get her fees after all the creditors have been paid.

FRS 16 - Property Plant Equipment v090604

2009-08-02T09:47:00.002+08:00

a plant as defined by FRS16

FRS 16 prescribes the accounting treatment for property, plant and equipment.

Property, plant and equipment are tangible assets that are in use for more than one accounting period. Cost of property, plant and equipment comprise of:-

Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purpose other than to produce inventories during that period.

Property, plant and equipment are initially recorded at cost. Subsequently, they can be carried either:-

Cost less any accumulated depreciation and any accumulated impairment losses; or
Revalued amount (Fair value at the date of revaluation), less any accumulated depreciation and any accumulated impairment losses.

If option (b) is chosen, all assets within a class of property, plant and equipment must be revalued and the valuations must be updated regularly.

A revaluation increase shall be credited directly to equity as revaluation surplus, unless it reverses a revaluation decrease of the same asset previously recognized in profit or loss.

A revaluation decrease shall be recognized in the profit or loss. However, the decrease is debited directly to revaluation surplus in equity to the extent of the credit balance in revaluation surplus.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The residual value and the useful life of an asset should be reviewed at least at each financial year-end. If expectations differ from previous estimates, the change in accounting estimate (FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors) is applied.

Impairment is recognised in accordance with FRS 36 Impairment of Assets.

The gain or loss on the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is included in the profit or loss.

FRS 16 specifies disclosures about property, plant and equipment.

Source - ICPAS CPA Singapore Wire 9 June 2009

ACRA, Van der Horst Energy and FRS102

2009-06-26T12:10:00.003+08:00

a quiet pavillion

What happened?
The Accounting and Corporate Regulatory Authority (ACRA) has requested Catalist-listed Van der Horst Energy (VDHE) to restate its financial statements for fiscal 2008 on grounds that options granted to two executive directors should have been treated as an equity-settled share-based payment under a financial reporting standard (FRS).

ACRA confirmed that this is the first time it has directed a listed company to restate its financial statements under such circumstances.

What is the rule?
FRS102 ruled that every company that granted stock options have to account for them as a business expense in its income statement, instead of merely just having to mention them as a note in the annual report.

What is the implication?
After taking the fair value of the share options of $5.7 million as business expense, VDHE would now report a pre-tax loss of $2.83 million, instead of the pre-tax profit of $2.87 million that were earlier stated.

ACRA was not prepared to sit back and accept the auditor's qualification of the accounts on the basis of non-compliance with FRS102. ACRA has now ruled for restatement of the financial statements.

Audit opinion?

2009-06-02T23:41:00.003+08:00

Based on Singapore’s accounting standards, auditors would put an 'emphasis of matter’ if an issue warrants deeper discussion but does not affect the auditors’ opinion.

Matters that affect their opinion would be highlighted by way of a qualified opinion, a disclaimer of opinion or an adverse opinion - in order of severity.

Is there a better way?

Perhaps we could follow the World Health Organisation's numerical approach on the level of seriousness on H1N1.

Alternatively, we could go on the colour-coding way.

Of course, I am not wholly serious about the above suggestions.

But the point here, let us not try to make our profession and our work complicated by using "chim" words/phrases that the ulitmate users of the auditor's report may not understand.

Can we do better?

FRS 14 - Segment Reporting v280509

2009-05-28T10:07:00.003+08:00

FRS 14 prescribes the reporting of financial information by segment – information.

FRS 14 applies to enterprises whose equity or debt securities are publicly traded and enterprises in the process of issuing equity or debt securities in public securities market. Enterprises not in the above categories are also encouraged to disclose financial information by segment voluntarily.

A business segment is a component of an enterprise that is engaged in providing an individual or a group of product or service and is subject to risks and returns that are different from other business segments.

A geographical segment is a component of an enterprise that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those in other economic environments.

The source and nature of an enterprise’s risks and returns determine whether the primary segment reporting will be business segments or geographical segments. Enterprises risks and returns mainly affected by differences in products and services should have its primary segment reporting as business segments and secondary segment reporting as geographical segments.

Likewise, enterprises risks and returns mainly affected by its operations in different countries should have its primary segment reporting as geographical segments and secondary segments as business segments. This is identified by the enterprise’s internal organizational and management structure and its system of internal financial reporting to senior management.

A business or geographical segment is a reportable segment if a majority of its revenue is earned from sales to external customers; and

a) these revenue from sales to external customers is 10% or more of the total revenue of all segments; or

b) its profit or loss results is 10% or more of the combined result of all segments in profit or loss, whichever is the greater in absolute amount; or

c) its assets are 10% or more of the total assets of all segments.

If total external revenue due to reportable segments is less than 75% of the total consolidated revenue, additional segments are identified as reportable segments until at least 75% of total revenue is included in reportable segments.

The disclosure for each primary reportable segment is as follows:-

a) separate revenue disclosure of sales to external customers, inter-segment revenue;

b) separate results from both the continuing and discontinuing operations;

c) carrying amount of segment assets;

d) segment liabilities; and

e) cost incurred in the period to acquire property, plant and equipment and intangibles.

The disclosure for each secondary reportable segment is as follows:-
a) separate revenue disclosure of sales to external customers and inter-segment;
b) carrying amount of segment assets; and
c) cost incurred in the period to acquire property, plant and equipment and intangibles.

Source - ICPAS CPA Singapore Wire 28 May 2009

ACCA Graduation - May 23, 2009

2009-05-23T16:07:00.003+08:00

Linda, great to see you..

top guns for the various subjects

Welcome to the World!

Another 195 affiliates have completed the rigorous ACCA curriculum. Congratulations.

Women in Accounting & Finance Survey 2009

2009-05-22T22:24:00.004+08:00

On Thursday last, I was invited to attend, in my humble capacity as a Local ACCA Executive Council member, the presentation of the survey results of women in accounting and finance roles. The survey was commissioned jointly by ACCA and Robert Half Singapore.

Based on the responses of 721 women, the following are some key findings:-

1. Are women ambitious? Yes, particularly for the younger women but the more matured ones are more likely to stay with their current employers.

2. 64% of respondents said they did not attend any leadership course at all in 2008.

3. What women see themselves doing better than men? The respondents highlighted 3 areas - attention to details, dealing with people issues, communication skills.

4. Women's top three desired work benefits:- flexi hours, better maternity benefits and thirdly, more annual leaves. 53% said they are willing to take pay cut for more flexi hours.

5. What are the priority areas for women?
Work/life balance came out as top priority for 59%. Surprisingly for me, the younger women are the ones that value this more than the matured counterpart.

FRS 12 - Income Taxes

2009-05-21T14:54:00.004+08:00

casino in process

FRS 12 prescribes the accounting treatment for income taxes.

Current tax refers to the amount of income taxes payable/recoverable in respect of taxable profit/tax loss for the period. Income taxes payable for current and prior periods are recognized as a liability. Income tax recoverable or overpaid is recognized as an asset.

Deferred tax is the differences between the carrying value of the assets and liabilities in the balance sheet and the tax base of assets and liabilities. A deferred tax asset or liability arises if recovery/settlement of asset/liabilities affect the amount of future tax payments.

FRS 12 states that entities should recognize a deferred tax liability in full except in the following situations:-
a) where the initial recognition of an asset/liability in a transaction
i) is not a business combination; and
ii) at the time of the transaction, affects neither accounting profit nor taxable profit

b) deferred tax liability arising from the initial recognition of goodwill, or from goodwill for which amortization is not deductible for tax purposes.

c) deferred taxes on temporary differences arising on investments in subsidiaries, branches, associates and joint ventures if the entity is able to control the timing of the reversal of the difference, and it is probable that the temporary difference will not reverse in the future.

FRS 12 also states that a deferred tax asset is recognized to the extent that it is probable that a tax benefit will be realized in the future. This applies to the unused tax losses and unused tax credits.

Deferred tax is measured at tax rates expected to apply when the deferred tax asset/liability is realized/settled. The tax rates used must be enacted or substantially enacted by the balance sheet date. A deferred tax asset or liability is not discounted.

The tax consequences of transactions and events are recognized in the same financial statement as the transaction or event – that is, current and deferred taxes are:-

a) recognized in equity, if the items to which they relate are credited or charged directly to equity;

b) recognized as identifiable assets or liabilities at the acquisition date, if they arise as part of a business combination in accordance with FRS 103;

c) otherwise, recognized as tax income or expense.

Source - CPA Singapore Wire / ICPAS May 21, 2009

How to account for Jobs Credit?

