Singapore Financial Reporting
Updates
September 2012
Contents
Page
Introduction ...........................................................................................................................
1
Section A: New FRSs
3
FRS 110 Consolidated Financial Statements
4
FRS 111 Joint arrangements
8
FRS 112 Disclosure of Interests in Other Entities
13
FRS 113 Fair Value Measurements
14
INT FRS 120 Stripping Costs in the Production Phase of a Surface Mine
20
Section B: Amended FRSs
23
Amendments to FRS 1 Presentation of Items of Other Comprehensive Income
24
FRS 19 Employee Benefits
26
FRS 27 Separate Financial Statements and FRS 28 Investments in Associates and Joint Venture
30
Amendments to FRS 32 Offsetting of Financial Assets and Financial Liabilities
31
Amendments to FRS 107 Disclosures - Offsetting of Financial Assets and Financial Liabilities
32
Amendments to FRSs 2012
35
Section C: Other Matters
39
Revised Code of Corporate Governance
40
Risk Governance Guidance for Listed Boards (Guidance).
46
A.
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 2013 and thereafter as
follows:
•
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
−
Improvements to FRSs 2012
Standards effective for annual periods beginning on or after 1 January 2014
−
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
1 | Singapore Financial Reporting Updates September 2012
A.
Introduction (cont’d)
(II)
Our publication, Singapore Financial Reporting Updates September 2012 also includes:
•
Other Matters
−
Revised Code of Corporate Governance
−
Risk Governance Guidance for Listed Boards (Guidance)
The salient features of the following FRSs and INT FRSs have already been included in our
publication, Singapore Financial Reporting Updates September 2011. 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 2011
Amendments to FRS 107 Disclosures - Transfer of Financial Assets
•
Standards effective for annual periods beginning on or after 1 January 2012
Amendments to FRS 12 Deferred Tax - Recovering of Underlying Assets
•
Framework
Conceptual Framework
Characteristics
•
for
Financial
Reporting
–
Objectives
and
Qualitative
Practice Statement
Management Commentary
•
Other Matters
−
Review of the Companies Act and Regulatory Framework for Foreign Entities
−
Proposed Revisions to the Code of Corporate Governance
Singapore Financial Reporting Updates September 2012 | 2
Section A: New FRSs
1.
FRS 110 Consolidated Financial Statements
2.
FRS 111 Joint Arrangements
3.
FRS 112 Disclosure of Interests in Other Entities
4.
FRS 113 Fair Value Measurements
5.
INT FRS 120 Stripping Costs in the Production Phase of a Surface Mine
3 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs
1.
FRS 110 Consolidated Financial Statements
FRS 110 builds on existing principles by identifying the concept of control as the determining
factor in whether an entity should be included within the consolidated financial statements.
FRS 110 includes a new definition of control that determines which entities are consolidated,
i.e. if the investor has:
Power
Variable
Returns
Ability to
use
power to
affect
returns
It replaces part of FRS 27 Consolidated and Separate Financial Statements related to
consolidated financial statements and replaces INT FRS 12 Consolidation – Special Purpose
Entities.
The requirements under FRS 110 will apply to all types of potential subsidiary, including the
investors who have control with less than half of the voting rights, participating and
protective rights, i.e. introducing the notion of ‘de facto’ firmly within the consolidation FRS
and agent/principal relationships.
FRS 110 requires an investor to reassess the decision whether to consolidate an investee
when events indicate that there may be a change to one of the three elements of control,
i.e. power, variable returns and the ability to use power to affect returns.
Principal Impacts of FRS 110
FRS 110 might impact the entities that a group consolidates as its subsidiaries. The new
definition of control will lead to consolidation of entities that were not previously included in
the group, potentially resulting in more assets and liabilities on the books. Hence, the
adoption of FRS 110 may lead to significant changes in the entity’s reported financial
position and performance.
The most fundamental changes in FRS 110 are those dealing with agent and principal
considerations. Principals must evaluate whether their decision making authority, their
exposure to variable returns, the rights held by the others, in combination with any other
potential interest they hold in the fund under their management, leads to a situation in
which they are deemed to have control.
Singapore Financial Reporting Updates September 2012 | 4
Section A: New FRSs (cont’d)
1.
FRS 110 Consolidated Financial Statements (cont’d)
Principal Impact of FRS 110 (cont’d)
The change introduced in FRS 110 could lead to situations in which consolidation of
structure entities is required. The activities that significantly affect the structure entity’s
returns will need to be determined. Thus, if an investor has power over the activities that
significantly affect returns and has exposure to variable returns, it would consolidate the
structured entity under FRS 110, even it does not have a majority of the returns.
There may also be instances in which company will have to de-consolidate entities that were
previously consolidated, that is, taking those entities off the balance sheet, although this is
expected to be rare.
Considerable amount of judgement is required and may lead to situations in which
consolidation will be required.
When is FRS 110 effective?
FRS 110 is effective for annual periods beginning on or after 1 January 2014. Early adoption
is applicable when FRS 111, FRS 112 and the amended FRS 27 and FRS 28 are also early
adopted at the same time.
An entity shall apply this FRS retrospectively, in accordance with FRS 8 Accounting Policies,
Changes in Accounting Estimates and Errors, except as specified in the following
paragraphs:
Transition requirements
(i) When applying this FRS for the first time, an entity is not required to make adjustments
to the accounting for its involvement with either:
(a) entities that were previously consolidated in accordance with FRS 27 Consolidated
and Separate Financial Statements and INT FRS 12 Consolidation — Special Purpose
Entities and, in accordance with this FRS, continue to be consolidated; or
(b) entities that were previously unconsolidated in accordance with FRS 27 and INT FRS
12 and, in accordance with this FRS, continue not to be consolidated.
5 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
1.
FRS 110 Consolidated Financial Statements (cont’d)
Transition requirements (cont’d)
(ii) When application of this FRS for the first time results in an investor consolidating an
investee that was not consolidated in accordance with FRS 27 and INT FRS 12 the
investor shall:
(a) if the investee is a business (as defined in FRS 103 Business Combinations), measure
the assets, liabilities and non-controlling interests in that previously unconsolidated
investee on the date of initial application as if that investee had been consolidated
(and thus applied acquisition accounting in accordance with FRS 103) from the date
when the investor obtained control of that investee on the basis of the requirements
of this FRS.
(b) if the investee is not a business (as defined in FRS 103), measure the assets, liabilities
and non-controlling interests in that previously unconsolidated investee on the date
of initial application as if that investee had been consolidated (applying the
acquisition method as described in FRS 103 without recognising any goodwill for the
investee) from the date when the investor obtained control of that investee on the
FRS 110’s basis of the requirements of this FRS.
Any difference between the amount of assets, liabilities and non-controlling interests
recognised and the previous carrying amount of the investor’s involvement with the
investee shall be recognised as a corresponding adjustment to the opening balance
of equity.
(c) if measuring an investee’s assets, liabilities and non-controlling interest in accordance
with (a) or (b) is impracticable (as defined in FRS 8), the investor shall:
(i) if the investee is a business, apply the requirements of FRS 103.
The deemed acquisition date shall be the beginning of the earliest period for
which application of FRS 103 is practicable, which may be the current period.
(ii) if the investee is not a business, apply the acquisition method as described in FRS
103 without recognising any goodwill for the investee as of the deemed
acquisition date. The deemed acquisition date shall be the beginning of the
earliest period for which the application of this paragraph is practicable, which
may be the current period.
