IFRS 3 – Business Combinations

Crux of the issue
When company Alpha buys company Beta, there are leeways and incentives for Alpha to plan its allocation between goodwill and intangible assets arising.

If Alpha’s objective were to maximise reporting of profit, it would be under-reporting the value of intangible assets and over-reporting the value of goodwill.

How come?
Goodwill is not amortised nowaday but subject to impairment test. The clever CFOs have discovered that it would easier to avoid an impairment charge.

Auditors, without a significant authoritative alternative source of info to verify the value of goodwill, would generally concur with the recommendation of the management.

Whereas for acquired intangible assets, they are separately valued on the balance sheet and subject to impairment test too. But as they are separately valued, each asset is individually tested for impairment. Thus it presents a higher risk of being devalued.

All borrowing costs are now deductible

Current tax treatment
When is interest expense tax deductible?
Under section 14(1)(a), only interest expenses incurred on capital employed in acquiring income chargeable with tax is allowable against the income earned.

Only interest expenses, incurred on loans that are used to buy assets that make income that are taxable by IRAS, are therefore tax-deductible.

Thus if you used company’s loan facilities to buy “Mona Lisa” for your own enjoyment, then the interest expenses are not tax deductible. But if you charge entrance fees on people who come and see the painting, it would deductible against the income you generated.

Are other borrowing costs tax deductible against chargeable income too?
Under current treatment, the answer is NO.
New tax treatment
What is the effective date?
From Year of Assessment 2008.

What has changed?
Besides interest expense, the other borrowing costs will also be granted tax deduction under section 14 (1) (a). Examples of such borrowing costs are listed below:-
  1. Guarantee fees
  2. Bank option fees
  3. Discounts on notes and bonds
  4. Premiums on redemption of notes or bonds
  5. Prepayment fees/ early redemption fees
  6. Extension fees
  7. Increased costs due to any upward interest rate adjustments when
    certain event occurs as specified in the loan agreement
  8. Interest rate cap rate premiums
  9. Interest rate swap payments
  10. Conversion fees
  11. Cancellation fees
Why the change?
The people, who are “sufferring” from paying the bankers so many types of fees in different names all these years, have successfully persuaded the Authority to accept theses expenses as tax deductible.

On what basis?
The Authority now accepts the argument that all fees payable to the bank to secure a loan facility are part of “interest rate” payable. Without charging all these “miscellaneous” fees, the banks would ask for a higher interest rate from the borrowers anyway.

Last words – So the next time you are going to pay anything to the bank, please make sure they name the fees as one of the above 11 acceptable names above.

Practical Experience Requirement (PER) Part 3

for u…

Question from a Student
“I applied as SAA student before Jan 2007. BUT i’m not working in an accounting field as i’m not studying business related course during poly days. Hence does this apply to me? Do i need to change to a accounting related job before Dec 2007?”
First and foremost, all students and affiliates of ACCA will be affected by PER.
To get the four letters “ACCA” at the end of your name, GENERALLY you have to take 3 steps.
– Exams
– Ethics
– Experience ie. PER
So whether you are working directly or indirectly in an accounting-related job, you must be able to fulfill the lucky 13 performance objectives.
The first 9 Essentials are from 3 main areas ie.
  • professionalism / ethics / governance
  • personal effectiveness
  • business management

As you can see, these are generally non-accounting/financial related and should be achievable by all.

The next 4 are to be chosen from 11 from 5 areas. They are definitely accounting/finance related but they are strictly not accounting/finance jobs. The details are as follows:-

Financial accounting and reporting
– prepare financial statements for external purposes
– interprete financial transactions and financial statements

Performance measurement and management accounting
– prepare financial information for management
– contribute to budget planning and production
– monitor and control budgets

Finance and financial management
– evaluate potential business / investment opportunities and the required finance options
– manage cash using active cash management and treasury systems

Audit and assurance
– prepare for and collect evidence for audit
– evaluate and report on audit

– evaluate and compute taxes payable
– assist with tax planning

So realistically, what should you do?
Answer – Get yourself involved actively in at least 4 of the above activities. Diarise the whole process for each activity so as to evident your involvement. Your supervisor must be satisfied with your participation to finally sign off.

You have time to achieve all 13 ie. from the day you start work till whenever you are ready over different supervisors / departments / employers / companies etc.

So it is good to keep PER info in your office all the time!

Welcome more questions. Till then, cheers.

Practical Experience Requirement (PER) Part 2

Only existing students / affiliates who had registered for ACCA Qualification before Jan 2007 need to read this posting.

For existing students, you are required to convert to the NEW Practical Experience Requirements (PER) by 31 Dec 2007.

To assist you, an online conversion tool is available.

You can use this tool to convert and record existing experience to the new PER.

You can then use the TDM to log the performance objectives TO BE achieved as part of the new PER.

For affiliates applying for membership, ACCA will continue to accept applications based on current STRs until 30 Jun 2008.