2009-05-21T00:08:00.003+08:00

prawns in soup

Surprisingly I received a circular from ICPAS on how to account for the grants received from Jobs Credit.

I thought we don't need guidance on something so simple. But then again, perhaps we should synchronise.

Anyway the specific directions that we should follow are:-

For grant received on 31 March 2009, we should recognise it for value 31 March 2009. For grant received on 30 Jun 2009, we should recognise it for value 30 Jun 2009 etc etc.
An entity should start accounting as per circular No. A7/2009 prospectively from 20 May 2009.
If you have chosen to apply this circular early, you are permitted to do so.
But if you have not applied as per Circular for the first cheque in March, you have to disclose that.

Questions

What if we receive the cheque only after 31 March 2009? Should we then accrue for it?
Which account should we credit the amount to?

What have you been doing for your company? Can share with me?

Summary of FRS 10: Events After the Balance Sheet Date

2009-05-07T17:34:00.004+08:00

charlton hotel is changing

The objective of FRS 10 is to prescribe the accounting and disclosure requirements of events after the balance sheet date. Events after the balance sheet date refer to those events that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Adjusting events provide evidence of conditions that existed at the balance sheet date. Examples of adjusting events include:-

the settlement after the balance sheet date of a court case that confirms that the entity had a present obligation at balance sheet date;
the awareness of information after the balance sheet date pertaining to the impairment of an asset impaired at the balance sheet date (eg. knowledge of customer’s bankruptcy after balance sheet date warrants an adjustments to be made to the receivable from customer at balance sheet date and sale of inventories below cost after the balance sheet date)

Non-adjusting events reflect conditions that arise only after the balance sheet date.

Examples of non-adjusting events include:-

a decline in market value of investments subsequent to balance sheet date and before date financial statements are authorized for issue;
dividends declared after the balance sheet date.

Refer to FRS 10 for more examples of non-adjusting events.

For non-adjusting events, the entity discloses the nature of the event and an estimate of its financial effect.

Financial statements should not be prepared on a going concern basis if management determines after the balance sheet date that it intends to liquidate the entity or to cease trading.

Financial statements should disclose the date when the financial statements were authorized for issue and who gave that authorisation.

Source - eICPAS newsletter May 2009

FRS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

2009-04-30T13:08:00.004+08:00

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entity’s financial position, financial performance or cash flows. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates should be recognized prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognized by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

Source - eICPAS Apr 20, 2009

Unequal rights of shareholders

2009-04-23T14:49:00.004+08:00

Shareholders only have rights but no liabilities.

What rights do shareholders have?

right to vote
right to attend AGM and EGM
right to receive the Annual Accounts
right to receive dividends when declared

Issue - Do some shareholders have more rights than stated above? Do the above always hold true for every single shareholder?

The simple answer - Some shareholders do have more rights, whether rightfully or otherwise, than the others.

The following are real examples where my simple answer holds true:-

The issue of consolidating the accounts of 2 companies which are publicly listed. The holding company requires a lot more than statutory info to prepare its consolidated accounts and satisfy its auditors. So we have possible situation of a majority shareholder being given access to non-publicly available info.

How about the situation of a major shareholder getting sensitive info through its nominee directors in the subsidiary company? A nominee director is appointed by a major shareholder. Who do that director owe a duty and responsibility to? The major shareholder or to the company?

How to resolve this?

FRS 7 - Cash Flow Statements Apr 2009

2009-04-23T07:31:00.005+08:00

Summary of FRS 7: Cash Flow Statements

FRS 7 requires all enterprises to present cash flow statement. The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.

Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

direct method (disclosure of major categories of gross cash receipts and payments; or
indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.

Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.

Source - ICPAS ePublication April 2009

MOM's position on Company Stamp Part II

2009-04-22T21:59:00.003+08:00

lingzhi

To be fair, I am presenting MOM's response received today on Company Stamp for your consideration.

MOM said,
"Our requirement to have company stamp endorsing our documents reduces the likelihood of unauthorised transactions or applications by a third party. Such cases do happen and companies become invariably implicated or inconvenienced due to fraudulent transactions.

While there is no legal requirement for companies to have a company stamp, such a requirement will safeguard the interests of our customers such as yourself. We will also accept alternative means of authorisation such as an official company letter in lieu of a company stamp endorsement." Unquote.

Questions for your consideration.

What is a Company Stamp?
Can anyone make a Company Stamp?
How much to make a Company Stamp?
How does a Company Stamp protect your company if it is not legally binding to use a Company Stamp in official documents and contracts?
Is it different from Company Seal?

What is a Company Letterhead?
What are the statutory information that must be found on a letterhead?
How to make Company Letterheads? Must I ask the printer to print or can I print them using my printer?
When is a letterhead a letterhead and when is it not a letterhead?

If the primary objective is to prevent false or fraudulent applications and transactions, you verify the person that is making the application / transaction by checking the identity card/passport.

I don't think a Company Stamp or Company Letterhead can prevent a fraudulent application/transaction.

Company Stamp? Do we need it?

2009-04-22T09:48:00.002+08:00

Recently my company went into a tangle with Ministry of Manpower (MOM) over the requirement to place the company stamp on a work permit form.

I told the MOM officer that my company does not use any company stamp. The officer then requested my company to issue a letter on my company letterhead saying my company does not use company stamp.

I seek an explanation for the need of such a piece of paper with the company letterhead generated by MS Word. What is the legal importance of that piece of paper?

I seek feedback from MOM and EnterpriseOne on whether there is a legal requirement for companies to use company stamp. MOM's email response that I seek is still pending after more 3 business days as per their explicitly stated service standard. EnterpriseOne responded the very same day. Fantastic service! EnterpriseOne simply state that company stamp is not a legal requirement.

If that is the case, why are some banks and government bodies insist on use of company stamp?

Don't ask for things if they are not necessary in the first place. It is time to stop creating unnecessary work.

Anyone with legal knowledge, please correct me if I have mistaken. Cheers.

Proposed changes to Revenue Recognition

2009-04-20T22:12:00.003+08:00

my last Sat's lunch - ICPAS AGM

Which FRSs could be affected? FRS 18 Revenue and FRS 11 Construction Contracts are proposed to be merged into a single revenue recognition model in a discussion paper published in Dec 2008.

What is the proposed underlying principle?
The underlying principle in the proposed model is that revenue is recognised when a company satisfies a performance obligation in a contract; in other words, when the company fulfils one of its promises in the contract.

Who will be affected?
The abolition of FRS 11 would affect industries involved in ship building and property development. Particularly those industries delivering products and services with long gestation period.

What would be the difference in treatment?
Currently, revenue is recognised on a percentage of completion basis.
In proposed model, revenue can only be recognised if and only if the work-in-progress is transferred to the Customer as it is created. Since the Customer will not be accepting the handover of partially completed products/services, the business entities involved could experience fluctuations in reported earnings.

For those in the software business - For eg. a software developer is paid $1 million to develop a software with a warranty period of 3 months after delivery date. The developer cannot recognise the full $1 million upon delivery of the software. To satisfy the proposed change, the $1 million must be apportioned as separately identifiable revenue to software development and warranty respectively. Over the delivered portion can be recognised as revenue.

Reference - Accounting and Business 04/2009

FRS 1 - Presentation of Financial Statements Apr 2009

2009-04-09T09:02:00.002+08:00

The objective of FRS 1 is to prescribe the basis of presentation of general purpose financial statements, to ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

a) Fair presentation and compliance with FRS;
b) Going concern;
c) Accrual basis of accounting:
d) Consistency of presentation
e) Materiality and aggregation
f) Offsetting
g) Comparative information

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements.

FRS 7 sets out the requirements for presentation of a cash flow statement.

FRS 1 also specifies that entities discloses information that is presented in the financial statements such as the accounting policies, judgements and key sources of estimation uncertainty at the balance sheet date.

Source - CPA Singapore Wire Apr 2009

We understand better with graphics?

2009-02-19T10:52:00.003+08:00

keep roaring!

Just read a paper from University of Chicago entitled "Human Judgement Accuracy, Multidimensional Graphics, and Humans vs Models".

The objective of the paper was to check whether graphics aid humans in the detection of changes in firms' performance and consequently reflect their judgement in bond's rating of bonds from the respective companies.

So the researchers showed financial info in "boring" tabular format and then "pictorial" format to groups of people with different levels of financial accounting training.

Results

The research confirmed our common understanding that graphics do help with our understanding of any issue, including complex financial results.

This behaviour is similar to people from different levels of financial accounting training. This means that even the highly trained/"practiced" professionals would also get additional understanding.

