ICPAS EMPHASISES THE USE OF PROPER ACCOUNTING TREATMENTS
& THE ROLES & RESPONSIBILITIES OF DIRECTORS & MANAGEMENT
The
Corporate Governance Committee (CGC) of the Institute of Certified Public
Accountants of Singapore (ICPAS), as an advocate of best corporate governance
practices, would like to express its view on specific accounting treatments and
the roles and responsibilities of company directors and management.
Accounting Treatments - Substance Over Form and Revenue
Recognition
Substance Over Form
Firstly, the Institute
would like to remind preparers of financial statements to account for and
present the business transactions in accordance with their substance and not
merely their legal form. This is because
the substance of transactions is not always consistent with what is apparent
from their legal or contrived form.
Example 1
Entity A may be holding
only a small percentage (say, less than 20%) of voting shares of Entity B, but
may be controlling Entity B by virtue of a power to cast the majority of votes
at meetings of the board of directors.
In such a situation, Entity A has control over Entity B in substance
although this does not appear to be so in form.
As such, Entity A would need to prepare consolidated financial
statements for reporting purposes in accordance with the Financial Reporting
Standards (FRSs).
Example 2
Entity C may dispose off
an asset to Entity D in such a way that the documentation purports to pass
legal ownership to Entity D. Nevertheless,
agreements may exist that ensure that Entity C continues to enjoy the future
economic benefits embodied in the asset.
In such circumstances, the reporting of a sale would not represent
faithfully the transaction entered into.
Revenue Recognition
Secondly, the Institute
would like to emphasise that recording of sales prior to delivery of goods to
customers is inappropriate. Preparers of
financial statements should be cognizant of revenue recognition principles that
comprise conditions like the transfer of beneficial ownership and measurement
reliability.
Dr Ernest Kan, Chairman of
the Institute’s CGC and Vice President of ICPAS, commented: “Financial
statements are used by investors, employees, suppliers and government agencies,
etc. to satisfy their different needs for information. When financial statements comply with FRSs,
such financial statements provide users with meaningful information for their
purposes.”
Roles and
Responsibilities of Company Directors and Management
Thirdly, the Institute
would like to state its views on the roles and responsibilities of company
directors and management:
·
Directors of
companies that are listed on the stock exchange or are planning a listing on
the stock exchange should be cognizant of their responsibilities not only with
regard to corporate legislation but also with regard to the stock exchange’s
listing rules and other relevant regulations.
·
Directors who
are not familiar with their duties and responsibilities should attend
appropriate training in these areas, as well as other areas like corporate
governance.
·
As a corporate
governance measure, the audit committee is required to be established by a
listed company. One of the major
responsibilities of the audit committee is to oversee the financial reporting
process. As such, management should
assist in and not obstruct the audit committee’s efforts to uphold good
corporate governance.
Conclusion
ICPAS would like to
reiterate that it expects all its members to comply fully with the Institute’s
Code of Professional Conduct and Ethics.
Members should always uphold integrity in all their assignments and
endeavours.
Notes:
Financial
statements of companies in Singapore are prepared in accordance with Financial
Reporting Standards (FRSs) issued by the Council on Corporate Disclosure and
Governance (CCDG) and are a principle-based accounting framework based on
International Financial Reporting Standards (IFRSs) issued by the International
Accounting Standards Board (IASB).
About ICPAS
The Institute of Certified
Public Accountants of Singapore (ICPAS) is the national organisation for the
accountancy profession in
About the
Corporate Governance Committee
The
Institute of Certified Public Accountants of Singapore is a strong advocate of
best corporate governance practices and this is normally achieved through the
activities of its Corporate Governance Committee. The Corporate Governance Committee (CGC) aims
to draw on the experience of auditors, accountants, consultants and business
people working in different fields to take a proactive role in the development,
implementation and promotion of sound corporate governance. Its terms of reference include reviewing matters
relating to corporate governance, conducting relevant research and consultation
on corporate governance in a proactive manner, drafting of consultative papers
and other legislative and regulatory proposals, and guidelines to members in
the form of study reports, proposing changes to the Listing Rules and the Code
of Corporate Governance and other related laws and regulations as appropriate
and exchanging views with government, regulatory bodies, professional bodies
and other relevant organisations on matters relating to corporate governance.
The members of CGC are:
·
Dr Ernest Kan
Yaw Kiong - Chairman
Vice
President, ICPAS
Partner,
Deloitte & Touche
·
Associate
Professor Mak Yuen Teen - Deputy Chairman
Director,
Corporate Governance and Financial Reporting Centre, NUS
·
Mr Bill Bowman
Director
– Business Processes, Infineon Technologies Asia Pacific Pte Ltd
·
Dr Ayadurai
Jothidas
Vice
President / Chief Administrative Officer Asia Pacific, Via Systems, Inc.
·
Mr Rohan Kamis
Managing
Partner, Rohan Mah & Partners
·
Mr Kon Yin Tong
Managing
Partner, Foo Kon Tan Grant Thornton
·
Associate
Professor Lee Kin Wai
Assistant
Professor,
·
Mr R. Dhinakaran
Managing
Director, MB Melwani Pte Ltd
·
Mr Tom Yee Lat
Shing
Council
Member of ICPAS
Independent
Director, Various listed companies