Singapore Financial Reporting Updates...Singapore Financial Reporting Updates – October 2013 | 11 Section B: Amended FRSs (cont’d) 2. Amendments to FRS 110, FRS 112 and FRS 27

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Singapore FinancialReporting UpdatesOctober 2013

Contents Page

Introduction .................................................................................................................................. 2

Section A: New FRSs .................................................................................................................. 4

INT FRS 121 Levies ........................................................................................................................ 5

Section B: Amended FRSs .......................................................................................................... 7

Amendments to FRS 110 Consolidated Financial Statements, FRS 111 Joint Arrangements and

FRS 112 Disclosure of Interests in Other Entities – Transition Guidance ......................................... 8

Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities ........................................... 10

Amendments to FRS 36 Impairment of Assets: Recoverable Amount Disclosures for Non- Financial

Assets ......................................................................................................................................... 15

Amendments to FRS 39 Financial Instruments: Recognition and Measurement - Novation of

Derivatives and Continuation of Hedge Accounting .................................................................... 17

Section C: Other Matters ......................................................................................................... 18

Amendments to Singapore Companies Act ................................................................................ 19

Review of the Regulatory Framework for Foreign Entities ........................................................... 27

Singapore Financial Reporting Updates October 2013

Singapore Financial Reporting Updates – October 2013 | 1

Singapore Financial Reporting Updates October 2013

2 | Singapore Financial Reporting Updates – October 2013

Introduction

(I) This publication provides an update of changes in the new or amended Singapore Financial

Reporting FRSs (“FRSs”) that come into effect in year 2014 as follows:

� Standards effective for annual periods beginning on or after 1 January 2014

� Section A: New FRSs

o INT FRS 121 Levies

� Section B: Amended FRSs

o Amendments to FRS 110 Consolidated Financial Statements, FRS 111 Joint Arrangements and FRS 112 Disclosure of Interests in Other Entities – Transition

Guidance

o Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities

o Amendments to FRS 36 Impairment of Assets: Recoverable Amount Disclosure For Non- Financial Assets

o Amendments to FRS 39 Financial Instruments: Recognition and Measurement: Novation

of Derivatives and Continuation of Hedge Accounting

�� Section C: Other Matters

� Amendments to Singapore Companies Act

� Review of the Regulatory Framework for Foreign Entities

(II) Our publication, Singapore Financial Reporting Updates September 2012 also includes:

The salient features of the following FRSs and INT FRSs have already been included in our

publication, Singapore Financial Reporting Updates September 2012. Hence, salient features of

the FRSs and INT FRSs are not repeated in this publication.

�� Standards effective for annual periods beginning on or after 1 July 2012

� Amendments to FRS 1 Presentation of Items of Other Comprehensive Income

�� Standards effective for annual periods beginning on or after 1 January 2013 � FRS 113 Fair Value Measurements

� FRS 19 Employee Benefits

� Amendments to FRS 107 Disclosures - Offsetting of Financial Assets and Financial Liabilities

� INT FRS 120 Stripping Costs in the Production Phase of a Surface Mine


A. Introduction (cont’d)

�� Standards effective for annual periods beginning on or after 1 January 2014

� Improvements to FRSs 2012

� Amendments to FRS 32 Offsetting of Financial Assets and Financial Liabilities

� FRS 110 Consolidated Financial Statements

� FRS 111 Joint Arrangements

� FRS 112 Disclosure of Interests in Other Entities

� FRS 27 Separate Financial Statements

� FRS 28 Investments in Associates and Joint Ventures


Section A: New FRSs

1. INT FRS 121 Levies


Section A: New FRSs

1. INT FRS 121 Levies

INT FRS 121 Levies provides guidance on when to recognise a liability for a levy imposed by a

government, both for levies that are accounted for in accordance with FRS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the

levy are certain.

The Interpretation covers the accounting for outflows imposed on entities by governments

(including government agencies and similar bodies) in accordance with laws and/or

regulations. However, it does not include income taxes that are within the scope of other

standards such as FRS 12 Income Taxes, fines and other penalties, that are imposed for

breaches of legislation.

INT FRS 121 provides the following guidance on recognition of a liability to pay levies:

• The liability is recognised progressively if the obligating event occurs over a period of

time

• If an obligation is triggered on reaching a minimum threshold, the liability is

recognised when that minimum threshold is reached.