Singapore Financial Reporting Updates September 2012 | 6
Section A: New FRSs (cont’d)
1.
FRS 110 Consolidated Financial Statements (cont’d)
Transition requirements (cont’d)
The investor shall recognise any difference between the amount of assets, liabilities and noncontrolling interests recognised at the deemed acquisition date and any previously recognised
amounts from its involvement as an adjustment to equity for that period. In addition, the
investor shall provide comparative information and disclosures in accordance with FRS 8.
7 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
2.
FRS 111 Joint arrangements
FRS 111 provides for a more realistic reflection of joint arrangements by focusing on the
rights and obligations of the arrangement, rather than its legal form. There are two types of
joint arrangements:
a)
Joint operations
-
arise where a joint operator has rights to the assets and
obligations relating to the arrangement and hence
accounts for its interest in assets, liabilities, revenue and
expenses; and
b)
Joint ventures
-
arise where the joint operator has rights to the net assets
of the arrangement and hence equity accounts for its
interest. Proportional consolidation of joint ventures is no
longer allowed.
FRS 111 replaces FRS 31 Interests in Joint Venture and INT FRS 13 Jointly Controlled Entities
– Non – Monetary Contributions by Venturers.
Most of the arrangements that would have been classified under those categories will fall
into the newly defined category ‘joint operation’.
The following depicts the change from FRS 31 Joint Ventures to FRS 111 Joint
arrangements:
FRS 111
FRS 31
Joint Controlled
Assets
Joint Operations
Joint Controlled
Operations
Joint Controlled
Entities
Joint Ventures
Singapore Financial Reporting Updates September 2012 | 8
Section A: New FRSs (cont’d)
2.
FRS 111 Joint arrangements (cont’d)
Principal Impact of FRS 111
Some joint arrangements that are accounted for using proportional consolidation under
current FRS will be accounted for using equity method under FRS 111. A single item for the
investment and the reporting entity’s share of the joint arrangement’s profit and loss will be
recognised. This will lead to changes in accounting either because the accounting has
changed or because of changes in classification.
Conversely, there might be some joint arrangements that are currently accounted for using
the equity method that will be considered joint operations under the new FRS. For such
arrangements, the joint operator will recognise its assets, liabilities, revenues and expenses,
and/or its share of those items, if any; that is, the single investment line item will have to be
derecognised into is components on the balance sheet and income statement.
When is FRS 111 effective?
FRS 111 is effective for annual periods beginning on or after 1 January 2014. Early adoption
is applicable when FRS 110, FRS 112 and the amended FRS 27 and FRS 28 are also early
adopted at the same time.
Transition from proportionate consolidation to the equity method
(a)
When changing from proportionate consolidation to the equity method, an entity
shall recognise its investment in the joint venture as at the beginning of the earliest
period presented.
That initial investment shall be measured as the aggregate of the carrying amounts of
the assets and liabilities that the entity had previously proportionately consolidated,
including any goodwill arising from acquisition.
If the goodwill previously belonged to a larger cash-generating unit, or to a group of
cash-generating units, the entity shall allocate goodwill to the joint venture on the
basis of the relative carrying amounts of the joint venture and the cash-generating
unit or group of cash-generating units to which it belonged.
9 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
2.
FRS 111 Joint arrangements (cont’d)
Transition from proportionate consolidation to the equity method (cont’d)
(b)
The opening balance of the investment determined in accordance with above
paragraph is regarded as the deemed cost of the investment at initial recognition.
An entity shall apply paragraphs 40 to 43 of FRS 28 (as amended in 2011) to the
opening balance of the investment to assess whether the investment is impaired and
shall recognise any impairment loss as an adjustment to retained earnings at the
beginning of the earliest period presented.
The initial recognition exception in paragraphs 15 and 24 of FRS 12 Income Taxes
does not apply when the entity recognises an investment in a joint venture resulting
from applying the transition requirements for joint ventures that had previously been
proportionately consolidated.
(c)
If aggregating all previously proportionately consolidated assets and liabilities results
in negative net assets, an entity shall assess whether it has legal or constructive
obligations in relation to the negative net assets and, if so, the entity shall recognise
the corresponding liability.
If the entity concludes that it does not have legal or constructive obligations in
relation to the negative net assets, it shall not recognise the corresponding liability
but it shall adjust retained earnings at the beginning of the earliest period
presented.
The entity shall disclose this fact, along with its cumulative unrecognised share of
losses of its joint ventures as at the beginning of the earliest period presented and at
the date at which this FRS is first applied.
(d)
An entity shall disclose a breakdown of the assets and liabilities that have been
aggregated into the single line investment balance as at the beginning of the earliest
period presented.
That disclosure shall be prepared in an aggregated manner for all joint ventures for
which an entity applies the transition requirements referred to in paragraphs (a) to
(c) above and (e) below.
(e)
After initial recognition, an entity shall account for its investment in the joint venture
using the equity method in accordance with FRS 28 (as amended in 2011).
Singapore Financial Reporting Updates September 2012 | 10
Section A: New FRSs (cont’d)
2.
FRS 111 Joint arrangements (cont’d)
Transition from the equity method to accounting for assets and liabilities
(a)
(b)
When changing from the equity method to accounting for assets and liabilities in
respect of its interest in a joint operation, an entity shall, at the beginning of the
earliest period presented,
−
derecognise the investment that was previously accounted for using the
equity method and any other items that formed part of the entity’s net
investment in the arrangement in accordance with paragraph 38 of FRS 28
(as amended in 2011); and
−
recognise its share of each of the assets and the liabilities in respect of its
interest in the joint operation, including any goodwill that might have
formed part of the carrying amount of the investment.
An entity shall determine its interest in the assets and liabilities relating to the joint
operation on the basis of its rights and obligations in a specified proportion in
accordance with the contractual arrangement.
An entity measures the initial carrying amounts of the assets and liabilities by
disaggregating them from the carrying amount of the investment at the beginning
of the earliest period presented on the basis of the information used by the entity in
applying the equity method.
(c)
Any difference arising from the investment previously accounted for using the equity
method together with any other items that formed part of the entity’s net
investment in the arrangement in accordance with paragraph 38 of FRS 28 (as
amended in 2011), and the net amount of the assets and liabilities, including any
goodwill, recognised shall be:
(i)
offset against any goodwill relating to the investment with any remaining
difference adjusted against retained earnings at the beginning of the earliest
period presented, if the net amount of the assets and liabilities, including
any goodwill, recognised is higher than the investment (and any other items
that formed part of the entity’s net investment) derecognised; and
(ii)
adjusted against retained earnings at the beginning of the earliest period
presented, if the net amount of the assets and liabilities, including any
goodwill, recognised is lower than the investment (and any other items that
formed part of the entity’s net investment) derecognised.
11 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
2.
FRS 111 Joint arrangements (cont’d)
Transition from the equity method to accounting for assets and liabilities (cont’d)
(d)
An entity changing from the equity method to accounting for assets and liabilities
shall provide a reconciliation between the investment derecognised, and the assets
and liabilities recognised, together with any remaining difference adjusted against
retained earnings, at the beginning of the earliest period presented.
(e)
The initial recognition exception in paragraphs 15 and 24 of FRS 12 does not apply
when the entity recognises assets and liabilities relating to its interest in a joint
operation.