Applications

So at work, can we try to present to our bosses in pictorial format ie. at least use bar charts and pie charts, to help them with their understanding?
If you are reading financial statments from public listed companies, they come with all the bells and whistles in term of presentation. For presentation of results to the press, go check out the powerpoints they use. You download a copy of SMRT's if you wish.
Edgar should put more pictures in his notes to help his charges.

So we are kindergarten kids, basically?

Putting "Public" back into "Public Accountant"

2009-02-09T22:40:00.004+08:00

amk at midnite walk

Who is Public Accountant suppose to serve? Is there a heavy emphasis on "public interest"?

Who are the people in control of financial standards setting process?

Do we all need such complex accounting standards? Are the accounting standards complex because the standards setting people want them to remain complex? For what? To ensure that we still have a job?

Or is it just the demand of some groups? Who then are these groups?

Could large public accounting firms, who have amassed valuable expertise regarding the intricacies of accounting standards and of corporations issuing financial statements be one such group?

I am reading this article entitled "What is the meaning of "the public interest"?" by Richard Baker. The article examined rhetorical claims by American Institute of Certified Public Accountants (AICPA), the Financial Accounting Standards Board (FASB), and PriceWaterhouseCoopers (PWC).

I am doing an injustice to the article by paraphrasing them as above. If you are interested to read the full article, buzz me.

Till then, smile.

Is your business a Going Concern?

2009-01-29T00:20:00.003+08:00

Are your bankers, suppliers, customers, employees... asking questions or passing remarks about your company's health ie. going concern (GC) status?

Given the current economic situation, may businesses may display certain symptoms that they may have caught the GC disease.

There is one more key person whom you may have to contend with in due course.. the auditor!

Auditors will increasingly question the viability of business. Helen Brand, head of ACCA reinterated this point in yesterday's BT article entitled "Going concern dilemma for auditors".

A CFO of a public listed company that I "accidentally" had lunch with recently, made this remark about their auditor. The company has some investment in China. To check for impairment, auditor requested that his company to do a 5-year cashflow projection and to be followed by computing for its NPV using the higher Weighted Average Cost of Capital (WACC) as the discount rate. He said the end result of that exercise is obvious. There will definitely be a write down on the investment. The write down may wipe off whatever profit and resulting in a loss. A loss ==> any going concern problem?

While a loss may not lead to a going concern problem, nevertheless the loss would activate another series of tests to confirm whether a company has the ability to meet its obligations within 12 months from its balance sheet date.

A quick and simple test would be whether Current Assets > or < Current Liabilities.

A loss in the P&L and CA Qualified Audit Report => investors/bankers withdrawing their support. Unthinkable?

Business owners, you may wish to get ready the following for the GC test.

a realistic business plan
a realistic plan to liquidate non-current assets
a financial support package secured
capital injection from shareholders
or any other info that will help the auditor to appreciate that your business can go on for another 12 months

Both auditors and business owners do understand the gravity of GC.

Budget Chat 2 - Dr Basant K. Kapur

2009-01-26T10:31:00.006+08:00

With reference to today's ST "Making the case for GST roll-back" editorial by Dr Kapur, his principle position is:-

Singapore's fiscal policy is too supply oriented.

I disagree with Dr Kapur in the following areas. Whether the budget measures are too supply-sided or demand-sided could be a matter of perception.

Keynes gave us fiscal policy measures to manage Aggregate Demand.

Aggregate Demand = Consumption (C) + Investment (I) + Government Spending (G)

My position - When I analyse the headline measures of the Budget, they are as much demand-sided as supply-sided.

For the Job Credits Scheme, it is primarily aimed at maintaining the job/income for many and hopefully translate to Consumption. This is a more indirect but maybe sustainable) approach to Consumption as compare to Government just crediting your accounts with some monies. This simple-putting-money-into-your-pockets idea is also done in the form of GST credits.
Unfreezing Credit by provding loan guarantees - While this is a way to keep the cash flow going to pay wages, it could be viewed as a means to encourage domestic Investment demand.
Double GST rebates - Dr Kapur called for GST roll-back ie. reverse the 2% GST increase to stimulate domestic demand. He argued that negative "real-balance effect" of higher prices due to higher GST would curb Consumption. My views - Would the Double GST rebates achieve the same? Or as GST rebates (and Job Credits schemes) are only given to Singaporeans, does it imply that the postive impact on demand (if any) would be more muted as compared to a GST roll-back to all residents? I hesitate to agree with Dr Kapur until I am given some info on the cost to businesses in changing GST/CPF rates up and down.
$20billion on Construction project - Is this not a direct prescription of Keynes where we would count the intended expenditure as Government Spending (G) and/or Investment (I)? Dr Kapur is asking for 2%/$1.8billion GST roll-back. May I have your view on $20billion thingy too? While the Contractors will be happy first, I am sure when they spend the money they earn, the rest of Singapore will be happy too.
The longer term spending on Education, Healthcare, Marriage, Parenthood and Green theme - I would agree with Dr Kapur that these would be more supply-sided initiatives.

Other Dr Kapur's key views to share:-
The biggest thing that is weighing down on Consumption is Housing. Given the high owner occupied properties and "high" property prices, a lot of purchasing power is directed at maintaining our place of residence.

Budget Chat 1 - Just like after 2nd World War

2009-01-25T01:07:00.006+08:00

pic from Business Times

Before the release of the Budget, many were wondering what can the government do to help the economy in the absence of external demand?

On Thursday 22 Jan 2009, the Budget presented looks like a modified version of the efforts to revive a war-ravaged economy of a country immediately after the world war.

At that time, there was obviously no external demand and many of the surviving population were unemployed and living in poverty. The government then used borrowed money (from World Bank I think) to pay labour and materials to build roads, bridges and our now famous HDB flats!!

In today's Singapore, we are planning to use part of our reserves to partially pay for all our salaries (Jobs Credit Scheme) and another $20billion for construction projects.

For the Jobs Credit Scheme, the government will give cash grants of 12% for the first $2,500 salary of a Singaporean employee. So if your gross salary is $1,800, your boss will get a refund of $216 per month from the government.

My immediate off-the-cuff response would be that all of us will be partially working for the Government ie. part-time civil servants!!

Based on YA 2007 figures, there were about 825,000 residents who reported income tax. Assuming 300,000 are non-Singaporeans, at $200 cash grant per person per month for about 500,000 Singaporeans, it is certainly no small sum.

Definitely a bold budget indeed.

P/S - Singapore Budget 2009 May I know the person who came up with "Jobs Credit Scheme" idea?

s207 (9a) Companies Act and NEL Group

2009-01-07T21:37:00.004+08:00

What is that about?
Under the Act, the external auditor of a public company has a legal duty to report (ie. whistle blow) to Minister of Finance if potential fraud may have been uncovered during the annual audit exercise.

What if it turned out to be misunderstanding? No breach of legal duty if it is done in good faith.

s207 (9a) was seldom invoked. The last time it was used was about 12 years ago on CAM International Holdings Ltd. Recently it was invoked for NEL Group. KPMG has submitted a report to the Minister.

So what do KPMG think has happened in NEL Group?
Apparently there is this new game in town called "round tripping". It was played by NEL Group and Advance Module, another listed company back in 2005.

How to play? First I sell to you. Maybe after my financial year end, you sell back to me at about the same price. Of course, nothing was really purchased or sold except maybe some people just do and exchange some paperwork on the "transaction".

The pressure to perform financially has encouraged creativity!

Capture Theory

2008-12-31T00:33:00.001+08:00

roaring biz

I am required to explain Capture Theory in my coming 3rd year class on Accounting Theory. The theory is used to explain the necessity of regulation in the disclosure of accounting information and the dynamics between the Regulator and the regulated.

What is Capture Theory?
The regulated party seeks to take charge (capture) of the Regulator with the intention that the rules subsequently released by Regulator will be in favour of the regulated party.

In more human language, I would paraphrase by saying, "Those people you are out to control in the first place, actually taken control of you."

Can Edgar relate the Theory to some real life applications in Singapore context?
National Wage Council is a tripartite entity made up of the employers, the union representatives and the Government. A tripartite entity would ensure nobody get "captured".

Under Code of Corporate Governance, the Board of Directors are required to be represented by independent directors too. Whether the independent directors are "captured" by directors who are in executive positions/representing majority shareholders are less clear and it varies from company to company.

In the recent ACCA conference, there was a rallying call from a leading accounting professional from Malaysia to fellow professionals and interest groups in this region, to speak up and participate actively in the IFRS standard-setting process. I guess this is ensure that IFRS put into law are not "captured".

