Year / 2008

by Edgar

Mr Tham Sai Choy – ACCA Conference 2008

He said under the new regime, the auditor and consequently the management of business entities would have to present written submission on risks considered and any actions taken to mitigate that risks in the preparation of the financial statements.

In the past, putting “Non Applicable / NA” in checklist may suffice.

To carry that idea to the extreme (if it is not in the extreme now) would be that a management of a business entity now could be required by the auditor to provide a management representation letter certifying that

  • all risks, man made or otherwise, has been considered and deemed acceptable
  • and also attached supporting documents for that conclusion ie. weather reports from MET office, geography records for earthquake risks, CIA reports for terrorist risks etc etc etc.

Does it mean higher audit fees too? 🙂

by Edgar

FRS 23 Borrowing Costs – ACCA Conference 2008

Current rule – interest accruing on ongoing projects shall be expensed off

New rule – such interest can be capitalised

Implications

  • balance sheets could be carrying assets with bloated values initially and subsequently requiring more effort in reviewing them for impairment
  • difference in capital/financing structure would have a direct implication on the carrying value of the asset

Delays in completion of projects under current economic environment ==> would mean that more of the interest “expense” would be capitalised onto the balance sheets instead being expensed off in the P&L.

Mr Kon Yin Tong, Partner of Foo Kon Tan Grant Thornton said he is not comfortable with the new rule. As for me, I would need to find out the basis behind Accounting Standards Council’s (ASC) reasons for the change in the first place. Can someone share on this?

by Edgar

ACCA Conference 2008 – A Summary


My summary may not do justice to the quality and quantity of information being delivered by the many distinguished speakers from 9am to 5pm. As the Chairman of the afternoon session, I must admit that I tried to absorb as much as possible. The end result is that I have learned something more than at the beginning of the day. I am sure about 400 people who attended the conference too will agree with me.

Dato’ John Raslan, Exec. Chairman of PWC Malaysia

  • He is for convergence of IFRS.
  • But he urged all of us to participate actively in the convergence process whether at national or international level.

Mr Barmaky, Partner, Deloitte & Touche

  • He gave us a macro review of FRS changes to date and changes to come at IASB level.

Mr Tirumalai, Oracle

  • He briefed us on a solution in the form of platform which can enable us to implement the standards.

In the panel discussion chaired by Professor Pearl Tan of SMU, the following are my general feel of the panelists

  • Fair value should not be blamed for the current state of financial turmoil.
  • Global standards should not be tweaked too much to accomodate local market needs and culture as differing standards may lead to greater uncertainty to practitioners.
  • How can our voice from this region be heard in between the dominating noises from Europe and US?
  • FRS on SMEs/Private Entities – As there are significant differences between big and small business entities, they should thus be treated separately as apples and oranges.
  • Should we take on other non-FRS standards on board? – Officially perhaps no but there are invisible forces moving business entities towards taking on non-FRS stds like Corporate Social Responsibility (CSR) in their reporting.

Mr Kon Yin Tong, Partner, Foo Kon Tan Grant Thornton
He gave us a rundown of the many FRSs due for implementation in 2009.

Mr Tham Sai Choy, Partner, KPMG, spent “5 minuates” telling us about Clarity Project and possible implications to the audit committees.

Mr Sum Yee Loong, Partner, Deloitte & Touche explained why IRAS has collected more billions than expected (just kidding) and shared another billion ideas for us to be more tax efficient.

Ms Kala Anandarajah, Partner, Rajah & Tann gave us a lengthy review of 2 cases on auditor’s responsibility and director’s responsibility.

Finally, I reached the end of the conference, exhausted with adrenalin still pumping for many hours after.

by Edgar

Petition to Protect "Accountant" in Singapore

my investment

I had a meeting with a prospective client recently who complained about their existing “accountant”. The “accountant” has apparently allowed toner for office printer to be capitalised and depreciated over time. The client was flabbergasted that an accountant can make such mistake.

While I am not sure of the person’s credentials, I ended up trying to explain to the client that almost everyone in Singapore can call themselves an accountant without breaking any law.

Recently in UK, Mr Alan Shooter submitted a petition with 4,000 signatures to the Prime Minister to seek protection for the designation “accountant”.

There must be some regulation in this area to ensure that the integrity and professionalism of those who have dedicated years of their life in securing formal accounting training, are not eroded away by irresponsible individuals.

If you are serious about your profession, please say “Yes” when you post your message here.

by Edgar

The ACCA Annual Conference 2008

Global Standards – The Business Benefits: Engineering a Global Business Community
Friday, 17 October 2008, Raffles City Convention Centre

In the morning session, we will have the STRATEGIC segment. Mr Thomas Thomas of Singapore Compact will chair a series of presentations as follows:-

  1. Dato Johan Raslan, Executive Chairman, PwC Malaysia with the keynote address
  2. Mr Shariq Barnaky, Partner at Deloitte & Touche to give us a review of global IFRS Development
  3. Mr Joseph Alfred, our technical advisor for ACCA Singapore will present the findings of ACCA/CFO survey on Asia Pacific’s Road to Global Standards
  4. Mr Ravi Tirumulai of Oracle Corp will present their approach for enabling Global Standards
  5. Dr Pearl Tan of SMU will then lead a panel of distinguished professionals to discuss the pros and cons for Global Standards.

In the afternoon session, Edgar will have the honour of chairing the afternoon’s TECHNICAL segment.

Mr Kon Yin Tong of Foo Kon Tan Grant Thornton will kick off with FRS updates while Mr Tham Sai Choy of KPMG will do the Audit updates.

After the break, Mr Sum Yee Loong of Deloitte & Touche will then give us the Tax updates. Our anchor for the day will be Ms Kala Anandarajah, Partner of Rajah & Tann will address the legal issues that we need to know.