Transition provisions in an entity’s separate financial statements
(a)
(b)
An entity that, in accordance with paragraph 10 of FRS 27, was previously
accounting in its separate financial statements for its interest in a joint operation as
an investment at cost or in accordance with FRS 39 shall:
(i)
derecognise the investment and recognise the assets and the liabilities in
respect of its interest in the joint operation at the amounts determined in
accordance with paragraphs (a) to (d) of the above section on Joint
operations - transition from the equity method to accounting for assets and
liabilities; and
(ii)
provide a reconciliation between the investment derecognised, and the
assets and liabilities recognised, together with any remaining difference
adjusted in retained earnings, at the beginning of the earliest period
presented.
The initial recognition exception in paragraphs 15 and 24 of FRS 12 does not apply
when the entity recognises assets and liabilities relating to its interest in a joint
operation in its separate financial statements resulting from applying the transition
requirements for joint operations referred to in paragraph (a) above.
Singapore Financial Reporting Updates September 2012 | 12
Section A: New FRSs (cont’d)
3.
FRS 112 Disclosure of Interests in Other Entities
Disclosure requirements
FRS 112 includes the disclosure requirements for subsidiaries and all forms of interests in
other entities, including joint arrangements, associates, special purpose vehicles, and other
off balance sheet vehicles.
FRS 112 replaces the requirements previously included in FRS 27, FRS 31 and FRS 28
Investments in Associates.
FRS 112 specifies minimum disclosures that an entity must provide. However, the following
additional disclosures are required for an entity:
−
To provide summarised financial information about the assets, liabilities, profit or
loss and cash flows of each subsidiary that has non-controlling interests that are
material to the reporting entity and to disclose the nature of its interests in
unconsolidated structured entities and the nature of the risks it is exposed to as a
result;
−
A schedule of the impact on parent equity is required for changes in the ownership
interest in a subsidiary without a loss of control;
−
Detail of any gain/loss recognise on loss of control, and the line item in the
statement of comprehensive income in which it is recognised;
−
Year ends of subsidiaries, joint arrangements or associates if different from the
parent’s that are consolidated using different year ends and the reasons for using a
different date.
Principal Impact of FRS 112
Companies could require to modify and enhance accounting system to address the change
in FRSs and to provide the necessary information for the new disclosure requirements.
When is FRS 112 effective?
An entity shall apply FRS 112 for annual periods beginning on or after 1 January 2014.
Earlier application is permitted.
An entity is encouraged to provide information required by this FRS earlier than annual
periods beginning on or after 1 January 2014.
Providing some of the disclosures required by this FRS does not compel the entity to comply
with all the requirements of this FRS or to apply FRS 110, FRS 111, FRS 27 (as amended in
2011) and FRS 28 (as amended in 2011) early.
13 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
4.
FRS 113 Fair Value Measurements
Introduction
Prior to the issuance of FRS 113, the requirements for measuring fair value and for disclosing
information about fair value measurements were dispersed across various FRSs. In many
cases, the guidance was always not consistent across those FRSs that refer to fair value,
which contributed to diversity in practice and have reduced the comparability of information
reported in financial statements.
Hence, FRS 113 was issued to consolidate fair value measurement guidance from various
FRSs into a single standard. The new FRS provides guidance on how to measure fair values
including those for both financial and non-financial items, and introduces significantly
enhanced disclosures about fair values.
Definition of Fair Value
FRS 113 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date (i.e. an exit price). This definition emphasises that the exit price is based on the
perspective of market participants, not based on entity-specific measurement. As a result, an
entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant
when measuring fair value.
Market Participants and Price
Under FRS 113, management determines fair value on the assumption that the transaction
to sell the asset or transfer the liability takes place in the principal market or, in its absence,
in the most advantageous market for the asset or liability.
To identify principal market, or in its absence, most advantageous market, management
does not need to undertake an exhaustive search for all possible markets, but it shall take
into account all information that is reasonably available. In the absence of evidence to the
contrary, the market in which the entity would normally transacts is presumed to be the
principal market, or in its absence, the most advantageous market.
Singapore Financial Reporting Updates September 2012 | 14
Section A: New FRSs (cont’d)
4.
FRS 113 Fair Value Measurements (cont’d)
Application to Non-financial Assets
For a non-financial asset, FRS 113 requires its fair value to be measured on its “highest and
best use” from the perspective of market participants, even if the entity intends a different
use. The “highest and best use” takes into account the use of the non-financial asset that is:
Physically possible
Takes into account the physical characteristics of the
asset that market participants would take into
account (e.g. location or size of a property).
Legally permissible
Takes into account legal restrictions on the use of
the asset (e.g. zoning regulations applicable to a
property).
Financially feasible
Takes into account whether a use of the asset that
is physically feasible and legally permissible
generates adequate income or cash flow to
produce an investment return that market
participants would require. This should take into
account the cost of conversion to that use.
The “highest and best use” of a non-financial asset may be on a stand-alone basis or in
combination with other assets or with other assets and liabilities.
The “highest and best” use concept is not only applicable to assets carried at fair value (e.g.
biological assets or investment property carried at fair value).
It is also applicable to impairment testing of assets carried at cost, where impairment is
measured on the basis of fair value less cost to sell. Fair value reflects the assumptions
market participants would use when pricing the asset. Consequently, the “highest and best
use” concept applies when fair value less cost to sell is the basis of the impairment test.
Fair Value Application to Liabilities and an Entity’s Own Equity Instruments
FRS 113 provides guidance in measuring fair value of:
(i)
a financial or non-financial liability or
(ii)
an entity’s own equity instrument (e.g. equity issued as consideration in a business
combination), transferred to a market participant at the measurement date.
15 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
4.
FRS 113 Fair Value Measurements (cont’d)
Fair Value Application to Liabilities and an Entity’s Own Equity Instruments (cont’d)
Fair value of liabilities and equity instruments held by other parties as assets shall be measured
from the perspective of the investor (rather than the issuer), as follows:
a) Using the quoted price in an active market for the identical item, if that price is available.
b) If that price is not available, using other observable inputs, such as quoted price in an
inactive market.
c) If prices in (a) and (b) are not available, using another valuation technique, such as:
Market approach
Uses prices and other relevant information
generated by
market transactions involving
identical or comparable (similar) assets, liabilities,
or a group of assets and liabilities (e.g. a
business).
Cost approach
Reflects the amount that would be required
currently to replace the service capacity of an
asset (current replacement cost).
Income approach
Converts future amounts (cash flows or income
and expenses) to a single current (discounted)
amount, reflecting current market expectations
about those future amounts.
Fair value of liabilities and equity instruments not held by other parties as assets should be
measured using a valuation technique from the perspective of the liability issuer. An example
of this is a decommissioning liability.
When using a present value technique to measure such fair value, an entity shall estimate
future cash outflows in fulfilling the obligation.
Bid and Ask Prices
The use of bid prices for asset positions and ask prices for liability positions is permitted under
FRS 113, but is not required.
FRS 113 does not preclude the use of mid-market pricing or other pricing conventions within
a bid-ask spread.
Singapore Financial Reporting Updates September 2012 | 16
Section A: New FRSs (cont’d)
4.
FRS 113 Fair Value Measurements (cont’d)
Fair value hierarchy
FRS 113 establishes a fair value hierarchy similar to that of FRS 107, as follows:
Level 1
(highest priority)
Quoted prices (unadjusted) in an active market for identical assets
and liabilities that the entity can access at the measurement date.
Level 2
Observable inputs other than quoted prices.
Level 3
(lowest priority)
Unobservable inputs.
The fact that information is obtained from an external source (which is the case when an
independent appraisal is used) is not by itself determinative in its classification in this fair value
hierarchy.
