Jurisdiction - Singapore
Singapore – ACRA’s Financial Reporting Guidelines For Financial Years Beginning On Or After 1 January 2013.

3 June, 2014



The Accounting and Corporate Regulatory Authority (“ACRA“) has, on 23 April 2014, issued a new practice direction and practice guidance (collectively, the Guidelines“) in relation to directors’ duties in relation to financial reporting and review, as well as setting out the sanction process and review focus of the Financial Reporting Surveillance Programme (“FRSP“) administered by ACRA for financial years beginning on or after 1 January 2013 (“FY2013“). 

Recognising the need for investors and other stakeholders to be assured of the reliability and accuracy of financial information they receive from companies, the FRSP was established in 2011 by ACRA to review selected financial statements, in order to detect and enforce against financial reporting breaches. The Guidelines are intended to remind directors of the risks of misstatements and/or nondisclosures in the financial statements as well as the information needs of shareholders and other stakeholders. In addition, it also serves to highlight the review focus of ACRA pursuant to the FRSP in connection with new Accounting Standards that have been introduced.


Directors’ General Duties In Relation To Financial Reporting


Companies Act


Directors of companies incorporated in Singapore and Singapore branches of foreign companies are required to present and lay before the company, at its annual general meeting, financial statements that:


(a) comply with the Singapore Financial Reporting Standards, the Singapore Financial Reporting Standards for Small Entities and the Charities Accounting Standards (as applicable) (collectively, the “Accounting Standards”), issued by the Accounting Standards Council; and (b) give true and fair view of the profit and loss, as well as the state of affairs of the company. 

General Duties 

Arising from this statutory obligation, directors must exercise care, competence and diligence in their review of the financial statements that are presented to shareholders. Generally, they must ensure that they have read, understood and enquired into the form and contents of the financial statements. While directors are not expected to be accounting experts, they should have sufficient and up-to-date knowledge of the accounting principles and practices to perform an effective high-level review of the financial statements. In addition, directors are also required to maintain a system of internal accounting controls and keep proper accounting and other records respectively that will enable the preparation of true and fair profit and loss accounts and balance-sheets.


Management And Professionals


To assist directors in discharging their obligations under the Companies Act, directors should also ensure that the senior management of the company, including the chief executive officer (“CEO“) and the chief financial officer (“CFO“) has adequate knowledge, competence, experience and integrity to undertake their roles. While assurances from the CEO and CFO do not diminish the directors’ responsibility to ensure compliance with the Companies Act, directors can derive comfort that the management has exercised due care in the financial reporting process. The management must also maintain a competent and adequately resourced finance function who can prepare high quality financial statements. ACRA encourages companies to recruit qualified accountants who are kept abreast of any financial reporting developments. 

Directors can also obtain professional accounting advice and/or outsource the keeping of accounting and other records to professional accounting service providers. However, it must be highlighted that the directors remain ultimately responsible and must ensure that the persons appointed are suitably qualified, and any advice sought is unbiased and objective. The obligation on directors to maintain an accounting and other records also continues to exist even if such books and records are outsourced to a third party.


Independent Auditors


Independent auditors are required to communicate with those charged with governance on significant audit findings, prior to the issuance of the audit reports. Directors should seek to resolve these issues amicably, but should not rely on the independent auditor in forming their own opinion on the financial statements.


Additional Guidelines For Directors In Connection With The Areas Of The FSRP’s Review Focus For FY2013


New Accounting Standards


Directors are encouraged to review and understand all new Accounting Standards that have been introduced, such as those requiring companies to reconsider their scope of consolidation and how to account for joint ventures.


In particular, ACRA has highlighted the new Financial Reporting Standard (FRS) 113 “Fair Value Measurement” which applies to financial years beginning on or after 1 January 2013, provides a single framework for measuring fair value and requires disclosure about fair value measurement. Directors, in particular, of companies with significant investment property carried at fair value should ensure that this new Fair Value Measure standard is complied with, and that adequate disclosure is made in the financial statements. 

Accounting Policies, Judgements And Uncertainties 

Directors should review the significant accounting policies and ensure their relevance. The significant accounting policies must be complete for all material items; meaningfully explain the actual business practices, activities and operation, rather than described using general phrases from the accounting standards; and reflect the substance of the transactions.


