In 2011, the Accounting and Corporate Regulatory Authority Singapore (“ACRA”) established the Financial Reporting Surveillance Programme (“FRSP”) where selected financial statements are reviewed to determine if they comply with the Singapore Companies Act and the Accounting Standards issued by the Accounting Standards Council and give a true and fair view of the profit and loss, as well as the state of affairs of the company [Sections 201(1A), 201(3) and 201(3A) of the Singapore Companies Act].
A financial reporting breach occurs when a director has failed to comply with sections 201(1A), 201(3) and 201(3A) and/or sections 199(1) and/or 199(2A) of the Singapore Companies Act. When a financial reporting breach is established, ACRA will impose regulatory sanctions on directors, depending on the severity of the breach. The range of enforcement actions include:
- Issuance of advisory letter,
- Issuance of warning letter,
- Fine by offer of composition
- Prosecution leading to fines and/or imprisonment
ACRA will review selected financial statements for the financial year 2013 during the period from 1 April 2014 to 31 May 2015 under the FRSP.
The areas of focus for this cycle of review are summarised below:
1. New standards issued
FRS 113 requires disclosure about fair value measurement of financial and non-financial assets and liabilities. Where fair value hierarchy level 3 recurring measurement is applicable, more disclosures are expected.
2. Significant accounting policies
All significant items in the Financial Statements should have a policy note that is complete and reflect the substance of the transactions.
3. Going concern
Directors need to be realistic with their assumptions about a company’s future prospects. When material uncertainty exists, appropriate disclosure should be made.
4. Accounting judgement and estimation uncertainties
Appropriate disclosure should be made to allow users of the financial statements to assess the reported financial position and performance of a company.
5. Asset value and impairment testing
Directors should focus on the recoverability of the carrying values of assets, including goodwill, other intangibles (e.g. trade marks, development cost capitalised), plant and equipment, inventories and receivables. Where necessary, impairment should be made.
Appropriate disclosures should be made where there is significant judgement, estimates and assumptions made by Management.
6. Financial risk and capital management disclosures
Directors should ensure appropriate disclosures to give the users of the financial statements an understanding of the nature and extent of the company’s exposure to risk and how it is managed in practice.
7. Related parties
Disclosures in accordance with FRS 24 includes disclosing the nature of the related party relationship and specific terms and conditions, if any, relating to each type of transactions and balances.
8. Consolidated financial statements
Consolidated financial statements should be prepared when a company has one or more subsidiaries, unless exempted by FRS 27(10). Reasons including impracticable to consolidate and cost of preparation outweighing benefits are not part of the exemption criteria.
Please refer to ‘Practice Direction No. 2 of 2014’ under ‘ACRA News’ at www.acra.gov.sg/ for the duties of Directors in relation to financial reporting and the review and sanction process of ACRA.