The same recognition principles are applied in interim financial reports.

INT FRS 121 does not deal with how to account for the costs arising from the recognition of

a liability to pay a levy, and instead other standards are applied in determining whether the

recognition of a liability gives rise to an asset or expense.

INT FRS 121 provides the following examples on how to account for various types of levies.

Type Obligating Event/ Time of

Recognition of Levy

Levy is triggered progressively as revenue is

generated.

Generation of revenue – Levy is recognised

progressively.

Levy is triggered in full as soon as revenue is

generated in current period.

Generation of revenue in the current period.

Levy is recognised fully in current period

based on revenue generated in previous

period.

Levy is triggered in full if entity operates as a

bank at the end of the reporting period.

Operating as a bank at the end of the

reporting period. Levy is recognised in full at

end of reporting period.


Section A: New FRSs (cont’d)

1. INT FRS 121 Levies (cont’d)

Type Obligating Event/ Time of Recognition

of Levy

Levy is triggered when revenues are

above a minimum threshold.

Reaching the minimum threshold. Levy is

recognised as and when an entity generates

revenue above the threshold. The amount of

levy is based on the revenue generated that

exceeds threshold.

Principal Impact of INT FRS 121 Levies The INT FRS 121 Levies eliminates the current diversity in practice. Entities need to consider

whether the interpretation would impact the treatment of levies in their financial

statements.

When are the Affected FRSs effective?

INT FRS 121 is effective for annual periods beginning on or after 1 January 2014. Initial

application is in accordance with the requirements of FRS 8 Accounting Policies, Changes in Estimates and Errors, i.e. the requirements are applied on a retrospective basis. Earlier

application is permitted.


Section B: Amended FRSs

1. Amendments to FRS 110 Consolidated Financial Statements, FRS 111 Joint Ventures and FRS 112 Disclosure of Interests in Other Entities – Transition Guidance

2. Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities 3. Amendments to FRS 36 Impairment of Assets: Recoverable Amount

Disclosure for Non Financial Assets 4. Amendments to FRS 39 Financial Instruments: Recognition and

Measurement - Novation of Derivatives and Continuation of Hedge Accounting


Section B: Amended FRSs

1. Amendments to FRS 110 Consolidated Financial Statements, FRS 111 Joint

Arrangements and FRS 112 Disclosure of Interests in Other Entities – Transition

Guidance

On 6 September 2012, the Accounting Standards Council has issued the amendments to the

transition guidance of the following affected Financial Reporting Standards (“FRSs”), effective for

annual periods beginning on or after 1 January 2014:

o FRS 110 Consolidated Financial Statements; o FRS 111 Joint Arrangements; and

o FRS 112 Disclosure of Interests in Other Entities

(i) Amendments to FRS 110 Consolidated Financial Statements (“FRS 110”)

The amendments clarify the intention of the transition guidance in FRS 110 regarding further

relief from full retrospective application.

� The amendments to FRS 110 explain that the ‘date of initial application’ in FRS 110 means

‘the beginning of the annual reporting period in which FRS 110 is applied for the first

time’.

� Hence, the assessment of whether control exists is made at ‘the date of initial application’

rather than at the beginning of the comparative period.

� Consequently, an entity is not required to make adjustments to the previous accounting

for its involvement with entities if the consolidation conclusion reached at the date of

initial application is the same when applying FRS 27 Consolidated and Separate Financial Statements (“FRS 27”) and INT FRS 12 Consolidation - Special Purpose Entities (“INT FRS

12”) and when applying FRS 110.

� However, if the control assessment is different between FRS 110 and FRS 27 and INT FRS

12, retrospective adjustments should be determined. The amendments to FRS 110 also

clarify how an investor shall adjust comparative period(s) retrospectively if the

consolidation conclusion reached at the date of initial application is different when

applying FRS 110 when compared with applying FRS 27/INT FRS 12. Any difference

between the previous carrying amounts and the amounts recognised on the retrospective

application of FRS 110 must be recognised as an adjustment to equity at the beginning of

the immediately preceding period or the earliest adjusted comparative period presented,

as appropriate.

