The following were some points made by the participants of the Conference with regard to the issue of Fair Value and various practical difficulties experienced.
1. How to value each component of a financial instrument?
A company owns Convertible Loanstocks of a blue chip borrower.
For liquidity reason, a company may consider selling away the bond portion of the Convertible Loanstock to get some cash while keeping the right to convert the loan to shares. This is to allow them to participate on the upside of the blue chip borrower. And you are ask to value the instruments in parts. How to do it?
2. Fair Value, Tax and Cashflow
Mr Eugene Wong, Managing Director of Sirius Venture Consulting said fair value gives rise to volatility in earnings. Companies in Singapore may be facing the situation where they have paid 20% tax on increased valuation gains last year and get tax deductions calculated at 18% of valuation losses this year.
3. Is there anything that may aid the practitioners in understanding and applying Fair Value?
Mr Foo of Foo Kon Tan asked. Ms Judy Ng of DBS Bank suggested that there should be qualitative disclosures on the assumptions used in arriving at the fair value and also state the sensitivity of a particular assumption to market forces.
4. Mark to market
FRS39 calls for those assets available for sale to be marked to market. How do you do that when the market is thinning/illiquid or when the market has disappeared? Can you get an answer from the auditors? Nope.
In conclusion – Well guys, we are inventing the rules as we play.
stealing in progress?
Have you been doing cross border billings? Of course, you have not. I hope…
For those who are not familiar with it, here is the explanation. Imagine you have a company in China and also a company in Hong Kong. For businesses secured and completed in China, the billing ie. the invoice is issued from the Hong Kong company.
Apparently many SMEs, with the above set up, are taking advantage of the 9% discrepancy between the corporate tax rates of two countries (Hong Kong 16.5% and China 25%).
They have been booking their mainland’s revenue in the lower tax region in Hong Kong.
So can we do the same between Singapore and regional countries? You better not as apparently Chinese and Hong Kong authorities are said to be working together to clamp down on such arrangement.
What if Edgar drew a cheque like this where the words and figures are different…
“Amount – Five Thousands Dollars Only $500/-“
In the Forum page of ST a couple of days, DBS Bank apologised to the account holder for wrongly clearing a cheque where the words and figures differ. DBS said they should not have cleared the cheque.
I wish to question whether DBS’s position of not clearing such a cheque is legally correct.
In the Banking Law class that I attended many years ago, I was told that the Bank should honour the cheque based on the “words” stated.
Has the law changed since the years after my Banking Law class? Or have I heard wrongly? If you are not from Singapore, can share with me your country’s practice?
While we are eagerly awaiting for the launch of FRS for SMEs in Singapore, there are changes to IFRS’s version as outline in recent IFRS Conference held on July 17, 2008 in Marina Oriental Singapore.
First and foremost, IFRS said there is going to be a name change from IFRS for SMEs to IFRS for PRIVATE ENTITIES. Warren McGregor gave some background info on the proposed name change.
The IFRS for SMEs is definitely not for the mom-and-pops businesses but rather caters to entities with 50 or more employees in general. They were considering other names like non-publicly accountable entities.
The IFRS for Pte Entities will be fully stand alone ie. no reference to the main/full FRSs.
Lynn has forwarded to me an email message from ACCA reminding students to sign up for results by email.
I would strongly advise so for a hassel free experience as compare to waiting for it by mail days after others have got theirs or you waiting to access the results online on those busy days.
You can sign up by Aug 15, 2008 at myACCA.
ACCA said you should expect the results to be emailed out by Aug 18, 2008.
In the IFRS conference held on July 17, 2008, Sir David Tweedie and Warren McGregor said IASB is working towards abolishing the need to differentiate between finance lease and operating lease.
The Board is taking the approach of “right of use” in crafting the new FRS on Leases. With this approach, it would be reflected as an Asset as long as the lessee has the right of use and consequently mirrored as a Liability as long as the lessee has an obligation to pay.
The Board faces difficulties in sorting out the following features in a lease agreement:-
– option to renew or terminate a lease
– measurement eg. contingent rentals
– overlap with other projects in the area of revenue recognition, derecognition and conceptual framework.
Sir Tweedie made an interesting remark. He said he is looking forward to the day when he could say that he is flying in a plane that is actually reflected in the airline’s balance sheet.
Marina Viaduct’s skyline now
Who are they?
IASB – International Accounting Standards Board
FASB – US’s Financial Accounting Standards Board
What have been doing together?
Essentially trying to move the two standards together.
They are planning to do it over 3 phases ie. A, B and C.
What are the 3 phases?
Phase A – completed in Sep 2007 with the issuance of FRS 1R. The FRS introduces the use of some American terminologies. The use of these terms for Singapore is not compulsory. Thus expect confusion in Singapore. Examples,
– Balance Sheet is “Statement of Financial Position”
– Cash Flow Statement is “Statement of Cash Flows”
Mr Yeoh Oon Jin, Assurance Leader, PwC Singapore, said the Phase will take a few years to complete and would cover areas on how to prepare the respective statements. Examples,
– what income and expenses items to be classified under which totals and sub-totals in which statements etc etc etc
– whether direct or indirect cashflow presentation should be adopted
While they have an idea of what they want to do, no point remembering them as it would too long down the yellow brick road for any certainty of being effected.
Reference – ACCA Focus Q2 2008 pp13-15