FRS 113 requires that the significance of adjustments to observable data be considered in the
context of the overall fair value measurement. That is, when an observable input is adjusted to
reflect differences between the asset being valued and the observed transaction, the
adjustment may render the input a lower level input in the fair value hierarchy.
Disclosure requirements
FRS 113 requires an entity to disclose information that helps users of its financial statements
assess both of the following:
−
For assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the statement of financial position after initial recognition, the
valuation techniques and inputs used to develop those measurements; and
−
For fair value measurements using significant unobservable inputs (Level 3), the
effect of the measurements on profit or loss or OCI for the period.
The disclosure requirements are not required for:
−
plan assets measured at fair value in accordance with FRS 19 Employee Benefits;
−
retirement benefit plan investments measured at fair value in accordance with FRS
26 Accounting and Reporting by Retirement Benefit Plans; and
−
assets for which recoverable amount is fair value less costs of disposal in
accordance with FRS 36 Impairment of Assets.
17 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
4.
FRS 113 Fair Value Measurements (cont’d)
Disclosure requirements (cont’d)
The ASC has significantly expanded the required disclosures related to:
−
fair value to enable users of financial statements to understand; and
−
the valuation techniques and inputs used to develop fair value measurements.
To meet the disclosure objective, minimum disclosures are required for each class of assets
and liabilities measured at fair value (including measurements based on fair value within the
scope of this FRS) in the statement of financial position after initial recognition.
Quantitative disclosures are required to be presented in a tabular format unless another
format is more appropriate.
Principal Impact of FRS 113
The adoption of FRS 113 could result in significant changes to processes and procedures for
determining fair value and providing the required disclosures.
The fair value framework set out in FRS 113 contains specific requirements relating to
“highest and best use”, valuation premise, and principal market. This may require entities
and their appraisers to re-evaluate their methods, processes and procedures for determining
fair value.
Management must understand the methodologies and assumptions used in the valuations
and determine whether the assumptions are reasonable and consistent with the tenets of
FRS 113.
In many cases, the concepts of “highest and best use” and the valuation premise may not
be significantly different from current practice. While the requirement to determine fair
value by reference to market participants is not new, the definition of fair value in FRS 113
differs from that proposed by IVS, which are the generally accepted FRSs for professional
appraisal practice.
Nevertheless, careful consideration is required to identify those situations in which there is a
significant impact. Although the definitions of valuation techniques are now brought in line
with definitions applied by IVS, there are still differences in fair value concepts between FRS
and IVS.
For example, IVS does not recognise a fair value hierarchy and IVS applies a different fair
value definition. Management should be aware of these differences when assessing
appraisals prepared pursuant to IVS.
Singapore Financial Reporting Updates September 2012 | 18
Section A: New FRSs (cont’d)
4.
FRS 113 Fair Value Measurements (cont’d)
Principal Impact of FRS 113 (cont’d)
Considerable judgement may be required when applying fair value measurement concepts
included in FRS 113, such as determining what is the “highest and best use”, valuing an
alternative use, determining the valuation premise, and applying the fair value hierarchy.
Management will want to have a good knowledge of the concepts when making
judgements related to its fair value measurements.
When is FRS 113 effective?
FRS 113 is applicable to annual reporting periods beginning on or after 1 January 2013. An
entity may apply FRS 113 to an earlier accounting period, but if doing so it must disclose the
fact.
Application is required prospectively as of the beginning of the annual reporting period in
which the FRS is initially applied. Comparative information need not be disclosed for periods
before initial application.
19 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
5.
INT FRS 120 Stripping Costs in the Production Phase of a Surface Mine
On 9 April 2012, the ASC has issued INT FRS 120 Stripping Costs in the Production Phase of
a Surface Mine. This Interpretation applies to waste removal costs that are incurred in
surface mining activity during the production phase of the mine (“production stripping
costs”).
In surface mining operations, entities may find it necessary to remove mine waste materials
(“overburden”) to gain access to mineral ore deposits. This waste removal activity is known
as “stripping”.
This Interpretation considers:
(a)
(b)
when and how to account separately for these two benefits arising from the stripping
activity, i.e.:
(i)
usable ore that can be used to produce inventory; and
(ii)
improved access to further quantities of material that will be mined in future
period.
how to measure these benefits both initially and subsequently.
Usable ore that can be used to produce inventory
The entity shall account for the costs of that stripping activity in accordance with the
principles of FRS 2 Inventories using the lower of cost and net realisable value concept.
Improved access to further quantities of material that will be mined in future
period
The entity shall recognise these costs as a non-current asset. This Interpretation refers to the
non-current asset as the “stripping activity asset”. An entity shall recognise a stripping
activity asset, if, and only if, all of the following are met:
(a)
It is probable that the future economic benefit (improved access to the ore body)
associated with the stripping activity will flow to the entity;
(b)
The entity can identify the component of the ore body for which access has been
improved; and
(c)
The costs relating to the stripping activity associated with that component can be
measured reliably.
The stripping activity asset shall be accounted for as an addition to, or as an enhancement
of, an existing asset. In other words, the stripping activity asset will be accounted for as part
of an existing asset.
Singapore Financial Reporting Updates September 2012 | 20
Section A: New FRSs (cont’d)
5.
INT FRS 120 Stripping Costs in the Production Phase of a Surface Mine (cont’d)
The nature of this existing asset will determine whether the entity shall classify the stripping
activity asset as tangible or intangible.
Initial Measurement of Stripping Activity Asset
The entity shall initially measure the stripping activity asset at cost, this being the
accumulation of costs directly incurred to perform the stripping activity that improves access
to the identified component of ore, plus an allocation of directly attributable overhead costs.
Subsequent measurement of the stripping activity asset
After initial recognition, the stripping activity asset shall be carried at either its cost or its
revalued amount less depreciation or amortisation and less impairment losses, in the same
way as the existing asset of which it is a part. The stripping activity asset must be
depreciated or amortised on a systematic basis, over the expected useful life of the identified
component of the ore body that becomes more accessible as a result of the stripping
activity.
Principal Impact of INT FRS 120
Judgement in assessing what constitutes a stripping campaign will have to be considered by
the entity. It is likely that the advance planned removal of overburden and waste material to
allow access to a specific ore body, for many open pit mining operations, could qualify as
stripping campaigns. However, concepts currently considered in practice, such as impact of
specific geological conditions that created variations in stripping ratios, have not been
considered by the Interpretation. The Interpretation could well lead to a substantial impact
on the financial statements of mining entities.
Depending upon the previous accounting policies, entities would need to change their
existing accounting policies and procedures for stripping costs. In addition, an analysis of
past costs and the quantity of ore body to which they relate will be necessary for the
continued capitalisation of such costs on transition. Relevant processes will also have to be
instituted to identify current and future striping campaigns and their related costs.
When is INT FRS 120 effective?
An entity shall apply this Interpretation for annual periods beginning on or after 1 January
2013. Earlier application is permitted. If an entity applies this Interpretation for an earlier
period, it shall disclose that fact.
21 | Singapore Financial Reporting Updates September 2012
Section A: New FRSs (cont’d)
5.
INT FRS 120 Stripping Costs in the Production Phase of a Surface Mine (cont’d)
Transition requirements
On transition an entity shall:
(a)
not reinstate previously expensed stripping costs incurred prior to the beginning of
the earliest period presented (i.e. start of comparative period);
(b)
reclassify any previous stripping asset in the balance sheet as a part of an existing
asset to which the stripping activity related (i.e. following accounting rules in the
Interpretation for any pre-existing stripping assets); and
(c)
derecognise any previously recognised stripping assets where there is no component
of the ore body to which the asset relates (derecognised in opening retained
earnings at the beginning of the earliest period presented).