� As a result, the amendments confirm that relief from retrospective application of FRS 110

would also apply to an investor’s interests in investees that were disposed of during a

comparative period in such a way that consolidation would not occur in accordance with

either FRS 27/INT FRS 12 or FRS 110 at the date of initial application.

� An investor should adjust comparative periods retrospectively if the consolidation

conclusion reached at the date of initial application is different.


Section B: Amended FRSs (cont’d)

1. Amendments to FRS 110 Consolidated Financial Statements, FRS 111 Joint

Arrangements and FRS 112 Disclosure of Interests in Other Entities – Transition

Guidance (cont’d)

(i) Amendments to FRS 110 Consolidated Financial Statements (“FRS 110”) (cont’d)

� If more than one comparative period is presented, additional relief is given to require only

one period to be restated. Presentation of adjusted comparatives for earlier periods is

permitted but not required.

� The amendments to FRS 110 provide additional relief by waiving the requirement of

paragraph 28 (f) of FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors to provide quantitative information on the current period impact of adoption of FRS 110.

(ii) Amendments to FRS 111 Joint Arrangements (“FRS 111”) and FRS 112 Disclosure of

Interests in Other Entities (“FRS 112”)

� These amendments to FRS 111 and FRS 112 have also been made to provide similar relief

from the presentation or adjustment of comparative information for periods prior to the

immediately preceding period.

� Comparatives for the disclosures relating to unconsolidated structured entities under the

amendments to FRS 112 are not required.

Principal Impact of the Affected FRSs

The amendments to the affected FRSs are particularly relevant for those jurisdictions where more

than one year (sometimes, up to 5 years) of comparative information is required, e.g., foreign SEC

registrants.

While the relief provided may result in loss of comparability of information between periods, we

believe that the benefits of this relief will often outweigh the costs that may have been incurred by

affected entities.


The amendments to the affected FRSs are aligned with the effective date for FRS 110, FRS 111 and

FRS 112, i.e., entities are required to apply the amendments to the affected FRSs for annual periods

beginning on or after 1 January 2014. Earlier application is permitted.



2. Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities

Fair Value Accounting for Investment Funds

On 1 February 2013, the Accounting Standards Council has issued the Amendments to FRS 110 Consolidated Financial Statements, FRS 112 Disclosure of Interests in Other Entities and FRS 27

Separate Financial Statements - Investment Entities to provide an exception to the consolidation

requirement for entities that meet the definition of an investment entity.

What has changed?

Under FRS 110, reporting entities were required to consolidate all investees that they control (i.e. all

subsidiaries).

Currently all investees that are controlled by reporting entities are consolidated. As consolidating the

subsidiaries of investment entities does not result in useful information for investors, reporting all

investments, including investments in subsidiaries, at fair value, provides the most useful and relevant

information.

Hence, the Investment Entities amendments provide an exception to the consolidation requirements in

FRS 110 and where an entity meets the definition of an investment entity, it does not need to

consolidate its subsidiaries and is required to measure its investments in those subsidiaries at fair value

through profit or loss.

Essential Elements of the definition

Investment entity” is now defined in FRS 110. An entity must meet all three elements of the

definition and consider whether it has four typical characteristics (refer to typical characteristics

below), in order to qualify as an investment entity that:

(a) obtains funds from one or more investors for the purpose of providing those investor(s) with

professional investment management services;

(b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital

appreciation, investment income or both. In meeting this test:

o the entity needs a documented potential exit strategy for investment that can be held

indefinitely (refer to Exit Strategies section below); and

o investment – related services are not prohibited (refer to Investment-related services not

prohibited below)

(c) measures and evaluates the performance of substantially all of its investments on a fair value

basis. This includes a requirement for all of the following to be accounted for at fair value:

o investment property;

o Investments in associates and joint ventures; and

o financial assets.



2. Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities (cont’d)

Essential Elements of the definition (cont’d)

An entity must consider all facts and circumstances, including its purpose and design, in making its

assessment.

Typical characteristics of an investment entity – absence does not preclude investment entity

status

The following are typical characteristics but their absence does not preclude classification as an

investment entity:

o the entity holds more than one investment;

o there is more than one investor in the entity;

o the investors are not related parties of the entity; and

o the entity has ownership interests in the form of equity or similar interests.