Always remember
Get your Student Training Record (STR under old scheme) or PER sign off by your supervisor every year and/or BEFORE you resign!

GST Advance Ruling System (GST ARS)

What is that?
When you seek guidance from Comptroller of Goods and Services Tax (“CGST”) in writing, CGST’s reply in writing becomes an authority you can rely upon ie. legally binding.

The actual definition:-
An advance ruling is a written interpretation the CGST gives to a specific person, stating how specific provisions of the GST Act will apply for a particular business arrangement or a specific transaction.

You would not ask ARS to be applied on daily-bread-and-butter issues where they are sufficiently covered/explained under existing terms.

You would use ARS for complex business arrangement or a transaction that is never or not commonly done in Singapore before.

So what had CGST been doing in the past?
Just provide guidance that are not legally binding to entrepreneurs seeking affirmation that they are not breaking any laws or impact their bottomline estimation.

What is this applicable?
The new section 90A, together with a new Fifth Schedule, will be enacted and effective from 1 July 2007.

Any fees payable?
Of course, this is Singapore, you know. Albeit on a cost recovery basis.
From a fixed application fee, to possible hourly rate, any disbursements, fees payable for expertise needed but not available in IRAS etc etc.

NKF – When auditors are not up to mark


Read this article by Ms Lee Su Shyan “When auditors fail to measure up to mark” from some time back.

PricewatehouseCoopers (PwC), who had been the auditor for last few years before the debacle, was blamed for NOT raising the alarm on the various excesses and deficiencies within NKF.

KPMG, who was appointed to do a special audit, found costs and subsidies were inflated and manipulated.

What did Ms Lee say to mitigate PwC’s sad position?
There were supposed to be other people or entities within NKF who also have responsibilties to protect the stakeholders’ interests. These people or entities were:-
  • independent directors,
  • audit committee and;
  • internal auditors.
All these people or entities did not challenge “the quiet acceptance that ran through the organisation”. So does it imply that PwC’s responsibility as an auditor, would be any lesser?
FYI – KPMG found errors totalling $2mio against an adjusted surplus of $29.2mio. Deemed not all that “material”. So in numerical terms, PwC’s performance is not that bad.
Ms Lee highlighted the blessings that we should count.
  • NKF’s assets and reserves are largely intact.
  • There were some but not crippling excesses by its ex-chief executive.
  • NKF is still functioning and serving its patients today.
  • PwC had been charging NKF a nominal annual audit fee of $35,000 as compared to hundreds of thousands dollars chargeable for similar audits.
  • KPMG too charged NKF a nominal fee of only $100,000 for the special audit.
Since Humpty Dumpty (NKF) has had a great fall, all the King’s men and all the King’s horses are putting Humpty Dumpty back together again (for the sake of all the kidney patients).

ACCA CBEs for P1.1 and P1.2 in transition

Dear friends,

The following information is courtesy of SAA on the terms of offer of CBEs during the transition from OLD to NEW syllabus.

The last date that P1.1 and P1.2 will be offered by ACCA UK for CBE is Friday 12 October 2007.

But the last date that SAA will offer ACCA CBE under the old syllabus (Papers 1.1 and 1.2) is Friday, 14 September 2007.

New Syllabus
The date from which the new ACCA qualification F1, F2 and F3 examinations will be available as CBE is Wednesday 17 October 2007.

The first month that SAA will offer ACCA CBE under the new syllabus (Papers F1 – F3) is November 2007.

Passes in P1.1 and P1.2 will be automatically converted to the equivalent passes of F3 and F2 respectively.

Paper-based exam and/or CBE?

Hi – This is the revised version as of 13 Jun 2007.

Just finished my P1.1 exam in Jun 2007. Being not confident, I signed up for CBE in Aug 2007. Which results will ACCA take?

Ed asked : What if i failed my paper-based exam after the release of the exam results but passed my Aug CBE?
SAA said : Aug’s CBE result. Accounted as a pass for Dec 07 exam and student can only take 3 more Papers, including CBE, for Dec 07 Exam.

Ed asked : What if I passed both paper-based exam and CBE?
SAA : Paper-based exam’s result.

ACCA Paper 1.1 Exam ended a few hours ago.

Is that you? Hope not.

Hi friends,

How was the paper? The following are comments I got from some of you.

Section B consists of questions on the following topics:-

  • incomplete records with sole proprietorship
  • control account and reconciliation with listing total
  • consolidation
  • ratio theory on liquidity ratios
  • FRS 38 on research and development and amortisation

“I finished my MCQs in half an hour.”

“I didn’t hear anybody complaining about the paper on the way out (of exam hall).”

“I did not have time to do 2 questions. Total 19 marks.”

“.. is this paper a bit difficult from the rest? As some never learn before…”

“ok lor”

“… inventory overstated. I minus off from the retained earnings n asset. Is it correct?”

So for the rest of you, what do you think of the paper?