OECD wants country-by-country tax reporting

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

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"?

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

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

1. Companies with foreign operations audited by an overseas accounting firm may need a joint sign-off by a local auditor;
   
2. 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?

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

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

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:-

1. "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."
2. "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.