If an entity concludes that it is an investment entity in the absence of one or more of these

characteristics, then it should disclose the reasons for this conclusion in its financial statements.

Entities which are included as Investment Entities

Such entities could include the following:

.

Fair value accounting for controlled investees

An investment entity is to account for subsidiaries at fair value through profit or loss in accordance

with FRS 39 Financial Instruments: Recognition and Measurement.

Exit strategies

As investment entities do not hold investments indefinitely, there must be an exit strategy

documenting how the entity intends to realise substantially all its equity investments and non-financial

asset investments. Exit strategy for debt investments will not normally be required if such investments

have a set maturity date.

Investment

Entities

Private Equity

Organisations

Venture Capital

Organisations Pension

Funds

Sovereign

Investment

Funds

Investment

Funds




Investment-related services not prohibited

An investment entity may also participate in the following activities, provided they are undertaken to

maximise investment returns and do not represent a separate substantial business activity or separate

substantial source of income:

(a) Providing management services and strategic advice to an investee

(b) Providing financial support to an investee

Fair Value Accounting for Investment Entity / Parents of Investment Entities

An investment entity will measure all of its investments in subsidiaries at fair value, even if those

investees are themselves investment entities.

This includes both master-feeder structures where they allow asset managers to capture the efficiencies

of larger pools of assets although fashioning investment funds to separate market niches and fund-of-

funds structures.which are investment strategies of holding a portfolio of other investment funds rather

than investing directly in stocks, bonds or other securities.

No relief for non-investment entity parents

However, the parent of an investment entity that is not itself an investment entity) is still required to

consolidate all subsidiaries. Such examples include a parent that is a bank, insurance company or fund

manager.

Fair Value Accounting for Associates and Joint Ventures

An investment entity must elect the exemption from the equity method in FRS 28 Investments in Associates and Joint Ventures for interests in associates and joint ventures.

Entities that are venture capital organisations, mutual funds, unit trusts, investment-linked insurance

funds and similar entities will be permitted to elect to measure investments in associates and joint

ventures at fair value in accordance with FRS 39.




Disclosure Requirements

The amendments also set out disclosure requirements for investment entities. In addition to the

amendments to FRS 110, FRS 112 has also been amended to require additional disclosures for

investment entities.

Investment entities must disclose:

• The significant judgements and assumptions it has made in determining how an entity meets the

definition of an investment entity.

• Information relating to each unconsolidated subsidiary, including:

� Subsidiary name;

� Country of incorporation or residence;

� Proportion of ownership interest held and the proportion of voting rights held.

Details of the following:

• The restriction of subsidiaries to transfer funds to the investment entity;

• Any financial support the investment entity has provided to subsidiaries;

• The terms of contractual arrangements with a structured entity.

Unconsolidated subsidiaries would need to provide new disclosures including quantitative data about

the fund’s exposure to risks arising from such investments, such as the change in sensitivity analysis

that represents the potential effect on profit or loss of possible changes in certain risk variables – it will

now apply at the investee level.

Principal Impact of this Amendment

The amendments to FRS 110 will bring relief to investment entities. The amendments may simplify the

accounting in the case of funds and similar entities that are investment entities as those entities

generally will not consolidate entities that they control. Private equity funds probably have the highest

expectation of benefiting from the consolidation exception.

Not all investment funds would qualify for the exception, which means that funds should carefully

consider the amendments against their specific circumstances. If management wishes to align

adoption of the amendments with the new consolidation standard, then management will need to

start considering the criteria to qualify as an investment entity.




Principal Impact of this Amendment (cont’d)

There are some significant hurdles that require careful consideration, potentially the most critical

being the restrictions placed on business activities (refer to the criteria set above) and the need to

manage investments on a fair value basis (refer to the criteria set above).

As the consolidation exception would not extend to any parent of an investment entity that is not

itself an investment entity, all these assets and liabilities of the newly consolidated investees would be

recognised at different amounts in the consolidated financial statements of the intermediate parent

which is an investment entity, from the amounts recognised in the consolidated financial statements

of the higher level parent. This could create additional costs for the preparer. While the relief

provided may result in loss of comparability of information between periods, we believe that the

benefits of this relief will often outweigh the costs that may have been incurred by affected entities.

