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?

IFRS Conference - Fair Value

The following were some points made by the participants of the Conference with regard to the issue of Fair Value and various practical difficulties experienced.

1. How to value each component of a financial instrument?
A company owns Convertible Loanstocks of a blue chip borrower.
For liquidity reason, a company may consider selling away the bond portion of the Convertible Loanstock to get some cash while keeping the right to convert the loan to shares. This is to allow them to participate on the upside of the blue chip borrower. And you are ask to value the instruments in parts. How to do it?

2. Fair Value, Tax and Cashflow
Mr Eugene Wong, Managing Director of Sirius Venture Consulting said fair value gives rise to volatility in earnings. Companies in Singapore may be facing the situation where they have paid 20% tax on increased valuation gains last year and get tax deductions calculated at 18% of valuation losses this year.

3. Is there anything that may aid the practitioners in understanding and applying Fair Value?
Mr Foo of Foo Kon Tan asked. Ms Judy Ng of DBS Bank suggested that there should be qualitative disclosures on the assumptions used in arriving at the fair value and also state the sensitivity of a particular assumption to market forces.

4. Mark to market
FRS39 calls for those assets available for sale to be marked to market. How do you do that when the market is thinning/illiquid or when the market has disappeared? Can you get an answer from the auditors? Nope.

In conclusion - Well guys, we are inventing the rules as we play.

Words and figures differ

What if Edgar drew a cheque like this where the words and figures are different...

"Amount - Five Thousands Dollars Only $500/-"

In the Forum page of ST a couple of days, DBS Bank apologised to the account holder for wrongly clearing a cheque where the words and figures differ. DBS said they should not have cleared the cheque.

I wish to question whether DBS's position of not clearing such a cheque is legally correct.

In the Banking Law class that I attended many years ago, I was told that the Bank should honour the cheque based on the "words" stated.

Has the law changed since the years after my Banking Law class? Or have I heard wrongly? If you are not from Singapore, can share with me your country's practice?

FRS for SMEs

While we are eagerly awaiting for the launch of FRS for SMEs in Singapore, there are changes to IFRS's version as outline in recent IFRS Conference held on July 17, 2008 in Marina Oriental Singapore.

First and foremost, IFRS said there is going to be a name change from IFRS for SMEs to IFRS for PRIVATE ENTITIES. Warren McGregor gave some background info on the proposed name change.

The IFRS for SMEs is definitely not for the mom-and-pops businesses but rather caters to entities with 50 or more employees in general. They were considering other names like non-publicly accountable entities.

The IFRS for Pte Entities will be fully stand alone ie. no reference to the main/full FRSs.

Exam Results by Email

Lynn has forwarded to me an email message from ACCA reminding students to sign up for results by email.

I would strongly advise so for a hassel free experience as compare to waiting for it by mail days after others have got theirs or you waiting to access the results online on those busy days.

You can sign up by Aug 15, 2008 at myACCA.

ACCA said you should expect the results to be emailed out by Aug 18, 2008.

Accounting for Leases

In the IFRS conference held on July 17, 2008, Sir David Tweedie and Warren McGregor said IASB is working towards abolishing the need to differentiate between finance lease and operating lease.

The Board is taking the approach of "right of use" in crafting the new FRS on Leases. With this approach, it would be reflected as an Asset as long as the lessee has the right of use and consequently mirrored as a Liability as long as the lessee has an obligation to pay.

The Board faces difficulties in sorting out the following features in a lease agreement:-
- option to renew or terminate a lease
- measurement eg. contingent rentals
- overlap with other projects in the area of revenue recognition, derecognition and conceptual framework.

Sir Tweedie made an interesting remark. He said he is looking forward to the day when he could say that he is flying in a plane that is actually reflected in the airline's balance sheet.

IASB and FASB are doing something together.

Marina Viaduct's skyline now

Who are they?
IASB - International Accounting Standards Board
FASB - US's Financial Accounting Standards Board

What have been doing together?
Essentially trying to move the two standards together.
They are planning to do it over 3 phases ie. A, B and C.

What are the 3 phases?
Phase A - completed in Sep 2007 with the issuance of FRS 1R. The FRS introduces the use of some American terminologies. The use of these terms for Singapore is not compulsory. Thus expect confusion in Singapore. Examples,
- Balance Sheet is "Statement of Financial Position"
- Cash Flow Statement is "Statement of Cash Flows"

Phase B
Mr Yeoh Oon Jin, Assurance Leader, PwC Singapore, said the Phase will take a few years to complete and would cover areas on how to prepare the respective statements. Examples,
- what income and expenses items to be classified under which totals and sub-totals in which statements etc etc etc
- whether direct or indirect cashflow presentation should be adopted

Phase C
While they have an idea of what they want to do, no point remembering them as it would too long down the yellow brick road for any certainty of being effected.

Reference - ACCA Focus Q2 2008 pp13-15

Why do you rob banks?

a party in KL worth the memory

A reporter once asked famous bank robber, Willie Sutton: "Why do you rob banks?"
Willie simply replied: "Because that's where the money is!"