Singapore Financial Reporting Updates September 2012 | 22
Section B: Amended FRSs
1.
Amendments to FRS 1 Presentation of Items of Other Comprehensive
2.
FRS 19 Employee Benefits
3.
FRS 27 Separate Financial Statements and FRS 28 Investments in
4.
Amendments to FRS 32 Offsetting of Financial Assets and Financial
5.
Amendments to FRS 107 Disclosures - Offsetting of Financial Assets and
6.
Improvements to FRSs 2012
Income
Associates and Joint Ventures
Liabilities
Financial Liabilities
23 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs
1.
Amendments to FRS 1 Presentation of Items of Other Comprehensive Income
Amendments to FRS 1 highlight the following:
1.
Removal of the option to present the statement of comprehensive income in two
separate statements.
2.
Changed the title to “Statement of Profit or Loss and Other Comprehensive Income
(“OCI”)”.
3.
Grouped the items of OCI into:
• items that would be reclassified to profit or loss at a future point in time;
and
• items which will never be reclassified.
The following depicts the differences between the extant FRS 1 and revised FRS 1:
Old
New
Statement of Profit or
Loss and Other
Comprehensive Income
Profit or Loss
Statement
Profit or Loss
Other Comprehensive
Income
Statement of
Other
Comprehensive
Income
OCI not reclassified
OCI reclassified
Previously, the presentation of OCI is as follows:
Other Comprehensive Income:
Gains on property revaluation
Actuarial gains (losses) on defined pension plans
Exchange differences on translating foreign operations
Available-for-sale financial assets
Cash flow hedges
Share of OCI of associates
Income tax relating of OCI
Other comprehensive income for the year, net of tax
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2011
2010
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Singapore Financial Reporting Updates September 2012 | 24
Section B: Amended FRSs (cont’d)
1.
Amendments to FRS 1 Presentation of Items of Other Comprehensive Income
(cont’d)
With effect from 1 July 2012, the presentation of OCI would be presented into the following
manner:
Other Comprehensive Income:
Items never reclassified subsequently to profit or loss:
Gains on property revaluation
Actuarial gains (losses) on defined pension plans
Income tax relating to components of OCI
Items reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations
Available-for-sale financial assets
Cash flow hedges
Share of OCI of associates
Income tax relating of OCI
Other comprehensive income for the year, net of tax
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2012
2011
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Principal Impact of FRS 1
Companies are now required to disclose the OCI into 2 sections as above. As this is only a
disclosure requirement, there will be no financial impact to most companies.
When are the amendments to FRS 1 effective?
An entity shall apply the amendments to FRS 1 for annual periods beginning on or after 1
July 2012.
Transition requirements
Earlier application is permitted. If an entity applies the amendments for an earlier period it
shall disclose that fact.
25 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
2.
FRS 19 Employee Benefits
The biggest impact of the changes is on defined benefit plans and other post-employment
benefits; however, termination benefits and other employee benefits are also affected.
Actuarial gains and losses, the effect of the asset ceiling and the actual return on plan assets
(“re-measurements”) are recognised in the balance sheet immediately, with a charge or
credit to OCI in the periods in which they occur. They are not recycled. The concept of
corridor approach under the extant FRS 19 has been removed.
There will be less flexibility in income statement presentation. Defined benefit cost will be
split into two categories:
(1)
Service cost, past-service cost and settlement; and
(2)
Interest expense or income.
There were no such requirements in the extant FRS 19.
Interest expense or income will now be net interest on the net defined benefit liability
(asset), calculated by applying the discount rate to the net defined benefit liability (asset).
This replaces the interest cost on the defined benefit obligation and the expected return on
plan assets.
New presentation approach to distinguish the different types of gains and losses arising
from defined benefit plans:
Type of gain or loss
Recognition
Service cost (past service cost and settlement)
In profit or loss
Net interest on the net defined benefit liability or
asset
In profit or loss
Re-measurement of the defined benefit liability or
asset
In OCI
A curtailment will only occur when an entity significantly reduces the number of employees.
Curtailment gains and losses will be accounted for as past-service cost. A liability for a
termination benefit will be recognised at the earlier of when the entity can no longer
withdraw the offer of the termination benefit and when the entity recognises any related
restructuring costs.
Singapore Financial Reporting Updates September 2012 | 26
Section B: Amended FRSs (cont’d)
2.
FRS 19 Employee Benefits (cont’d)
Disclosure Requirements
The amendment introduces additional disclosures. The Board focused the disclosure
objectives on the matters most relevant to the users of the financial statements. The
amendment will require disclosure to:
−
explain the characteristics of and risks associated with its defined benefit
plans;
−
identify and explain the amounts in the entity’s financial statements arising
from its defined benefit plans; and
−
explain how the defined benefit plans may affect the entity’s future cash
flows regarding timing, amount and uncertainty.
There are many new disclosure requirements, including:
•
Risks specific to the entity arising from defined benefit plans
A narrative description of the specific or unusual risks arising from a defined benefit
plan is required.
•
Categories of plan assets based on risks/nature
The amendment requires a breakdown of the plans assets into categories that
distinguish the risk and liquidity characteristics and whether or not they have a
quoted market price in an active market.
•
Actuarial assumptions
Entities are required to disclose the significant actuarial assumptions, together with
a sensitivity analysis for reasonably possible variations in each of the significant
actuarial assumptions. Judgement is required to determine which the significant
assumptions are.
•
Reconciliations
A reconciliation between the opening and closing balances for plan assets, the
defined benefit obligation, the balance sheet asset or liability and the effect of the
asset ceiling will be required.
27 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
2.
FRS 19 Employee Benefits (cont’d)
•
Future cash flows
Entities will be required to disclose significant information, in addition to the
sensitivity analyses mentioned above, to help users understand the potential impact
on cash flows, including:
•
−
a narrative description of any asset-liability matching strategies;
−
a description of the funding arrangements and funding policy;
−
the amount of the expected contributions in the next year; and
−
the weighted-average duration of the defined benefit obligation.
Extended disclosures for multi-employer plans
The accounting for multi-employer plans has not changed. However, more
information has to be disclosed for multi-employer plans. For example:
−
A description of the funding arrangements;
−
The extent to which the entity might be liable for other entities’ obligations;
−
Qualitative information regarding any withdrawal liability unless it is
probable that the entity will withdraw;
−
An indication of an entity's level of participation in a plan (for example,
proportion of total members); and
−
The expected contribution in the following year.
Singapore Financial Reporting Updates September 2012 | 28
Section B: Amended FRSs (cont’d)
2.
FRS 19 Employee Benefits (cont’d)
Principal Impact of FRS 19
Judgement will be required to identify those risks that should be explained, which may be
challenging if there are many defined benefit plans with different characteristics within a
group.
The disclosure requirements under current FRS 19 are extensive and sometimes difficult to
understand. The amendment moves away from a checklist of items to an objective of
providing relevant information when plans are material to the entity.
However, the new requirements are likely to require more extensive disclosures and more
judgement to determine what disclosure is required.
Management should also be aware that some of the new disclosures may require additional
actuarial calculations and should consider whether the internal reporting has to be updated
to collect the new disclosures.