However, it may have little to no effect on organisations involved in investment activities such as

banks and insurers. This is because the exemption can be applied only in the financial statements of

investment entities themselves and not in the consolidated financial statements of groups that control

such an entity.


The new requirements are applicable to annual periods beginning on or after 1 January 2014.

At the date of initial application (the beginning of the annual reporting period in which the

amendment is applied for the first time), an entity will assess whether it meets the definition of an

investment entity, based on facts and circumstances that exist at that date.

If it is an investment entity, it measures the investment in each subsidiary at fair value through profit

or loss as if the amendment had always been effective.

The transition requirements are retrospective – even if the entity would not have qualified as an

investment entity in prior periods – subject to impracticability relief. The investment entity

retrospectively adjusts both the annual period immediately preceding the date of initial application

and equity at the beginning of the immediately preceding period for the difference between:

• The previous carrying amount of the subsidiary, and

• The fair value of the investment entity’s investment in the subsidiary.



3. Amendments to FRS 36 Impairment of Assets: Recoverable Amount Disclosures for Non-

Financial Assets

These amendments to FRS 36 Impairment of Assets address the disclosure of information about the

recoverable amount of impaired assets if that amount is based on fair value less costs of disposal.

When FRS 113 Fair Value Measurement was issued, it made consequential amendments to the disclosure

requirements of FRS 36 when the recoverable amount is based on fair value less costs of disposal. As one

of the amendments was drafted more widely than intended, these amendments propose to correct this

and introduces additional disclosures about fair value measurements when there has been impairment or a

reversal of impairment.

Key Amendments

The following are the key amendments to FRS 36:

- Remove the requirement to disclose the recoverable amount of each cash-generating unit (CGU)

for which the carrying amount of goodwill or intangible assets with indefinite useful lives

allocated to that CGU is significant when compared to the entity’s total carrying amount of

goodwill or intangible assets with indefinite useful lives even though there has been no

impairment loss incurred and recognised;

- Require disclosure of the recoverable amount of an individual asset (including goodwill) or CGU

for which the entity has recognised or reversed an impairment loss during the reporting period;

- Require detailed disclosure of how the fair value less costs of disposal has been measured when

an impairment loss has been recognised or reversed. Disclosures would mirror the required

disclosures when an asset or CGU’s recoverable amount has been determined on the basis of

value in use, including:

o The valuation techniques used and any changes in that valuation technique;

o The level of FRS 113 fair value hierarchy within which the fair value measurement of the

asset or CGU has been determined; and

o Fair value measurements in levels 2 and 3 of the IFRS 13 Fair Value hierarchy, key

assumptions used in the measurement of fair value, including an explicit requirement; and

- Require an entity to disclose the discount rate used, where an entity has recognised or reversed

an impairment loss during the reporting period and recoverable amount is based on fair value less

costs of disposal determined using a present value technique.



3. Amendments to FRS 36 Impairment of Assets: Recoverable Amount Disclosures for Non-

Financial Assets (cont’d)

Principal Impact

These amendments will affect all preparers who recognise or reverse an impairment loss on non-

financial assets where the circumstances in which the recoverable amount of assets or cash-

generating units is required to be disclosed will be reduced.

Companies will need to disclose the discount rate used in determining impairment (or reversals) where

recoverable amount (based on fair value less costs of disposal) is determined using a present value

technique.

When are these amendments effective?

These amendments are to be applied retrospectively for annual periods beginning on or after 1

January 2014. Earlier application is permitted for periods when the entity has already applied FRS

113.



4. Amendments to FRS 39 Financial Instruments: Recognition and Measurement -

Novation of Derivatives and Continuation of Hedge Accounting

FRS 39 (before this amendment) requires hedge accounting to be discontinued when the hedging

instrument expires or is sold, terminated or exercised, unless the replacement or rollover of a hedging

instrument into another hedging instrument is part of the entity’s documented hedging strategy.

Under the amendments there is no need to discontinue hedge accounting if a hedging derivative was

novated, provided the following criteria are met:

(a) Novation to a central counterparty (CCP) must happen as a consequence of laws or

regulations or the introduction of laws or regulations.

(b) Following the novation, a central counterparty would become the new counterparty to each

of the original parties to the derivative.

(c) Any changes to the hedging instrument are limited to those that are necessary to effect such

a replacement of the counterparty.

