If you don't tell,...

Singapore under seige for F1

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

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

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

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

FRS 38 Intangible Assets - Summary

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

1. the asset meets the definition of an intangible asset;


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


3. the cost of the asset can be reliably measured.

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

Research Phase
Expenditure on research is recognized as an expense.

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

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

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

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

Source - ICPAS ePublication Issue 25/2006 20 Jun 2006

FRS 37 Provisions, Contingent Liabilities and Contingent Assets - Summary

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

A provision is a liability of uncertain timing or amount.

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

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

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

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

• a detailed formal plan for restructuring; and


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

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

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

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

Source - ICPAS ePublication Issue 23/2006 13 Jun 2006

IFRS Conference - Non Controlling Interest

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

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

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

Well the answer is:-

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

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

Can tell me how?

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

FRS 16 Property, Plant and Equipment - Summary

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

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

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

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

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

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

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

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

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

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

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

FRS 16 specifies disclosures about property, plant and equipment.

Source - ICPAS ePublication Issue 3/2006 17 Jan 2006

IFRS Conference - What say you?

veg juice in test tubes @$4

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

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

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

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

What say you?

Mr Goh Lian Tse, what are you talking about?

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

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

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

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

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

IFRS Conference - Revised IFRS 3 on Business Combination

To be effective on July 2009.

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

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

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

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

FRS coming to effect in 2009

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

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

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

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

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

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

Are you a bankrupt?

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

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

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

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

And by the way, the position is still open.

Negative impact of Fair Value is here!

July 29, 2008 -Australand hit by revaluation, writedown

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

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

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

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

As a new accountant.. Part C

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

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

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

How would resolve the situation without losing your job?

As a new accountant.. Part B

the railway station

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

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

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

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

As a new accountant.. Part A

things people will do for their business

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

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

Be careful.

Financial Reporting Process (FRP)

a wall of orchids.. not china wall

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

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

We need an understanding of how key judgements are made.

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

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

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

Take care.

FRS 10 Events after balance sheet - Summary

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

Two types of events can be identified:

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

Things you got to know for FRS 10:-

• When are financial statements authorised for issue?


• Can you name some examples of adjusting events?


• Can you name some examples of non-adjusting events?