The End of Double Entry?

2008-12-28T10:27:00.004+08:00

the start of Bintan golf

I am reading a couple of textbooks at the same time for the new term of 2009. I wish with you these few interesting paragraphs challenging the existence of the double-entry system.

The books that I am reading credited the first organised written thought on double entry system to this Franciscan monk called Luca Pacioli and his now famous work called "Summa de Arithmetica, Geometrica, Proportioni et Proportionalita" published in Venice back in 1494. It is simply a system of debits and credits, where the debits going to the left and credits going to the right. It is a system of subtraction-by-opposition ie. put on the opposite side if you want to minus.

Then a clever chap (possibly someone who cannot handle double entry) asked, "Why can't we use positive and negative numbers instead of T-accounts?"

So if you want to pay salary, you just add to Salary expenses and minus the same amount from the Cash/Bank.

FYI - negative numbers were only accepted in the mathematics world in 17th century while double entry has been around since 13th/14th century.

In the 21st century's classes of Edgar, both systems are used in our learning programmes.

P/S - http://accountingwithedgar.blogspot.com/2007/09/origin-of-debit-credit.html

ACCA Graduation - Nov 1, 2008

2008-11-02T01:14:00.002+08:00

210 graduands queuing to go in

Mr Richard Aitken-Davies, the guest of honour

Mr Tan Boen Eng in his ceremonial duty

ACCA Graduation - Nov 1, 2008

2008-11-02T01:08:00.003+08:00

the people at the back

in jean and track shoes?

queuing to go up the stage

the girl is supposed to be after my brother if he was there

the MC

ACCA Graduation - Nov 1, 2008

2008-11-02T01:01:00.002+08:00

the top students with top seniors

the top student from Vietnam now in KPMG

the graduands faced their relatives and said thank you

the final throw-your-mortar-boards

A step back for Fair Value?

2008-10-22T17:35:00.002+08:00

Currently - Financial instruments are valued at mark-to-market ie. the price they would fetch if sold on the open market now.

To be adopted soon - They would be valued at historical cost if such financial instruments were to be held to maturity.

Who has adopted the change already?
Hong Kong, Taiwan and Europe. Quite a significant number already.

When is Singapore's ASC expected to give their blessing?
By end of the week.

Mr Tham Sai Choy - ACCA Conference 2008

2008-10-21T11:33:00.001+08:00

He said under the new regime, the auditor and consequently the management of business entities would have to present written submission on risks considered and any actions taken to mitigate that risks in the preparation of the financial statements.

In the past, putting "Non Applicable / NA" in checklist may suffice.

To carry that idea to the extreme (if it is not in the extreme now) would be that a management of a business entity now could be required by the auditor to provide a management representation letter certifying that

all risks, man made or otherwise, has been considered and deemed acceptable
and also attached supporting documents for that conclusion ie. weather reports from MET office, geography records for earthquake risks, CIA reports for terrorist risks etc etc etc.

Does it mean higher audit fees too? :)

FRS 23 Borrowing Costs - ACCA Conference 2008

2008-10-20T11:19:00.000+08:00

Current rule - interest accruing on ongoing projects shall be expensed off

New rule - such interest can be capitalised

Implications

balance sheets could be carrying assets with bloated values initially and subsequently requiring more effort in reviewing them for impairment
difference in capital/financing structure would have a direct implication on the carrying value of the asset

Delays in completion of projects under current economic environment ==> would mean that more of the interest "expense" would be capitalised onto the balance sheets instead being expensed off in the P&L.

Mr Kon Yin Tong, Partner of Foo Kon Tan Grant Thornton said he is not comfortable with the new rule. As for me, I would need to find out the basis behind Accounting Standards Council's (ASC) reasons for the change in the first place. Can someone share on this?

ACCA Conference 2008 - A Summary

2008-10-19T11:48:00.005+08:00

My summary may not do justice to the quality and quantity of information being delivered by the many distinguished speakers from 9am to 5pm. As the Chairman of the afternoon session, I must admit that I tried to absorb as much as possible. The end result is that I have learned something more than at the beginning of the day. I am sure about 400 people who attended the conference too will agree with me.

Dato' John Raslan, Exec. Chairman of PWC Malaysia

He is for convergence of IFRS.
But he urged all of us to participate actively in the convergence process whether at national or international level.

Mr Barmaky, Partner, Deloitte & Touche

He gave us a macro review of FRS changes to date and changes to come at IASB level.

Mr Tirumalai, Oracle

He briefed us on a solution in the form of platform which can enable us to implement the standards.

In the panel discussion chaired by Professor Pearl Tan of SMU, the following are my general feel of the panelists

Fair value should not be blamed for the current state of financial turmoil.
Global standards should not be tweaked too much to accomodate local market needs and culture as differing standards may lead to greater uncertainty to practitioners.
How can our voice from this region be heard in between the dominating noises from Europe and US?
FRS on SMEs/Private Entities - As there are significant differences between big and small business entities, they should thus be treated separately as apples and oranges.
Should we take on other non-FRS standards on board? - Officially perhaps no but there are invisible forces moving business entities towards taking on non-FRS stds like Corporate Social Responsibility (CSR) in their reporting.

Mr Kon Yin Tong, Partner, Foo Kon Tan Grant Thornton
He gave us a rundown of the many FRSs due for implementation in 2009.

Mr Tham Sai Choy, Partner, KPMG, spent "5 minuates" telling us about Clarity Project and possible implications to the audit committees.

Mr Sum Yee Loong, Partner, Deloitte & Touche explained why IRAS has collected more billions than expected (just kidding) and shared another billion ideas for us to be more tax efficient.

Ms Kala Anandarajah, Partner, Rajah & Tann gave us a lengthy review of 2 cases on auditor's responsibility and director's responsibility.

Finally, I reached the end of the conference, exhausted with adrenalin still pumping for many hours after.

Petition to Protect "Accountant" in Singapore

2008-10-07T07:48:00.001+08:00

my investment

I had a meeting with a prospective client recently who complained about their existing "accountant". The "accountant" has apparently allowed toner for office printer to be capitalised and depreciated over time. The client was flabbergasted that an accountant can make such mistake.

While I am not sure of the person's credentials, I ended up trying to explain to the client that almost everyone in Singapore can call themselves an accountant without breaking any law.

Recently in UK, Mr Alan Shooter submitted a petition with 4,000 signatures to the Prime Minister to seek protection for the designation "accountant".

There must be some regulation in this area to ensure that the integrity and professionalism of those who have dedicated years of their life in securing formal accounting training, are not eroded away by irresponsible individuals.

If you are serious about your profession, please say "Yes" when you post your message here.

The ACCA Annual Conference 2008

2008-10-05T11:57:00.006+08:00

Global Standards - The Business Benefits: Engineering a Global Business Community
Friday, 17 October 2008, Raffles City Convention Centre

In the morning session, we will have the STRATEGIC segment. Mr Thomas Thomas of Singapore Compact will chair a series of presentations as follows:-

Dato Johan Raslan, Executive Chairman, PwC Malaysia with the keynote address
Mr Shariq Barnaky, Partner at Deloitte & Touche to give us a review of global IFRS Development
Mr Joseph Alfred, our technical advisor for ACCA Singapore will present the findings of ACCA/CFO survey on Asia Pacific's Road to Global Standards
Mr Ravi Tirumulai of Oracle Corp will present their approach for enabling Global Standards
Dr Pearl Tan of SMU will then lead a panel of distinguished professionals to discuss the pros and cons for Global Standards.

In the afternoon session, Edgar will have the honour of chairing the afternoon's TECHNICAL segment.

Mr Kon Yin Tong of Foo Kon Tan Grant Thornton will kick off with FRS updates while Mr Tham Sai Choy of KPMG will do the Audit updates.

After the break, Mr Sum Yee Loong of Deloitte & Touche will then give us the Tax updates. Our anchor for the day will be Ms Kala Anandarajah, Partner of Rajah & Tann will address the legal issues that we need to know.

So for those who are interested, please check out more details here.
http://singapore.accaglobal.com/databases/events/singapore/171008

Suspending fair value accounting to save the world?

2008-09-21T23:57:00.005+08:00

a little girl enjoying her ride, oblivious to sub prime

A friend who is in the know of markets told me that US is suspending fair value accounting for one year as part of its armoury of measures to contain the sub-prime crisis.

I exclaimed, "No way." I am trying to search for the authoritative article that confirms my friend's words. Can any help me on this?