Principal Impact

Entities that did not meet the qualifying criteria for hedge accounting after discontinuing that

hedging relationship are not allowed to retrospectively revive those hedging relationship.

When are these amendments effective?

The amendments are to be applied retrospectively for annual periods beginning on or after 1 January

2014.


Section C: Other Matters

1. Amendments to Singapore Companies Act

2. Review of the Regulatory Framework of Foreign Entities


Section C: Other Matters

1. Amendments to Singapore Companies Act

On 20 June 2011, the Ministry of Finance (“MOF”) and the Accounting and Corporate

Regulatory Authority (“ACRA”) have released a report proposing changes to the Singapore

Companies Act (“Act”). The "Report of the Steering Committee to Review the Companies

Act" (“Report”) was prepared by the Steering Committee (“Committee”), established by MOF

in 2007.

The Committee’s focus is to carry out a fundamental review of the Act aimed at ensuring

efficient and transparent corporate regulatory framework. The public consultation exercise

ended on 16 September 2011.

Changes discussed

The Committee studied six areas of the Act and made a total of 217 recommendations

covering the following, which have been highlighted the key recommendations under the

section: Other Matters: 1A Review of Companies Act in our Singapore Financial Reporting

Standards Update September 2011.

a) Directors;

b) Shareholders’ Rights and Meetings;

c) Shares, Debentures, Capital Maintenance, Schemes, Compulsory

d) Acquisitions and Amalgamations;

e) Accounts and Audit;

f) General Company Administration; and

g) Registration of Charges.

To allow the business community and practitioners sufficient time to adapt to the changes in

the Act, MOF will implement the changes and rewrite of the Act in two phases. In the first

phase, MOF will amend the Act to implement the Steering Committee’s recommendations

which have been accepted by the Ministry. After the changes have been implemented, in the

second phase, MOF will undertake a rewrite of the Act to rationalise the provisions and

improve the clarity.

MOF plans to table the amendment Bill in Parliament to implement the changes by end of

2013. MOF will seek public feedback on the draft Bill in early 2013.


Section C: Other Matters (cont’d)

1. Amendments to Singapore Companies Act (cont’d)

We highlighted below some key areas where amendments are being made:

�� Introduce new “small company” criteria for exemption from statutory

audit.

Currently, all companies are required to have their accounts audited in accordance with

the Singapore Financial Reporting Standards. All companies must be audited unless:

� the company is an exempt private company (“EPC”) of SGD5 million revenue or

less or

� it is dormant company Companies, other than solvent EPCs, must file accounts

with the ACRA.

What are the Proposed Changes?

New “small company” criterion

A new “small company” criterion is introduced to replace the EPC criterion for audit

exemption. A company qualifies as a “small company” if:

(a) the company is a private company; and

(b) it fulfils at least two of the following three criteria for each of the two financial years

immediately preceding the financial year:

� Total annual revenue of not more than SGD10 million;

� Total gross assets as at the end of the financial reporting period of not more than SGD 10 million;

� Total number of employees as at the end of the financial year of not more than 50.

Criterion for small company to be disqualified as a small company

A company which has qualified as a small company is disqualified as a small company

only if:

- it ceases to be a private company at any time during the financial year; or

- it does not meet the quantitative criteria for the immediate past two consecutive

financial years.




�� Introduce new “small company” criteria for exemption from statutory audit

(cont’d)

Effective Date of Audit Exemption for Small Company criterion

The audit exemption for small company criterion will be applicable to companies for a

financial year commencing after the effective date of the change in law.

The financial statements for a financial year which commences before the effective date

should be prepared in accordance with the current requirements.

�� Audit Exemption For A Parent Company

A parent company* is exempted from audit only if:

� The parent company qualifies as a small company; and

� The parent company belongs to a small group (i.e., the quantitative criteria are met

on a consolidated basis).

The calculation of the revenue and gross assets criteria on a consolidated basis would be

in accordance with the accounting standards applicable to the group (not necessarily the

Singapore Financial Reporting Standards (‘SFRSs”)).

Where the parent of the group is not required to prepare consolidated financial

statements, the criteria would be determined by aggregating the revenue and gross

assets of all the members of the group.