When is FRS 19 effective?
An entity shall apply FRS 19 for annual periods beginning on or after 1 January 2013.
Transition requirements
Earlier application is permitted. If an entity applies this FRS for an earlier period, it shall
disclose that fact.
An entity shall apply this FRS retrospectively, in accordance with FRS 8, except that:
(a)
an entity need not adjust the carrying amount of assets outside the scope of this FRS
for changes in employee benefit costs that were included in the carrying amount
before the date of initial application. The date of initial application is the beginning
of the earliest prior period presented in the first financial statements in which the
entity adopts this FRS.
(b)
in financial statements for periods beginning before 1 January 2014, an entity need
not present comparative information for the disclosures required by paragraph 145
about the sensitivity of the defined benefit obligation.
29 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
3.
FRS 27 Separate Financial Statements and FRS 28 Investments in Associates and
Joint Ventures
The ASC also revised FRS 27 Consolidated and Separate Financial Statements and FRS 28
Investments in Associates and Joint Ventures.
FRS 27 (revised) includes the provisions on separate financial statements that are left after
the control provisions of FRS 27 have been included in the new FRS 110 (refer to Section A).
FRS 28 (revised) includes the requirements for joint ventures, as well as associates, to be
equity accounted following the issue of FRS 111 (refer to Section A ).
When are FRS 27 (revised) and FRS 28 (revised) effective?
An entity shall apply these FRSs for annual periods beginning on or after 1 January 2014.
Transition requirements
Earlier application is permitted. If an entity applies these FRSs earlier, it shall disclose that
fact and apply FRS 110, FRS 111, FRS 112 at the same time.
Singapore Financial Reporting Updates September 2012 | 30
Section B: Amended FRSs (cont’d)
4.
Amendments to FRS 32 Offsetting of Financial Assets and Financial Liabilities
The Amendments to FRS 32 clarify that an entity must currently have a legally enforceable
right of set-off if that right of set-off is:
(a)
not contingent on a future event; and
(b)
legally enforceable in all of the following circumstances:
(i)
The normal course of business;
(iii)
The event of default; and
(iii)
The event of insolvency or bankruptcy of the entity and all of the
counterparties.
Principal Impact of Amendment to FRS 32
Some companies currently apply offsetting that are not enforceable under the
circumstances listed above. Those companies have to revisit contracts so as to comply with
the clarified offsetting criteria.
Companies are required to apply the Amendments to financial information in the current
period and in each comparative period presented. FRS 1 requires an entity to present as a
minimum two statements of financial position and to present a third statement of financial
position if the impact of this Amendment is material.
When are the amendments to FRS 32 effective?
The Amendments to FRS 32 is effective for annual periods beginning on or after 1 January
2014. An entity shall apply those amendments retrospectively.
Transition requirements
Earlier application is permitted. If an entity applies those amendments from an earlier date,
it shall disclose that fact and shall also make the disclosures required by Amendments to FRS
107 Disclosures - Offsetting Financial Assets and Financial Liabilities issued in March 2012.
31 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
5.
Amendments to FRS 107 Disclosures - Offsetting of Financial Assets and Financial
Liabilities
The Amendments to FRS 107 contains new disclosure requirements for financial assets and
liabilities that are:
(a)
offset in the statement of financial position or
(b)
subject to master netting arrangements or similar agreements.
Therefore, an entity needs to identify all financial assets and financial liabilities that fall
within the two categories above.
This Amendment does not provide a definition of the term “master netting arrangement or
similar agreements”. However, FRS 32 gives the following characteristics of master netting
arrangements:
(a)
They provide for net settlement of financial instruments covered by the agreement
in the event of default on, or termination of, any one contract;
(b)
They provide protection against losses when a counterparty is unable to meet its
obligations; and
(c)
They create an enforceable right of set-off that may be realised or settled only
following an event of default, insolvency or bankruptcy.
The Amendment explains that their scope includes financial assets and financial liabilities
subject to similar agreements that cover similar financial instruments and transactions.
Term
Similar agreements
Include
- Derivative clearing agreements
- Global master repurchase agreements
- Global master securities lending agreements
- Any related rights to finance collateral
Similar financial instruments and
transactions
- Derivatives
- (Reverse) Sales and repurchase agreements
- Securities borrowing and lending agreements
Singapore Financial Reporting Updates September 2012 | 32
Section B: Amended FRSs (cont’d)
5.
Amendments to FRS 107 Disclosures - Offsetting of Financial Assets and Financial
Liabilities (cont’d)
Financial instruments that are outside the scope of the disclosure requirements (unless offset
in the statement of financial position) include:
−
loans and customer deposit at the same institution; and
−
instruments subject only to a collateral agreement.
The disclosures include a tabular reconciliation of gross and net amounts of financial assets
and financial liabilities, separately showing amounts offset and not offset in the statement
of financial position. An entity is required to disclose each of the following amounts
separately:
(a)
The gross amounts;
(b)
The amounts that are set off in accordance with the criteria in paragraph 42 of FRS 32
when determining the net amounts presented in the statement of financial position;
(c)
The net amounts presented in the statement of financial position, i.e. the difference
between (a) and (b). These amounts should be reconciled to the line item amounts
presented in the statement of financial position;
(d)
The amounts subject to an enforceable master netting arrangement or similar
agreement that are not otherwise included in paragraph 13C(b), including:
(e)
(i)
amounts related to recognised financial instruments that do not meet some or
all of the offsetting criteria in paragraph 42 of FRS 32;
(ii)
amounts related to financial collateral (including cash collateral); and
(iii)
the disclosures include a description of the types and nature of the rights
under those arrangements; and
The net amount after deducting the amounts in (d) from the amounts in (c) above.
Principal Impact of Amendment to FRS 107
An entity may need to use judgement to identify master netting arrangements or similar
agreements.
To identify the financial assets and liabilities subject to a master netting arrangement or a
similar agreement, the entity’s information systems would need to be capable of tagging
and tracking all such assets and liabilities.
33 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
5.
Amendments to FRS 107 Disclosures - Offsetting of Financial Assets and Financial
Liabilities (cont’d)
When are the amendments to FRS 107 effective?
An entity shall apply those amendments for annual periods beginning on or after 1 January
2013 and interim periods within those annual periods. An entity shall provide the disclosures
required by those amendments retrospectively.
Singapore Financial Reporting Updates September 2012 | 34
Section B: Amended FRSs (cont’d)
6.
Improvements to FRSs 2012
The following table summarises the amendments to 5 FRSs under the improvements to FRSs
2012:
FRS and subject
Amendments
Practical Implications
FRS 1 Presentation of Financial Statements
Comparative
Information
The amendment clarifies the • When an entity produces an
disclosure requirements for
additional balance sheet as
comparative
information
required by FRS 8, the balance
when an entity provides a
sheet should be as at the date of
third balance sheet either as
beginning of the preceding period
required
by
FRS
8
– that is, the opening position. No
Accounting policies, changes
notes are required to support this
in accounting estimates and
balance sheet.
errors’ or voluntarily.
• Where management provides
additional
comparative
information voluntarily – for e.g.
statement of profit and loss,
balance sheet - it should present
the supporting notes to these
additional statements.
FRS 16 Property, Plant and Equipment
Clarification
of
servicing equipment
The amendments clarifies • The previous wording of FRS 16
that spare parts and servicing
indicated that servicing equipment
equipment are classified as
should be classified as inventory,
property,
plant
and
even if it was used for more than
equipment
rather
than
one period.
inventory when they meet
• Following
the
amendment,
the definition of property,
servicing equipment used for more
plant and equipment.
than one period is classified as
property, plant and equipment.