My googling led to me to this article by Karey Wutkowski and Emily Chasan from Reuters dated Sep 19, 2008. It did not mention any outright suspension but instead presented the usual arguments for and against fair value accounting.

I would be very disappointed if it was true as the true value of any law/standard can only be realised if it is put through the baptism of fire of current sub-prime financial storm.

A critic highlighted an important "hole" in fair value accounting ie. the complete absence of any markets to provide an indication of value. So the Authorities may probably have to disappoint people like Edgar by suspending fair value accounting while they work furiously trying to calm the global markets to save thousands of jobs and a few hundred billions dollars.

The article mentioned that Fair Value Accounting took effect in US this year. So could it be that the new accounting standard has "encouraged" the revelation of sub prime storm to the current scale.

FRS 18 Revenue

2008-09-14T00:40:00.000+08:00

a marriage contract in progress

Hi AWE readers,

In the Exposure Draft of Proposed Improvements to FRSs expiring Oct 3, 2008, I wish to share an interesting portion where ASC proposes guidance on determining whether an entity is acting as a principal or as an agent.

What is the big deal?
The clarification of the status of either principal/agent will determine how much of an invoice/contract you would record as your company's turnover.

Allow me to illustrate
Let assume an IT system integrator has got a contract to deliver the following:-
1. Ten servers and 100 laptops - $3 millions
2. Consultancy service (including set up and integration) - $0.5 million

Upon completion of the contract, how much should the IT company record as its Sales Turnover? It could be just $0.5 million or seven times more ie. $3.5 millions. So which is it?

Key point
FRS 18 requires you to determine whether you are acting as a PRINCIPAL or as an AGENT.

ASC is proposing the following for adoption to help you.

When is an entity acting as a PRINCIPAL?

the entity has the primary responsibility for providing the goods or services to the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer;
the entity has inventory risk before or after the customer order, during shipping or on return;
the entity has discretion in establishing prices, either directly or indirectly, for example by providing additional goods or services;
the entity bears the customer’s credit risk.

When is an entity acting as an AGENT?

An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. One feature indicating that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

Source - ED - Proposed Financial Reporting Standard (Oct 3, 2008), ASC

If you don't tell,...

2008-08-31T18:04:00.003+08:00

Singapore under seige for F1

The managing director of Chuan Soon Huat Industries Group and four other directors were charged in Court for failing to tell the world that there has been a change in effective control of a public listed company.

Mr Lee Tian Teck, the executive chairman, was not in control of the company for two and half years. But nobody bothered to report the matter to the Authority for that long a time.

The gang of five has thus committed an offence under Section 157(1) and if found guilty, each could face a maximum fine of $5,000 or get the jail hospitality for up to a year.

Obviously, we cannot have a situation where there has been a coup in the government of a country. Amazingly, the gang can keep that a secret for so long in this small island of Singapore.

FRS 38 Intangible Assets - Summary

2008-08-31T00:21:00.000+08:00

An intangible asset is recognised at cost if and only if:-

the asset meets the definition of an intangible asset;

it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and

the cost of the asset can be reliably measured.

Internally generated goodwill, brands, mastheads, publishing titles, customer lists and similar items are not recognized as assets. Intangible items that do not meet the criteria for recognition as an asset is recognized as an expense when incurred. Expenditure that was initially recognised as an expense is not included in the cost of an intangible asset at a later date.

Research Phase
Expenditure on research is recognized as an expense.

Development Phase
Intangible asset arising from development is recognized only if an entity can demonstrate all of the following criteria in getting the intangible asset ready either for use or sale:-
(a) the technical feasibility of completing the intangible asset;
(b) its intention to complete the intangible asset;
(c) its ability to use or sell the intangible asset;
(d) how the intangible asset can generate probable future economic benefits;
(e) the availability of adequate technical, financial and other resources to complete the development; and
(f) its ability to reliably measure the expenditure due to the intangible asset during its development.

Subsequent to its initial recognition, an intangible asset is carried at:
(a) cost, less accumulated amortisation or impairment losses; or
(b) revalued amount (fair value at the date of revaluation), less any subsequent accumulated amortisation or impairment losses.

An entity shall assess whether the useful life of an intangible asset is finite or infinite. The useful life is infinite if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. An intangible asset with infinite useful life is not amortised but is tested for impairment at least annually. The depreciable amount of an intangible asset with finite life is amortised on a systematic basis over its useful life.

Gain/loss on derecognition of an intangible asset is the difference between the net disposal proceeds and the carrying amount of the item. The gain/loss is recognized in the profit or loss.

Source - ICPAS ePublication Issue 25/2006 20 Jun 2006

FRS 37 Provisions, Contingent Liabilities and Contingent Assets - Summary

2008-08-28T00:16:00.000+08:00

The objective of FRS 37 is to prescribe the accounting standards and disclosure for provisions, contingent liabilities and contingent assets.

A provision is a liability of uncertain timing or amount.

We recognise a provision when:-
(a) an entity has a present legal or constructive obligation as a result of a past event;
(b) it is probable that an outflow of economic benefits will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation

A constructive obligation is an obligation where the entity, through its actions, has indicated to other parties that it will accept certain responsibilities and as a result has created an expectation that it will discharge those responsibilities.

Provision is the best estimate of the expenditure required to settle the obligation at the balance sheet date. Provision should be reviewed and adjusted to current best estimate at each balance sheet date.

A constructive obligation to restructure arises only when an entity has:

a detailed formal plan for restructuring; and

raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

A contingent liability is not recognised, but is disclosed unless the possibility of an outflow of resources is remote.

A contingent asset is not recognised, but is disclosed when an inflow of economic benefits is probable.

FRS 37 specifies disclosures about provisions, contingent liabilities and assets.

Source - ICPAS ePublication Issue 23/2006 13 Jun 2006

IFRS Conference - Non Controlling Interest

2008-08-25T01:39:00.000+08:00

Non controlling interest is a stake ie. percentage of shareholdings, that is not high enough to control the company's financial and operating policies.

Situation
So assuming if you were buying a 20% stake in a company as a passive investor, how much should you pay for that stake or how much should the seller be selling it for?

20% of net book value? 20% of [fair value of net assets + goodwill]?

Well the answer is:-

20% of value of business LESS the value of non controlling features

Now that we got the formula, we need to work on valuing the business':-
- assets and liabilities, both tangible and intangible
- goodwill
- non controlling features

Can tell me how?

The moral of the story - We still go a job until the confusion stops.

FRS 16 Property, Plant and Equipment - Summary

2008-08-22T00:12:00.000+08:00

FRS 16 prescribes the accounting treatment for property, plant and equipment.

Property, plant and equipment are tangible assets that are in use for more than one accounting period. Cost of property, plant and equipment comprise:-

its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purpose other than to produce inventories during that period.

Property, plant and equipment are initially recorded at cost. Subsequently, they can be carried either

Cost less any accumulated depreciation and any accumulated impairment losses; or
Revalued amount (Fair value at the date of revaluation), less any accumulated depreciation and any accumulated impairment losses.

If option (b) is chosen, all assets within a class of property, plant and equipment must be revalued and the valuations must be updated regularly.

A revaluation increase shall be credited directly to equity as revaluation surplus, unless it reverses a revaluation decrease of the same asset previously recognized in profit or loss.

A revaluation decrease shall be recognized in the profit or loss. However, the decrease is debited directly to revaluation surplus in equity to the extent of the credit balance in revaluation surplus.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The residual value and the useful life of an asset should be reviewed at least at each financial year-end. If expectations differ from previous estimates, (FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors) is applied.

Impairment is recognised in accordance with FRS 36 Impairment of Assets.

The gain or loss on the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is included in the profit or loss.

FRS 16 specifies disclosures about property, plant and equipment.

Source - ICPAS ePublication Issue 3/2006 17 Jan 2006

IFRS Conference - What say you?

2008-08-20T01:20:00.000+08:00

veg juice in test tubes @$4

This is a situation described by an accoutant from a local bank. Let me know how would you, as the accountant, would advise the bank officer.

Situation
Within the same bank, there are two departments, A and B, investing and trading for 2 different investment funds with different objectives.

Dept. A is looking to sell a certain financial instrument that is no longer fit its investment objective. Coincidentally, Dept. B is looking to buy the same financial instrument for its portfolio.

Issue
Should Dept A just sell to Dept B directly? And at what price so as to be fair to both sets of investors of the respective funds?

What say you?

Mr Goh Lian Tse, what are you talking about?