So for those who are interested, please check out more details here.
http://singapore.accaglobal.com/databases/events/singapore/171008

by Edgar

Suspending fair value accounting to save the world?

a little girl enjoying her ride, oblivious to sub prime

A friend who is in the know of markets told me that US is suspending fair value accounting for one year as part of its armoury of measures to contain the sub-prime crisis.

I exclaimed, “No way.” I am trying to search for the authoritative article that confirms my friend’s words. Can any help me on this?

My googling led to me to this article by Karey Wutkowski and Emily Chasan from Reuters dated Sep 19, 2008. It did not mention any outright suspension but instead presented the usual arguments for and against fair value accounting.

I would be very disappointed if it was true as the true value of any law/standard can only be realised if it is put through the baptism of fire of current sub-prime financial storm.

A critic highlighted an important “hole” in fair value accounting ie. the complete absence of any markets to provide an indication of value. So the Authorities may probably have to disappoint people like Edgar by suspending fair value accounting while they work furiously trying to calm the global markets to save thousands of jobs and a few hundred billions dollars.

The article mentioned that Fair Value Accounting took effect in US this year. So could it be that the new accounting standard has “encouraged” the revelation of sub prime storm to the current scale.

by Edgar

Windfall Tax on IPP reversed

wedding in progress

On Friday’s BT, I was duly surprised by the news that Malaysia’s tax department has decided to scrap the windfall tax on its Indepedent Power Producers that it announced only a few months ago. [Click here for background – http://taxwithedgar.blogspot.com/2008/07/tax-on-your-windfall.html%5D

Don’t pop the champagne yet. The windfall tax will however be replaced by a one-off payment.

Either way, the Government will still get the IPP’s monies. Renaming it to “one-off” would satisfy the rating agencies.

Another “one-off payment” next year? We will wait and see.

Click http://www.AccountingWithEdgar.com for another view of Edgar.
by Edgar

FRS 18 Revenue

a marriage contract in progress

Hi AWE readers,

In the Exposure Draft of Proposed Improvements to FRSs expiring Oct 3, 2008, I wish to share an interesting portion where ASC proposes guidance on determining whether an entity is acting as a principal or as an agent.

What is the big deal?
The clarification of the status of either principal/agent will determine how much of an invoice/contract you would record as your company’s turnover.

Allow me to illustrate
Let assume an IT system integrator has got a contract to deliver the following:-
1. Ten servers and 100 laptops – $3 millions
2. Consultancy service (including set up and integration) – $0.5 million

Upon completion of the contract, how much should the IT company record as its Sales Turnover? It could be just $0.5 million or seven times more ie. $3.5 millions. So which is it?

Key point
FRS 18 requires you to determine whether you are acting as a PRINCIPAL or as an AGENT.

ASC is proposing the following for adoption to help you.

When is an entity acting as a PRINCIPAL?

  1. the entity has the primary responsibility for providing the goods or services to the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer;
  2. the entity has inventory risk before or after the customer order, during shipping or on return;
  3. the entity has discretion in establishing prices, either directly or indirectly, for example by providing additional goods or services;
  4. the entity bears the customer’s credit risk.

When is an entity acting as an AGENT?

  1. An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. One feature indicating that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

Source – ED – Proposed Financial Reporting Standard (Oct 3, 2008), ASC

by Edgar

UOLD case and S33A of Stamp Duties Act

Ion in the making

Who are the parties involved?
UOL Development (Novena) Pte Ltd vs Commissioner of Stamp Duties

What are the facts of the case?
In 2005, 53 owners at Minbu Road sold their respective properties on an enbloc basis to UOL Development after a tender. UOL Development’s lawyers subsequently sent separate letters of acceptance to each owner. UOL Development was effectively trying to treat this as 53 separate purchases instead of as an en bloc purchase.

The intended outcome was to reduce the stamp duties payable by UOL Development as the rate of stamp duties is progressively structured.

To illustrate
I assume each property is $1 million and the en bloc price is $53 millions.
The stamp duties payable for $53 mio en bloc price would be $1,584,600.
The stamp duties payable for $1 mio x 53 transactions would be $1,303,800.
A saving of about $280,000!!!

Decision of the Court
The Court ruled against UOL Development for reason that the original intention and contract was for a Sale & Purchase on an en bloc basis.

The Court also said that there was NO “sound commercial basis” for 53 separate contracts and the arrangement was “so contrived that it was clearly intended to reduce or avoid tax liabilities”.

Reference – Lim Gek Khim, “Tax Planning – When does it become tax avoidance?”, Singapore Accountant, Sep/Oct 2008.

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by Edgar

Tax Planning or Tax Avoidance?

F1 in Singapore soon but Look at the mess!

As we consult with our clients on structuring a business and its activities, we often have to check ourselves as to whether we are helping the client to manage its tax exposure efficiently as compared to facilitating the client in avoiding tax.

What is it that so difficult, you may ask. Just go and find out the definition of tax planning and tax avoidance and; just follow the letters of the law.

Dr Richard Hu, the then Minister of Finance back in 1999, attempted to give some meat to the meaning of tax avoidance in the second reading of the bill to adopt Section 33A of the Stamp Duties Act. He said,

  • tax avoidance schemes are purely tax driven, with little or no commercial value or rationale.
  • tax planning are activities/ schemes structured to be tax efficient in accordance with the relevant tax laws.

But am I any wiser after the reading that? I don’t think so.

As we push the boundary of tax planning, are we edging closer to tax avoidance?

In my next posting, I will cite a real case for discussion.

Source – Lim Gek Khim, “Tax Planning – When does it become tax avoidance”, Singapore Accountant, Sep/Oct 2008.

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