35 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
6.
Improvements to FRSs 2012 (cont’d)
FRS and subject
Amendments
Practical Implications
FRS 32 Financial Instruments: Presentation
Income tax relating
to distributions to
holders of an equity
instrument, and of
transaction costs of
an equity transaction
The amendment clarifies the • Prior to the amendment, FRS 32
treatment of income tax
was ambiguous as to whether the
relating to distributions and
tax effects of distribution and the
transaction costs.
tax effects of equity transactions
should be accounted for in the
income statement or in equity.
• The amendment clarifies that the
treatment is in accordance with
FRS 12.
Hence, income tax
related
to
distributions
is
recognised
in
the
income
statement, and income tax
related to the costs of equity
transactions is recognised in
equity.
FRS 34 Interim Financial Reporting
Interim
Financial
Reporting
and
Segment Information
for Total Assets
The amendment clarifies the • The amendment brings FRS 34
disclosure requirements for
into line with the requirements of
segment assets and liabilities
FRS 108 Operating Segments.
in
interim
financial
• A measure of total assets and
statements.
liabilities is required for an
operating segment in interim
financial statements if such
information is regularly provided
to the chief operating decision
maker and there has been a
material
change
in
those
measures since the last annual
financial statements.
Singapore Financial Reporting Updates September 2012 | 36
Section B: Amended FRSs (cont’d)
6.
Improvements to FRSs 2012 (cont’d)
FRS and subject
Amendments
Practical Implications
FRS 101 First-time Adoption of FRSs
Repeat application of
FRS 101
The amendment clarifies that
an entity may apply FRS 101
more than once under certain
circumstances.
• An entity that previously
applied FRS but then stopped is
permitted but not required to
apply FRS 101 when it
recommences applying FRSs.
• The FRS 101 provisions are
designed to ease the process of
transition to FRS. For an entity
that was previously an FRS
preparer, applying FRS 1 as if
no FRS financial statements had
ever been prepared may be
more burdensome than simply
resuming the preparation of
FRS financial statements.
• To
avoid
abuse,
the
amendment
requires
management to disclose why it
stopped preparing FRS financial
statements and why it was
resumed.
37 | Singapore Financial Reporting Updates September 2012
Section B: Amended FRSs (cont’d)
6.
Improvements to FRSs 2012 (cont’d)
FRS and subject
Amendments
Practical Implications
FRS 101 First-time Adoption of FRSs (cont’d)
Borrowing
costs
relating to qualifying
assets for which the
commencement date
for capitalization is
before the date of
transition to FRSs
The amendment clarifies that From whichever date, the entity
an entity can choose to chooses to adopt FRS 23:
adopt FRS 23 Borrowing
• Borrowing costs under previous
Costs, either from its date of
GAAP are not restated; and
transition or from an earlier
date.
• FRS 23 applies to borrowing
costs on qualifying assets that
were under construction at the
date of transition, irrespective of
whether borrowing costs were
capitalized
under
previous
GAAP.
Consequential
amendments to FRS
101 as a result of the
above amendment to
FRS 1
The
consequential A first-time adopter should provide
amendment clarifies that a supporting notes for its transition
first-time adopter should balance sheet.
provide the supporting notes
for all statements presented.
Principal Impact on Improvements to FRSs 2012
Entities should re-evaluate existing policies, procedures or disclosure practices prior to the
effective date even though the amendments made are generally intended to clarify
requirements rather than result in substantive changes to current practice.
When are these Improvements to FRSs 2012 effective?
The effective date would be for annual periods beginning on or after 1 January 2013 and
the amendments would be applied retrospectively.
Singapore Financial Reporting Updates September 2012 | 38
Section C: Other Matters
1.
Revised Code of Corporate Governance
2.
Risk Governance for Listed Boards (Guidance)
39 | Singapore Financial Reporting Updates September 2012
Section C: Other Matters
1.
Revised Code of Corporate Governance
On 2 May 2012, the Monetary of Authority (“MAS”) has issued the 2012 Code of
Corporate Governance. The 2012 Code of Corporate Governance will supersede the Code
of Corporate Governance issued in July 2005.
The key changes to the 2012 Code of Corporate Governance are focused on the areas of:
−
Director independence,
−
Board composition,
−
Director training,
−
Multiple directorships,
−
Alternate directors,
−
Remuneration practices and disclosures,
−
Risk management, as well as,
−
Shareholder rights and roles.
The 2012 Code of Corporate Governance is based on all the recommendations of the
Corporate Governance Council (“Council”) except for the recommendations related to
director independence which has been modified.
Our publication, Singapore Financial Reporting Update September 2011, has included all the
recommendations of the Council. The modifications are underlined in the recap of key
changes below:
(a)
Definition of director independence:
(i)
The term “5% shareholder” in the recommendations of the Council,
highlighted in our publication, Singapore Financial Reporting Update
September 2011, has been changed from 5 per cent to 10 percent.
The term “10% shareholder” in the 2012 Code of Corporate Governance
is defined as a person having a 10% or more interests in the voting shares
of the listed company.
This would mean that more directors may be considered independent.
Singapore Financial Reporting Updates September 2012 | 40
Section C: Other Matters (cont’d)
1.
Revised Code of Corporate Governance (cont’d)
(ii)
Under the recommendation by the Council highlighted in our publication,
Singapore Financial Reporting Update September 2011, a director would
not be considered interdependent if he/she is or was in the current or any
of the past three financial years, a substantial shareholder, partner,
executive officer, or director of organisations to which the company or any
of its related corporation made, or received significant payments or material
services in the current or immediate past financial year.
The 2012 Code of Corporate Governance has reduced the period of
relationship or past relationship with substantial shareholding (now 10 per
cent as referred to in (i) above) from three years to the current or last
financial year.
A director who is a substantial shareholder, or an immediate family member
of a substantial shareholder, or is/was directly associated with a substantial
shareholder in the current or immediate past financial year would be
considered non-independent.
(b)
Listed companies will be required to disclose in their annual reports, corporate
governance practices with reference to the 2012 Code of Corporate Governance,
and explain any deviations from any Principles, and Guidelines of the 2012 Code of
Corporate Governance with effect from financial year commencing on or after
1 November 2012 as follows:
Effective dates
For listed company
with 31 December
year-end
For listed company
with 30 June year-end
Effective from financial
year commencing on or
after 1 November 2012.
Effective for the financial
year beginning on 1
January 2013.
Effective for the financial
year beginning on 1 July
2013.
Changes to be made at
the AGM following the
end of the relevant
financial
year
commencing on or after
1 November 2012.
Changes to be made
latest by 30 April 2014,
i.e.,
at
the
AGM
following the financial
year
ending
31
December 2013.
Changes to be made
latest by 31 October
2014, i.e., at the AGM
following the financial
year ending 30 June
2014.
41 | Singapore Financial Reporting Updates September 2012
Section C: Other Matters (cont’d)
1.
Revised Code of Corporate Governance (cont’d)
(c)
Exception to changes effective from financial years commencing from 1 November
2012 for the new Guideline 2.2 on Board composition.
A longer transition period will be provided for board composition changes needed
to comply with the requirement to make up at least half of the Boards in the
following circumstances to comply with the new Guideline 2.2 on Board
composition:
(a)
The Chairman of the Board (the “Chairman”) and the chief executive officer
(the “CEO”) (or equivalent) is the same person;
(b)
The Chairman and the CEO are immediate family members;
(c)
The Chairman is part of the management team; or
(d)
The Chairman is not an independent director.