2008-08-20T00:31:00.006+08:00

Mr Goh Lian Tse, Chairman and CEO of Innovalues, has written in to BT Forum yesterday in an attempt to salvage some "face" for the embarassing debacle of appointing a bankrupt to the position of Group CFO.

He said his company's whistle blowing policies are working fine despite conceding on the lapses in their hiring procedures. I wonder who blew the whistle?
Mr Goh said the employee was the country financial controller for a Malaysian plant and he was brought to Singapore with a view to be appointed as the Group CFO. Basically his simple defence here is that the appointment to Group CFO position was not confirmed yet. But is he also implying that it is all right for a bankrupt to be a country financial controller in Malaysia but not good enough to be a Group CFO in Singapore? Please enlighten me.

Mr Goh, please confirm whether the said employee is being considered for the position of Group CFO or not given the 2 contradictory statements I am quoting from your letter to the Forum.

"He was redeployed to Singapore with a view to being confirmed as group financial controller."
"At no time was the said emplyee being considered for the CFO position."

"Why can't a bankrupt be a CFO?"
I agree that a person, bankrupt or otherwise, would need to have some income to keep oneself alive and to pay his/her creditors. But the key question is whether a bankrupt can be a CFO? In my opinion, NO. As a bankrupt, the person has demonstrated that he/she is unable to manage his own financial affairs. And thus I am unable to justify a bankrupt to manage the financial affairs of a company where the likelihood of many are at stake.

IFRS Conference - Revised IFRS 3 on Business Combination

2008-08-19T02:04:00.000+08:00

To be effective on July 2009.

Auditors trained in the world of historical cost accounting now have to deal with issues of Fair Value.

1. Stepped acquisition as a way of earning management.
Suppose you had intended to buy 60% stake in the target business with projection that that business would be in net loss in Year 1 and significant profit in Year. To avoid consolidating the bad result of target business into your company from Year 1, you decide to split the acquisition over 2 years ie. 30% in Year 1 and another 30% in Year 2.

2. The magic of 1% stake
If we base on 50% as a measure of control over a company, and you expect your 50%-stake-subsidiary to lose heavily this year and that you do not wish to consolidate that results with other companies in your Group, can you enter into sell-and-buyback contract for the 1% stake ie. sell 1% to demerge the loss-making subsidiary in one year and buy-back 1% to re-consolidate?

3. Internal consistency (within a FRS), external inconsistency (between FRSs)
The choice words from Professor Pearl Tan from SMU. She cited an inconsistency when borrowing costs can be capitalised but pre-acquisition costs must be expensed off to P&L under the revised IFRS 3. Sir Tweedie responded to that comment but I missed the rebuttal sadly.

FRS coming to effect in 2009

2008-08-18T05:05:00.002+08:00

1. Revised FRS 1: Presentation of Financial Statements
• effective 1 January 2009
• learn how to prepare the revised formats to financial statements

2. FRS 23: Borrowing Costs
• effective 1 January 2009
• learn how to capitalise interest on qualifying assets

3. FRS 27 – Consolidated and Separate Financial Statements
• effective 1 July 2009.
• learn the new rules for consolidation

4. FRS 103: Business Combinations
• effective 1 July 2009
• learn the new rules for consolidation

5. FRS 107: Financial Instruments: Disclosures
• effective 1 January 2008
• learn about the best practices for the new disclosure requirements under FRS 107

6. INT FRS 113: Customer Loyalty Programmes
• effective 1 July 2008
• learn how to account for reward points for credit and loyalty cards etc

Are you a bankrupt?

2008-08-16T00:50:00.002+08:00

If you are, I am sorry you are disqualified from being appointed as the Group CFO of a public listed company.

In yesterday BT's, it was reported that Innovalues nearly appointed a bankrupt as their Group CFO. The process was only halted after someone anonymously sent a copy of an "individual insolvency search result" to a director of Innovalues.

Apparently the poor chap has verbally informed the interviewer of his status BUT somehow, nobody (including the chap himself/herself) cared to put that information on paper.

Consequent to that embarassing revelation, Innovalues has, of course, promised to do better on their recruitment procedures.

And by the way, the position is still open.

Negative impact of Fair Value is here!

2008-08-16T00:32:00.000+08:00

July 29, 2008 -Australand hit by revaluation, writedown

CapitaLand's Aussie unit's half-year earnings slide 79% to A$25.6m

Property revaluation and project writedown have resulted in CapitaLand's Australian subsidiary, Australand, reporting a 79 per cent year-on-year fall in net profit to A$25.6 million (S$33.4 million) for the half-year ended June 30, 2008.

July 29, 2008- Oceanus interim gain halves to 21.3m yuan on goodwill writeoff

Oceanus saw its net profit for the first six months of this year halved from 44.09 million yuan a year ago to 21.27 million yuan, due largely to a hefty goodwill write-off of about 150 million yuan arising from its reverse takeover of TR Networks in April.

As a new accountant.. Part C

2008-08-15T00:08:00.000+08:00

Good morning, I wish to focus on Accounting Estimates and the need to review them for bias.

I participated in a few rounds of discussion with a client recently on the basis of estimates done for various balance sheet items.

On occassions, you could be in a position where you could be pressured to accept the basis amd thus values of estimates and pass the necessary entries to reflect them on the balance sheet.

How would resolve the situation without losing your job?

As a new accountant.. Part B

2008-08-14T03:49:00.001+08:00

the railway station

I wish to focus on journal entries and other adjustments today.

We need to have some understanding of the whereabout of key controls over the recording and processing of journal entries.

Keep an eye on material journal entries and other adjustments at end of reporting period during the course of preparing the financial statements. Eg. top-side entries, consolidating and eliminating adjustments and other closing journal entries such as reclassifications.

Is there a specific file holding journal entry vouchers with proper authorisation?

As a new accountant.. Part A

2008-08-13T03:33:00.000+08:00

things people will do for their business

When one is hired/appointed to a new position in a new company, please keep your eyes and ears open to the following areas when you are being briefed on your new responsibilities by your new colleagues.

You should obtain an understanding of the business and its environment.
You should obtain an understanding of the business's accounting processes.
Are there opportunities that controls may be incomplete, non existent or overrided?
What is the money flow for the business? Follow the money!
Focus on other key areas of potential risks in journal entries, accounting estimates and significant transactions.

Be careful.

Financial Reporting Process (FRP)

2008-08-12T03:05:00.000+08:00

a wall of orchids.. not china wall

What is FRP?
Essentially FRP is the processes, procedures and controls that the management rely on in doing the following tasks:-

performing accounting period close
preparing the financial statements
reviewing and approving the financial statements

We need an understanding of how key judgements are made.

Why is understanding the FRP critical to Audit or to you, a newbie Accountant joining the management team in a new company?

FRP is where management is more likely to manipulate the financial statements. It is often more difficult to manipulate routine transaction entries.
FRP forms the foundation for other systems and processes within the company.

As a new management staff, while it may take some time before you get a complete feel of the decision process, it is also utmost critical that you get to know it soon. Why? You are responsible for all things big and small from the first day you start work in that office.

Take care.

FRS 10 Events after balance sheet - Summary

2008-08-11T00:43:00.000+08:00

Events after the balance sheet date are those events, favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Two types of events can be identified:

(a) those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); and
(b) those that are indicative of conditions that arose after the balance sheet date (non-adjusting events after the balance sheet date).

Things you got to know for FRS 10:-

When are financial statements authorised for issue?

Can you name some examples of adjusting events?

Can you name some examples of non-adjusting events?

IFRS Conference - Fair Value

2008-07-30T18:35:00.001+08:00

The following were some points made by the participants of the Conference with regard to the issue of Fair Value and various practical difficulties experienced.

1. How to value each component of a financial instrument?
A company owns Convertible Loanstocks of a blue chip borrower.
For liquidity reason, a company may consider selling away the bond portion of the Convertible Loanstock to get some cash while keeping the right to convert the loan to shares. This is to allow them to participate on the upside of the blue chip borrower. And you are ask to value the instruments in parts. How to do it?

2. Fair Value, Tax and Cashflow
Mr Eugene Wong, Managing Director of Sirius Venture Consulting said fair value gives rise to volatility in earnings. Companies in Singapore may be facing the situation where they have paid 20% tax on increased valuation gains last year and get tax deductions calculated at 18% of valuation losses this year.

3. Is there anything that may aid the practitioners in understanding and applying Fair Value?
Mr Foo of Foo Kon Tan asked. Ms Judy Ng of DBS Bank suggested that there should be qualitative disclosures on the assumptions used in arriving at the fair value and also state the sensitivity of a particular assumption to market forces.