* ”Parent” has the same meaning as in the SFRSs

�� Audit Exemption For A Parent Company (cont’d)

A subsidiary company is exempted from audit only if: � The subsidiary company qualifies as a small company; and

� The subsidiary company belongs to a small group. The quantitative criteria for small

company will also have to be assessed on the consolidated financial statements of

the group to which the subsidiary company belongs.

�� Exempt non-listed dormant companies (other than subsidiary company of a

Singapore listed company) from preparation of financial statements

The exant Companies Act stipulated that a dormant company is exempted from

statutory audit but is still required to prepare financial statements that are in compliance

with the SFRSs.




�� Exempt non-listed dormant companies (other than subsidiary company of a

Singapore listed company) from preparation of financial statements (cont’d)

Under the draft bill, the relevant company will be exempted from preparing financial

statements, subject to the following safeguards:

� The company must be dormant for the entire financial year in question.

� The board of directors make an annual declaration of dormancy. The annual

declaration of dormancy must be lodged with the ACRA at the same time that the

annual return is required to be lodged.

� The company is not directed by its shareholders or the ACRA to prepare financial

statements and to lodge them.

The relevant company refers to company which is not a Singapore-listed company or a

subsidiary of a Singapore listed company or a subsidiary of a Singapore listed company

and hold total assets of no more than S$500,000 (or such other amount as may be

prescribed by the Minister) during the financial year.

The existing requirement to prepare and file the financial statements with the ACRA

despite being exempted from audit will be retained for both dormant Singapore-

incorporated company listed in Singapore and dormant subsidiary of a Singapore-listed

company.

�� Introducing Alternative Enforcement for defective financial statements

Presently, the Companies Act prescribes a penalty for directors where there is a failure to

comply with the accounting standards and regulatory requirements relating to financial

statements,

It does not contain an expressed provision which allows a company to voluntarily revise its

financial statements.

The proposed amendments recommend new sections to provide for revision of defective

financial statements:

� Voluntary revision of the financial statements

o If it appears to the directors that the financial statements do not comply

with the requirements of the Companies Act, the directors can revise and

make the necessary consequential revisions to the summary financial

statements or the directors’ statements.

Details of the procedures and requirements for revision of documents will be prescribed in

the regulations.




�� Introducing Alternative Enforcement for defective financial statements

(cont’d)

� Mandating revision of financial statements

If ACRA initiates the revision of defective financial statements process by making an

enquiry to the company:

o The directors must give an explanation to the ACRA if they do not propose

to make revisions, or may inform the ACRA how they wish to revise the

financial statements.

o Revisions to the financial statements must be agreed between the ACRA

and the directors.

If the directors do not give a satisfactory explanation or do not agree with the ACRA on

the manner of revision, the ACRA may apply to court for declaration that the financial

statements do not comply with the Companies Act, and an order requiring the directors

to revise the financial statements.

�� Loan to a company connected to director

Currently, the Companies Act prohibits a company from making a loan to or giving

security or guarantee in respect of another company where a director (or directors) of

the first company is interested in 20% or more of the shares in the second company

(incorporated in Singapore or outside Singapore). An exempt private company is not

subject to this prohibition.

An exception to the prohibition where shareholders’ prior approval is obtained with the

interested director and his family members abstaining from voting is introduced.

Family members include spouse, son, adopted son, step son, daughter, adopted

daughter and step daughter.

�� Extension disclosure requirements for directors to non-director CEO

Currently, directors have a duty to disclose the following:

� Conflict of interests in transactions or proposed transactions with the company, or

by virtue of holding any office or property; and

� Shareholdings and interests in shareholdings in the company or related corporation

and changes thereof.




�� Extension disclosure requirements for directors to non-director CEO (cont’d)

A contravention of any of these disclosure requirements would attract a criminal

penalty. The Securities and Futures Act presently also requires the directors and CEO of

listed companies to notify the company of their shareholdings.

Under the proposed amendments, the above disclosure requirements will be extended

to non-director CEO. Companies would be required to maintain Register of CEO’s

shareholdings and Register of CEO.

�� Resignation of auditor

The exant Companies Act allows and auditor to resign only if he is not the sole auditor,

or at a general meeting where a replacement auditor is appointed. The resigning auditor

is not required to disclose the reasons of resignation to the shareholders.