I am sure you will get the same answer if you manage to ask those robbers of banks and ATMs in Malaysia.

In the current new term of my classes, I asked the students the reason as to why did they decide to take up ACCA course.

A student duly responded that it is because ACCA is a qualification regularly asked for in the job advertisements she has reviewed.

So for those who have decided to start and complete your ACCA course, it is a good decision ... Good day.

HK outranked Singapore

my ketchup-filled fish ball noodle

ACCA released a report in BT today after conducting a survey among ACCA members in Singapore, HK, UK, US, Canada and Australia to rank their respective tax system in terms of fairness, simplicity and transparent.

The good news is that Singapore and Hong Kong have the fairest, simplest and most transparent tax systems, out of six major developed countries.

The bad news is that Hong Kong ranked better than Singapore in all 3 areas.

The question that matters is whether having a tax system that is fair, simple and transparent translates to real comparative advantage against these big economies.

Or is it a hollow victory for Singapore and HK as it basically reflects the smallness of its geographic size and economic complexities?

SME Rebate Scheme

I quote...

"The SME Rebate Scheme is a 2-year assistance scheme to help locally registered SMEs* adjust to rising business costs.

You are invited to apply for the SME rebate at our website http://www.smerebate.gov.sg/ if your firm meets the following criteria:-

i. For a non-manufacturing firm:

- Business must be registered in Singapore

- Fixed Asset Investment (FAI) of less than S$15 million

- Not more than 200 employees

ii. For a manufacturing firm:

- Business must be registered in Singapore

- Fixed Asset Investment (FAI) of less than S$15 million

Please be reminded to submit your application by 31 July 2008 to receive cash rebates pegged to the total employer and employee CPF contributions made by your firm over two years for the period July 2007 to June 2009.

Firms that apply after 31 July 2008 will only qualify for the rebate for the period July 2008 to June 2009.

Eligible firms will receive notification letters from CPF Board indicating the date and amount of payment.

Please visit the SME Rebate Scheme website (http://www.smerebate.gov.sg/) for more information." Unquote...

FRS 7 Cash Flow Statements - Summary

FRS 7 prescribes the principles in preparing cash flow statements.


The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.


Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

a) direct method (disclosure of major categories of gross cash receipts and payments); or

b) indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.


Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.


"Do you know the definition of "cash and cash equivalents"? Can you name some examples of cash equivalents?", ask Edgar.


Source - ICPAS ePublication 22 November 2005 Issue 11/2005

FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Summary

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

Changes in accounting policies
An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entities financial position. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates
Changes in accounting estimates should be recognised prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognised by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Errors
Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS 8 also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

What is prior period errors? When did an error occur?

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:-

• was available when financial statements for those periods were authorised for issue; and


• could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Source - ICPAS ePublication 29 Nov 2005 Issue 12/2005

FRS 2 Inventories - Summary

Objective
FRS 2 provides guidance on the determination of cost of inventories and its subsequent recognition as an expense, any write down to net realizable value.

FRS 2 applies to all inventories except for:

a) WIP under construction contracts;
b) Financial instruments; and
c) Biological assets related to agricultural activity produce at the point of harvest.

Inventories are measured at the lower of cost and net realisable value (NRV).

• NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and costs necessary to make the sale.
• Cost of inventories comprise of cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Three methods of costing inventories are specified under paragraph 23-27 of FRS 2.

i) Specific identification of costs method

ii) First-In, First-Out (FIFO) costs method

iii) Weighted average costs method

FRS 2 requires that the amount of write down of inventories to NRV is recognised as an expense in the period the write down or loss occurs. Any reversals of the write down, as a result of increase in NRV, is recognised as a reduction in amount of inventories recognized as an expense in the period the reversal occurs.

FRS 2 also specifies the disclosures required of inventories.

Source - ICPAS ePublication

FRS 1 - Presentation of Financial Statements Nov 2005

Objectives

1. To prescribe the basis of presentation of general purpose financial statements and;
2. To ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

• Fair presentation and compliance with FRS

A faithful representation of the effects of transactions, events and conditions in accordance with the FRS.

• Going concern

Preparation of financial statements with the assumption that the business will continue indefinitely.

• Accrual basis of accounting

A method where income and expense items are recognized and recorded when income is earned and expense is incurred, regardless of when cash is actually received or paid.

• Consistency of presentation

Presentation and classification of items in financial statements are retained from one period to the next unless the standard requires a change in presentation or there is a significant change in the nature of the entity's operations, such that another presentation would be more appropriate.

• Materiality and aggregation

Similar items of each material class are to be presented separately.

• Offsetting

No offsetting of asset and liabilities, and income and expenses unless permitted by a Standard.

• Comparative information

To disclose comparative information of previous period for comparative purposes.

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements except for presentation of cash flow statements which is covered under FRS 7.

FRS 1 also specifies that entities disclose information that is presented in the financial statements such as the accounting policies, judgments and key sources of estimation uncertainty at the balance sheet date.

Source - ICPAS ePublication 8 November 2005 Issue 9/2005

ATTS Graduation Ceremony 2008

Congrats to all graduands.