4. Mark to market
FRS39 calls for those assets available for sale to be marked to market. How do you do that when the market is thinning/illiquid or when the market has disappeared? Can you get an answer from the auditors? Nope.

In conclusion - Well guys, we are inventing the rules as we play.

Words and figures differ

2008-07-24T16:55:00.003+08:00

What if Edgar drew a cheque like this where the words and figures are different...

"Amount - Five Thousands Dollars Only $500/-"

In the Forum page of ST a couple of days, DBS Bank apologised to the account holder for wrongly clearing a cheque where the words and figures differ. DBS said they should not have cleared the cheque.

I wish to question whether DBS's position of not clearing such a cheque is legally correct.

In the Banking Law class that I attended many years ago, I was told that the Bank should honour the cheque based on the "words" stated.

Has the law changed since the years after my Banking Law class? Or have I heard wrongly? If you are not from Singapore, can share with me your country's practice?

FRS for SMEs

2008-07-21T14:44:00.003+08:00

While we are eagerly awaiting for the launch of FRS for SMEs in Singapore, there are changes to IFRS's version as outline in recent IFRS Conference held on July 17, 2008 in Marina Oriental Singapore.

First and foremost, IFRS said there is going to be a name change from IFRS for SMEs to IFRS for PRIVATE ENTITIES. Warren McGregor gave some background info on the proposed name change.

The IFRS for SMEs is definitely not for the mom-and-pops businesses but rather caters to entities with 50 or more employees in general. They were considering other names like non-publicly accountable entities.

The IFRS for Pte Entities will be fully stand alone ie. no reference to the main/full FRSs.

Exam Results by Email

2008-07-20T16:17:00.002+08:00

Lynn has forwarded to me an email message from ACCA reminding students to sign up for results by email.

I would strongly advise so for a hassel free experience as compare to waiting for it by mail days after others have got theirs or you waiting to access the results online on those busy days.

You can sign up by Aug 15, 2008 at myACCA.

ACCA said you should expect the results to be emailed out by Aug 18, 2008.

Accounting for Leases

2008-07-19T14:23:00.004+08:00

In the IFRS conference held on July 17, 2008, Sir David Tweedie and Warren McGregor said IASB is working towards abolishing the need to differentiate between finance lease and operating lease.

The Board is taking the approach of "right of use" in crafting the new FRS on Leases. With this approach, it would be reflected as an Asset as long as the lessee has the right of use and consequently mirrored as a Liability as long as the lessee has an obligation to pay.

The Board faces difficulties in sorting out the following features in a lease agreement:-
- option to renew or terminate a lease
- measurement eg. contingent rentals
- overlap with other projects in the area of revenue recognition, derecognition and conceptual framework.

Sir Tweedie made an interesting remark. He said he is looking forward to the day when he could say that he is flying in a plane that is actually reflected in the airline's balance sheet.

IASB and FASB are doing something together.

2008-07-12T14:18:00.004+08:00

Marina Viaduct's skyline now

Who are they?
IASB - International Accounting Standards Board
FASB - US's Financial Accounting Standards Board

What have been doing together?
Essentially trying to move the two standards together.
They are planning to do it over 3 phases ie. A, B and C.

What are the 3 phases?
Phase A - completed in Sep 2007 with the issuance of FRS 1R. The FRS introduces the use of some American terminologies. The use of these terms for Singapore is not compulsory. Thus expect confusion in Singapore. Examples,
- Balance Sheet is "Statement of Financial Position"
- Cash Flow Statement is "Statement of Cash Flows"

Phase B
Mr Yeoh Oon Jin, Assurance Leader, PwC Singapore, said the Phase will take a few years to complete and would cover areas on how to prepare the respective statements. Examples,
- what income and expenses items to be classified under which totals and sub-totals in which statements etc etc etc
- whether direct or indirect cashflow presentation should be adopted

Phase C
While they have an idea of what they want to do, no point remembering them as it would too long down the yellow brick road for any certainty of being effected.

Reference - ACCA Focus Q2 2008 pp13-15

Why do you rob banks?

2008-07-10T10:15:00.004+08:00

a party in KL worth the memory

A reporter once asked famous bank robber, Willie Sutton: "Why do you rob banks?"
Willie simply replied: "Because that's where the money is!"

I am sure you will get the same answer if you manage to ask those robbers of banks and ATMs in Malaysia.

In the current new term of my classes, I asked the students the reason as to why did they decide to take up ACCA course.

A student duly responded that it is because ACCA is a qualification regularly asked for in the job advertisements she has reviewed.

So for those who have decided to start and complete your ACCA course, it is a good decision ... Good day.

HK outranked Singapore

2008-07-01T01:15:00.005+08:00

my ketchup-filled fish ball noodle

ACCA released a report in BT today after conducting a survey among ACCA members in Singapore, HK, UK, US, Canada and Australia to rank their respective tax system in terms of fairness, simplicity and transparent.

The good news is that Singapore and Hong Kong have the fairest, simplest and most transparent tax systems, out of six major developed countries.

The bad news is that Hong Kong ranked better than Singapore in all 3 areas.

The question that matters is whether having a tax system that is fair, simple and transparent translates to real comparative advantage against these big economies.

Or is it a hollow victory for Singapore and HK as it basically reflects the smallness of its geographic size and economic complexities?

SME Rebate Scheme

2008-06-12T22:09:00.007+08:00

I quote...

"The SME Rebate Scheme is a 2-year assistance scheme to help locally registered SMEs* adjust to rising business costs.

You are invited to apply for the SME rebate at our website http://www.smerebate.gov.sg/ if your firm meets the following criteria:-

i. For a non-manufacturing firm:

- Business must be registered in Singapore

- Fixed Asset Investment (FAI) of less than S$15 million

- Not more than 200 employees

ii. For a manufacturing firm:

- Business must be registered in Singapore

- Fixed Asset Investment (FAI) of less than S$15 million

Please be reminded to submit your application by 31 July 2008 to receive cash rebates pegged to the total employer and employee CPF contributions made by your firm over two years for the period July 2007 to June 2009.

Firms that apply after 31 July 2008 will only qualify for the rebate for the period July 2008 to June 2009.

Eligible firms will receive notification letters from CPF Board indicating the date and amount of payment.

Please visit the SME Rebate Scheme website (http://www.smerebate.gov.sg/) for more information." Unquote...

FRS 7 Cash Flow Statements - Summary

2008-06-06T23:54:00.000+08:00

FRS 7 prescribes the principles in preparing cash flow statements.

The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.

Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

a) direct method (disclosure of major categories of gross cash receipts and payments); or

b) indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.

Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.

"Do you know the definition of "cash and cash equivalents"? Can you name some examples of cash equivalents?", ask Edgar.

Source - ICPAS ePublication 22 November 2005 Issue 11/2005

FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Summary

2008-05-28T00:02:00.002+08:00

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

Changes in accounting policies
An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entities financial position. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates
Changes in accounting estimates should be recognised prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognised by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Errors
Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS 8 also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

What is prior period errors? When did an error occur?

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:-

was available when financial statements for those periods were authorised for issue; and

could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Source - ICPAS ePublication 29 Nov 2005 Issue 12/2005

FRS 2 Inventories - Summary

2008-05-25T20:31:00.000+08:00

Objective
FRS 2 provides guidance on the determination of cost of inventories and its subsequent recognition as an expense, any write down to net realizable value.

FRS 2 applies to all inventories except for:

a) WIP under construction contracts;
b) Financial instruments; and
c) Biological assets related to agricultural activity produce at the point of harvest.

Inventories are measured at the lower of cost and net realisable value (NRV).

NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and costs necessary to make the sale.
Cost of inventories comprise of cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Three methods of costing inventories are specified under paragraph 23-27 of FRS 2.

i) Specific identification of costs method

ii) First-In, First-Out (FIFO) costs method

iii) Weighted average costs method

FRS 2 requires that the amount of write down of inventories to NRV is recognised as an expense in the period the write down or loss occurs. Any reversals of the write down, as a result of increase in NRV, is recognised as a reduction in amount of inventories recognized as an expense in the period the reversal occurs.

FRS 2 also specifies the disclosures required of inventories.

Source - ICPAS ePublication

FRS 1 - Presentation of Financial Statements Nov 2005

2008-05-21T23:18:00.004+08:00

Objectives

To prescribe the basis of presentation of general purpose financial statements and;
To ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

Fair presentation and compliance with FRS

A faithful representation of the effects of transactions, events and conditions in accordance with the FRS.