For listed companies, based on the Listing Rule 1203 (5), they are required to submit a

draft notice of meeting for the proposed change of auditor to the SGX for review. The

notice should incorporate:

� Confirmation from the outgoing auditors whether they are aware of any

professional reasons why the new auditors should not accept the appointment. If

so, the outgoing auditors should provide details;

� Confirmation from the listed company:

o Whether there were disagreements with the outgoing auditors on

accounting treatment within the last 12 months. If so, to provide details;

o Whether it is aware of any circumstances connected with the change of

auditors that should be brought to the attention of the shareholders; and

o That it complies with the Listing Rule 712, and 715 or 716 in relation to the

appointment of the new auditing firm.

� Specific reasons for the change of auditors, including (but not limited to) whether

the outgoing auditors resigned, declined to stand for election, or were dismissed.

The Listing Rule 704 (7) also requires the listed companies to make immediate

announcement of the appointment or cessation of service of auditors. However, there is

no requirement to include the reason for such change.




�� Resignation of auditor (cont’d)

Resignation of auditor of public – interest - company that is not a subsidiary of

a public-interest-company

An auditor of a non-public – interest – company (that is not a subsidiary of a public –

interest – company) is:

� Allowed to resign upon giving notice of resignation in writing to the company.

� Not required to disclose to the shareholders of the company the reasons for his

resignation.

The company must lodge with the ACRA a notification of that fact within 14 days

beginning on the date on which the company receives the notice of resignation from its

auditor.

Resignation of auditor of a public – interest – company or its subsidiary

An auditor of a public – interest – company or its subsidiary who wish to resign before

the end of the term of office is required to:

� Provide a written statement stating the reasons of resignation, and seek the consent

of the ACRA before he can resign;

� Notify the company in writing of his application to the ACRA; and

� Provide the company with the written statement stating the reasons of resignation.

When an auditor of a public – interest – company or its subsidiary gives the company a

notice of resignation, the company must within 14 days of receiving the notice of

resignation and the written statement of the auditors’ reasons for his resignation

(hereafter referred to as “the written statement”) send a copy of the written statement

to every member of the company.




�� Resignation of auditor (cont’d)

The resignation of an auditor of a public – interest – company or its subsidiary takes

effect:

� on the day (if any) specified in the notice of resignation;

� on the day the ACRA notifies the auditor and the company of his consent to the

resignation; or,

� on the day (if any) fixed by the ACRA, whichever last occurs.

�� Appointment of new auditor in place of resigning auditor

The directors are required to call for a general meeting as soon as practicable, and

appoint a new auditor no more than three months from the resignation date of the

outgoing auditor.

The company is required to lodge with the ACRA a notification of appointment of new

auditor within 14 days of the appointment.

�� Abolishment of the requirement for a separate directors’ report

Under the proposed amendments, the requirement for a directors’ report is abolished

and the disclosures required to be reported under the directors’ report are to be made in

the Statement of Directors.

What’s next?

The MOF intends to implement the changes to the Companies Act in two phase. First the

Companies Act will be amended to implement the accepted recommendations. This is

followed by rewriting the Companies Act to rationalize the provisions and improve clarity.

These changes are expected to be implemented by the middle of 2014.



2. Review of the Regulatory Framework for Foreign Entities

In conjunction with the Amendments to Companies Act in Section C.1 above, the Committee

also propose a separate legislation for the regulatory framework for foreign entities, where

highlights of the recommendations on the regulatory framework for foreign entities can be

found in Section C.1B Review of the Regulatory Framework for Foreign Entities in our

publication, Singapore Financial Reporting Standards Update September 2011.

On 3 October 2012, the MOF is of the view that as the existing provisions on foreign

companies can already be found in a dedicated part of the Act; namely Part XI Division 2 of

the Act, it is of the view that there is no compelling need for a separate legislation for foreign

companies. MOF will thus retain the provisions relating to foreign companies in the Act.

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Koo Kah Yee - Associate Director,Audit & AssuranceT +65 6329 [email protected]

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Documents

Singapore Financial Reporting Updates...Singapore Financial Reporting Updates – October 2013 | 11 Section B: Amended FRSs (cont’d) 2. Amendments to FRS 110, FRS 112 and FRS 27