Where there are significant judgements in applying accounting policies or where there are estimation uncertainties (such as where a company has material uncollectible trade receivables, obsolete inventories and contingent liabilities) specific disclosures of such judgements and sources of estimation uncertainties must be made. Directors are to avoid boilerplate disclosures and should include disclosures such as the sensitivity of the carrying amounts to the underlying methods, assumptions and estimates, the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected. 

Even though directors are not expected to be accounting experts, they can question accounting treatments applied when the treatment does not reflect their understanding of the substance of arrangement. They should also apply professional scepticism when assessing management’s views’ on areas of significant judgements and estimates. 

Going Concern


Directors need to be realistic with their assumptions about a company’s future prospects. They should continue to review the company’s ability to refinance maturing debt and ongoing compliance with loan covenants, and focus on the classification of assets and liabilities between current and non-current. Where material uncertainty exists on the assessment of a company to be a going concern, the financial statements must adequately disclose the uncertainty and the justifications for considering the company to be a going concern despite such uncertainty. 

Asset Value And Impairment Testing 

Directors should focus on the recoverability of the carrying values of non-current assets including goodwill, other intangibles and property, plant and equipment. They should also exercise professional scepticism and challenge the appropriateness of asset values and assumptions underlying the impairment calculations, particularly in the context of dynamic economic conditions and where prior period financial forecasts have not been met. Where the carrying amount of the company’s net assets is greater than its market capitalisation, an impairment test should be performed. Disclosure must be made in the financial statements of (a) the events and circumstances that led to the recognition or reversal of each material impairment loss; (b) significant judgements and estimates for any impairment test conducted on material assets; and (c) where a recoverable amount has been determined on the basis of value in use, each key assumption on which the management has based its cash flow projection and its approach to determining the values assigned to each assumption. 

Financial Risk And Capital Management Disclosures 

Additionally, directors should ensure that the financial risk and capital management disclosures provided enable an understanding of the nature or extent of the company’s exposure to risk or how it is managed in practice. The Guidelines remind directors that the company’s financial risks should be continually evaluated, and disclosures, in particular, about the company’s policies and processes for risk management, should be reconsidered accordingly, rather than repeat previously published information. If the quantitative information is not representative of the company’s position during the financial year, directors should also consider providing further information that would be more representative. 

Related Party Disclosures


Directors should also ensure that related party disclosures are made clearly and adequately in accordance with FRS 24 “Related Party Disclosures”. This includes disclosing the nature of the related party relationship and specific terms and conditions relating to each type of transactions and outstanding balances.
Consolidated Financial Statements


Directors are further reminded that unless the exemption criteria specified in FRS 27 “Separate Financial Statements” are met, consolidated financial statements should be prepared when a company has one or more subsidiaries, and comparative information should be similarly presented on a consolidated basis.


FRSP Review And Sanction Process


ACRA adopts a risk-based approach in prioritising financial statements for review, based on various factors. Emphasis will be placed on financial statements of public and large private companies with, modified audit opinions, audit opinions with emphasis of matter paragraph, significant public interest risks, change in listing or trading status, significant change in key stakeholders, or operations that require subjective judgement in accounting for its transactions. 

Where there are matters requiring additional information upon review of the financial statements, ACRA will raise formal enquiry letters to each individual director and/or the auditors who authorised the financial statements to request for explanation when they have enquires regarding the statements. Directors and/or auditors have to respond to the enquiry letters within 2 to 3 weeks. 

Should ACRA find that there has been a financial reporting breach, it can impose sanctions such as issue an advisory letter, issue a warning letter, impose a fine by offer of composition; and prosecution leading to fines and/or imprisonment. Where directors of companies listed on the Singapore Exchange Securities Trading Limited (“SGX-ST“) have been the subject of any such regulatory sanctions, directors are reminded to consider whether such sanctions require disclosure pursuant to Rule 703 of the listing rules of the SGX-ST. 

Where significant prior period corrections are made in the next set of annual financial statements as a result of ACRA’s review, the company may be required to disclose this fact in the notes to the financial statements explaining the correction.


Where there are severe financial reporting breach(es), the company may also be required to rectify the deficient financial statements, have the restated financial statements re-audited and re-file the restated financial statements with ACRA


ATMD Bird & Bird


For further information, please contact:


Jolie Giouw, ATMD Bird & Bird

[email protected]


Regulatory & Compliance International Law Firms in Singapore

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