The above changes should be made at the Annual General Meetings following the
end of financial years commencing on or after 1 May 2016 as follows:
(d)
Effective dates
For listed company with
31 December year-end
For listed company
with 30 June year-end
Changes to be made at the
AGM following the end of
the financial year
commencing from 1 May
2016 onwards.
Changes to be made latest
by 30 April 2018 (i.e., at the
AGM following the financial
year ending 31 December
2017).
Changes to be made latest
by 31 October 2017 (i.e., at
the AGM following the
financial year ending 30
June 2017).
Risk management
In our publication, Singapore Financial Reporting Update September 2011, we have
highlighted that the Board should, at least annually, review and comment in its
annual report the adequacy and effectiveness of the company's internal control
systems, including financial, operational, compliance and information
technology controls, and risk managements systems.
The new SGX listing Rule 1207(10) requires an issuer to disclose in its annual report,
the opinion of the Board, with the concurrence of the AC, on the adequacy of the
internal controls, addressing financial, operational and compliance risks.
Singapore Financial Reporting Updates September 2012 | 42
Section C: Other Matters (cont’d)
1.
Revised Code of Corporate Governance (cont’d)
(d)
Risk management (cont’d)
The 2012 Code of Corporate Governance also requires the Board to comment on
the adequacy and effectiveness of the internal controls addressing these three areas.
However, in addition to the above three areas, the 2012 Code of Corporate
Governance also requires the Board's comment on the company's information
technology controls and risk management systems.
Guidance on be obtained from Appendices F and G of the Council's Risk
Governance Guidance for Listed Boards (discussed in the last section of this
publication) in these areas.
The following are the extracts of internal controls requirements for Singapore listed
companies:
Requirements
Details
Listing rule 719 (1)
An issuer should have a robust and effective system
of internal controls, addressing financial, operational
and compliance risks.
The AC (or such other committee responsible) may
commission an independent audit on internal
controls for its assurance, or where it is not satisfied
with the systems of internal control.
Companies Act Section 201
(B) (5)(a)(ii)
The functions of an AC shall be to review with the
auditor, his evaluation of the system of internal
accounting controls.
2012 Code
Governance
Guideline 11.1:
of
Corporate
43 | Singapore Financial Reporting Updates September 2012
“The Board should determine the company's levels
of risk tolerance and risk policies, and oversee
Management in the design, implementation and
monitoring of the risk management and internal
control systems.”
Section C: Other Matters (cont’d)
1.
Revised Code of Corporate Governance (cont’d)
(d)
Risk management (cont’d)
Requirements
Details
2012
Code
of
Corporate Governance
(cont’d)
Guideline 11.2:
“The Board should, at least annually, review the adequacy
and effectiveness of the company's risk management and
internal control systems, including financial, operational,
compliance and information technology controls. Such
review can be carried out internally or with the assistance
of any competent third parties.”
Guideline 11.3:
“The Board should comment on the adequacy and
effectiveness of the internal controls, including financial,
operational, compliance and information technology
controls, and risk management systems, in the company's
Annual Report. The Board's commentary should include
information needed by stakeholders to make an informed
assessment of the company's internal control and risk
management systems.”
Guideline 12.4 (b):
“The duties of the AC should include reviewing and
reporting to the Board at least annually the adequacy and
effectiveness of the company’s internal controls, including
financial operational, compliance and information
technology controls (such review can be carried out
internally or with the assistance of any competent third
parties).”
You can download soft copies of the 2012 Code of Corporate Governance from:
http://www.mas.gov.sg/resource/fin_development/corporate_governance/cgcrevisedcodeofc
orporategovernance2may2012.pdf
Singapore Financial Reporting Updates September 2012 | 44
Section C: Other Matters (cont’d)
1.
Revised Code of Corporate Governance (cont’d)
Principal Impact on the 2012 Code of Corporate Governance
As the 2012 Code of Corporate Governance will take effect in respect of Annual Reports
relating to financial years commencing from 1 November 2012, listed entities should have
systems to address the changes.
Under the Code of Corporate Governance issued in July 2005, the Board of Directors’ (the
“Board's”) responsibility is limited to ensuring management maintains a sound system of
internal controls and reviewing (via the AC) the adequacy of the internal controls and risk
management policies and systems. Now, the responsibility of risk governance has been
added as part of the Board's responsibilities in the 2012 Code of Corporate Governance.
Hence, the Board's responsibility over risk management has become more explicit now.
The Board will need to work more closely with management and internal audit to identify all
sources where internal controls are assessed and report the results to the Board on a timely
basis. It is inevitable that the Board will be presented with more information and the real
challenge is to sieve out those that matter.
45 | Singapore Financial Reporting Updates September 2012
Section C: Other Matters (cont’d)
2.
Risk Governance Guidance for Listed Boards (Guidance)
Following the issuance on the 2012 Code of Corporate Governance, on 10 May 2012, the
Corporate Governance Council has released its Risk Governance Guidance for Listed Boards
(Guidance).
The Guidance is to provide key information on risk governance to all Board members and
practical guidance for Boards on risk governance of companies listed on the Singapore
Exchange. The Guidance would include factors which the Board should collectively consider
when overseeing the company’s risk management framework and policies.
The Guidance also spells out the Board's and Management’s respective responsibilities in
managing the company's risks. The Guidance is not meant to be a new rulebook or to
prescribe additional standards. Its purpose is to enhance the awareness of Board members,
and spur them to work towards strong corporate governance in their companies.
The Guidance aims to provide the Board, and management with an understanding of the
following:
−
What is risk governance?
−
Who is responsible for risk governance, and implementation of risk governance
policies/measures?
−
What constitutes a sound system of risk management, and internal controls?
−
How to ensure that the risk management and internal controls system is adequate,
and effective?
−
What goes into a risk management policy?
−
How can risk tolerance be determined?
−
What does a risk management process look like?
−
What are some of the key IT risk?
−
What should be disclosed in the annual report with respect to risk management,
and internal controls?
In terms of structure, the text of the Guidance provides key information on risk governance
to the Board, while the appendices contain details of risk management concepts, as well as
samples and templates, which the Board and Management may find useful in the company‘s
risk governance.
This guidance is neither exhaustive nor prescriptive. Boards should exercise their own
judgment on the manner and extent to which the guidance would be applicable to them
and their listed companies, having regard to each company‘s circumstances.
Singapore Financial Reporting Updates September 2012 | 46
Section C: Other Matters (cont’d)
2.
Risk Governance Guidance for Listed Boards (Guidance) (cont’d)
You can download soft copies of the Guidance from:
http://www.mas.gov.sg/resource/fin_development/corporate_governance/RiskGovernanceGu
idanceforListedBoards.pdf
Principal Impact on the Guidance
Bigger issuers will continue with the existing formal corporate governance practices, albeit
the need for enhancement to develop an integrated risk management and controls
framework, making reference to the Guidance, to provide greater clarity to third parties
(e.g., shareholders and legislators).
For the smaller issuers where resources are harder to come by, initial effort is required to
take stock of existing risk management activities, align them with the business objectives
and complement the existing activities with additional risk management measures (including
the related mitigating controls), if necessary. Finally, the issuer should develop an integrated
risk management framework similar to that recommended for bigger issuers above.
47 | Singapore Financial Reporting Updates September 2012