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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
Singapore Financial Reporting Updates – October 2013 | 3
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
4 | Singapore Financial Reporting Updates – October 2013
Section A: New FRSs
1. INT FRS 121 Levies
Singapore Financial Reporting Updates – October 2013 | 5
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.
6 | Singapore Financial Reporting Updates – October 2013
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.
Singapore Financial Reporting Updates – October 2013 | 7
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
8 | Singapore Financial Reporting Updates – October 2013
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.
Singapore Financial Reporting Updates – October 2013 | 9
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.
When are the Affected FRSs effective?
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.
10 | Singapore Financial Reporting Updates – October 2013
Section B: Amended FRSs (cont’d)
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.
Singapore Financial Reporting Updates – October 2013 | 11
Section B: Amended FRSs (cont’d)
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
12 | Singapore Financial Reporting Updates – October 2013
Section B: Amended FRSs (cont’d)
2. Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities (cont’d)
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.
Singapore Financial Reporting Updates – October 2013 | 13
Section B: Amended FRSs (cont’d)
2. Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities (cont’d)
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.
14 | Singapore Financial Reporting Updates – October 2013
Section B: Amended FRSs (cont’d)
2. Amendments to FRS 110, FRS 112 and FRS 27 - Investment Entities (cont’d)
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.
When are the Affected FRSs effective?
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.
Singapore Financial Reporting Updates – October 2013 | 15
Section B: Amended FRSs (cont’d)
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.
16 | Singapore Financial Reporting Updates – October 2013
Section B: Amended FRSs (cont’d)
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.
Singapore Financial Reporting Updates – October 2013 | 17
Section B: Amended FRSs (cont’d)
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.
18 | Singapore Financial Reporting Updates – October 2013
Section C: Other Matters
1. Amendments to Singapore Companies Act
2. Review of the Regulatory Framework of Foreign Entities
Singapore Financial Reporting Updates – October 2013 | 19
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.
20 | Singapore Financial Reporting Updates – October 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.
Singapore Financial Reporting Updates – October 2013 | 21
Section C: Other Matters (cont’d)
1. Amendments to Singapore Companies Act (cont’d)
���� 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.
22 | Singapore Financial Reporting Updates – October 2013
Section C: Other Matters (cont’d)
1. Amendments to Singapore Companies Act (cont’d)
���� 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.
Singapore Financial Reporting Updates – October 2013 | 23
Section C: Other Matters (cont’d)
1. Amendments to Singapore Companies Act (cont’d)
���� 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.
24 | Singapore Financial Reporting Updates – October 2013
Section C: Other Matters (cont’d)
1. Amendments to Singapore Companies Act (cont’d)
���� 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.
Singapore Financial Reporting Updates – October 2013 | 25
Section C: Other Matters (cont’d)
1. Amendments to Singapore Companies Act (cont’d)
���� 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.
26 | Singapore Financial Reporting Updates – October 2013
Section C: Other Matters (cont’d)
1. Amendments to Singapore Companies Act (cont’d)
���� 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.
Singapore Financial Reporting Updates – October 2013 | 27
Section C: Other Matters (cont’d)
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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