Going concern

Preparation of financial statements with the assumption that the business will continue indefinitely.

Accrual basis of accounting

A method where income and expense items are recognized and recorded when income is earned and expense is incurred, regardless of when cash is actually received or paid.

Consistency of presentation

Presentation and classification of items in financial statements are retained from one period to the next unless the standard requires a change in presentation or there is a significant change in the nature of the entity's operations, such that another presentation would be more appropriate.

Materiality and aggregation

Similar items of each material class are to be presented separately.

Offsetting

No offsetting of asset and liabilities, and income and expenses unless permitted by a Standard.

Comparative information

To disclose comparative information of previous period for comparative purposes.

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements except for presentation of cash flow statements which is covered under FRS 7.

FRS 1 also specifies that entities disclose information that is presented in the financial statements such as the accounting policies, judgments and key sources of estimation uncertainty at the balance sheet date.

Source - ICPAS ePublication 8 November 2005 Issue 9/2005

ATTS Graduation Ceremony 2008

2008-04-20T11:27:00.003+08:00

Congrats to all graduands.

D&B - The 4th SME Credit Bureau Conference

2008-03-28T13:46:00.007+08:00

Dear friends,

My last posting to Accounting With Edgar was towards the end of last month. Edgar had since been engulfed in taking on new endeavours such as new classes and most importantly, preparing for this speech (among many other things) for the following event.

"Surfing the Wave of Increasing Competition"
Suntec City Convention Centre, Ballroom 3
Friday, 28 March 2008
http://www.dnb.com.sg/agenda.html

Well I managed to pull it off. Addressing more than 250 people in a conference hall at Suntec City is a first for me.

How do I rate myself? A can do only. I will definitely strive to do better.

Read further if you wish to have a peek at my presentation. Essentially my simple objective was to arouse excitement among business owners currently being encircled in the rapid rate of price increases.

===== Start of Speech =====

The current business environment is one of:-

$107 per barrel of oil,

strengthening SGD,

tightening labour market, (In Mar 2008’s edition of CFO Asia, cost and availability of labour are top 2 concerns of CFOs in Asia.)

escalating rental rate,

increasing prices of raw materials …

Against this background, the focus of my presentation today is to ask ourselves as to how we can use these cost pressures to positively “excite” the way a business operates and ultimately its bottomline.

Some businesses do have the uncanny ability to transfer the increase in costs to their customers. These are companies who can price their product at a base selling price plus a fuel surcharge while demand for their products remains unchanged.

Utilities companies too are able to review their selling prices on a quarterly basis to its customers in the form of thousands of households.

At the other end of the spectrum, there are businesses who are holding on their prices for their dear life while absorbing the blows of increasing costs.
By some good fortune, there maybe some businesses out there who may say they currently not experiencing any such cost pressures. While life is good and dandy for these businesses, they should not rest on their laurels.

Can we “excite” the business from its comfort zone by injecting some sort of cost pressures into the system without costing it an arm and a leg?

Well the answer may lie in reviewing your business’s depreciation policies.

Here we look at how to achieve this awareness when analyzing depreciation, which can represent a big portion of the expenses found on a company's income statement.

While there are rules governing how depreciation is expensed, there is still plenty of room for management to make creative accounting decisions that can create the necessary pressures to stimulate the business. It pays to examine depreciation closely.

What Is Depreciation?
Depreciation is the process by which a company allocates an asset's cost over the duration of its useful life.

Each time a company prepares its financial statements, it records a depreciation expense to allocate a portion of the cost of the buildings, machines or equipment it has purchased to the current fiscal year.

For intangible assets - such as brands and intellectual property - this process of allocating costs over time is called amortization.
Assumptions Critical assumptions about expensing depreciation are left to the company's management.

Management makes the call on the following things:-

Method and rate of depreciation

Useful life of the asset

Scrap value of the asset

Traditional Application of Depreciation

In the traditional mode of thinking, we take the sales turnover figure as given.

By adjusting the various components of the depreciation methods, our bottomline would be affected immediately ie. depreciation, being an expense would reduce our profit.

So to show higher profit, we can apply a longer useful life or switch from reducing balance method to straight line method of depreciation.

Now consider this…

What if we tighten the depreciation policy instead ie…

By reducing the useful life of certain key non-current assets or by changing the depreciation method from a straight line to reducing balance method, we immediately put pressure on the bottomline by increasing the depreciation expense in the early years.

The higher non-cash expense and consequently total costs would translate to a higher breakeven level.

The higher breakeven level is not meant to be kept top secret. We should instead translate these cost information into headline KPIs for all to see. Staff from all levels of a business must be aware of the KPIs.

Harness that awareness!!

Create a suitable environment to harness that awareness heightened by the injection of the additional cost pressures. Can the heightened awareness encourage ideas to freeflow?

Management must rally its troops to use the cost pressures positively to think of ways of improving the topline. Topline is a function of price and quantity sold.

Think of how we can sharpen our business model to sell more units? Or how to get our customers to pay more for our products?

If a business had priced its exports in SGD while the SGD continues to strengthen, it has to give its customers continuous good reasons to do business with us.

The process of creating these “continuous good reasons” for customers to keep coming back and buy from us is to innovate to differentiate.

The “good reasons” must be dug up from:-

production processes,
product design,
customer service,
staff training and retention,
management of call centres,
accounts dept,
support services, etc etc etc.
No stone should be left unturned.

Some examples of innovation that I observed recently.

Eg. 1 – moving to higher yield products by removing economy class seats and replacing them with business class seats. Revenue per flight would consequently increase. Brilliant!

Eg. 2 – In a product I drink quite often, the manufacturer raise the price after adding some vitamins. The “non-vitamised” product was removed from retail. Customers are again left with no choice but to buy the higher price product.

Eg. 3 – In the banking business, a simple switch from a 365-day year to a 360-day year in interest computation would translate to millions more to the bottomline.

Were these ideas the fruits of the cost pressures?

For it to be sustainable for a long time, the cost pressures must induce a PARADIGM shift all together to adapt to the extreme environment.

Summary
If the business is currently experiencing cost pressures, use it to create, to innovate.

If the business is currently immune from current cost upheavals, perhaps you may “adopt” some cost increase by reviewing your depreciation policy.

Translate the higher breakeven into KPIs for all to see.

KPIs heightened awareness.

Harness the awareness.

We then await the fruits of our effort.

I shall conclude my paper today by quoting Mr John Kao, the Chinese-American innovation evangelist, who was in Singapore recently.

He said, “innovation enables people to adapt to the waves of disruptive change”.

Whether the business is facing the disruptive waves now or otherwise, innovation to differentiate can and must be institutionalised within an organisation, compelled or otherwise.

On that note, I wish you all a good day. I thank you.

ACCA's Certificate of Achievement for F1, F2 and F3

2008-02-25T15:39:00.003+08:00

Under the new scheme,

There will be no more paper winners for F1 to F3. Instead a Certificate of Achievement will be awarded to students who have scored 85% and above in these papers. This is regardless of whether they took the paper-based or CBE exams.

MSER students will only be eligible for prizes from F4 to F9 and P1 to P7 when they transfer to the Professional Scheme.

P/S - So for those who have scored higher than 85%, please look out for your "Certificate of Achievement". Cheers.

We got to learn new names.

2008-02-24T23:43:00.004+08:00

The terms "Balance Sheet" and "Cash Flow Statement" will be passe very soon.

In Sept 2007, IASB issued the revised IAS 1 (similar to our sFRS 1) with the main changes in the presentation of financial statements and terminology.

For international versions of CAT6, CAT8, F3, F7, F8, P2 and P7:-

"Balance sheet" will be "statement of financial position".
"Income statement" - no change.
"Cash flow statement" will be " statement of cash flows".

It is effective from June 2008 sitting.

For other papers NOT mentioned above :-

"Balance sheet" = "statement of financial position (balance sheet)" (for Jun / Dec 2008 exams).
"Balance sheet" = "statement of financial position" (from Jun 2009 exam onwards)
"Cash flow statement" = "statement of cash flows" (from Jun 2008 exam onwards)
"Income statement" = "statement of comprehensive income" (from Jun 2009 exam onwards)

Michelle says...

2008-02-21T14:23:00.001+08:00

Hi Edgar,

Checked my results on Monday. Passed all the 1st 3 papers =) n I got 91 for F3 (reflected in myACCA).

Many thanks for your guidance all this while. Really appreciate all the effort u've given!

Thanks again.

Regards,
Michelle