FRS 8 – Accounting Policies, Changes in Accounting Estimates and Errors

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entity’s financial position, financial performance or cash flows. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates should be recognized prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognized by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

Source – eICPAS Apr 20, 2009

Unequal rights of shareholders

Shareholders only have rights but no liabilities.

What rights do shareholders have?

  • right to vote
  • right to attend AGM and EGM
  • right to receive the Annual Accounts
  • right to receive dividends when declared

Issue – Do some shareholders have more rights than stated above? Do the above always hold true for every single shareholder?

The simple answer – Some shareholders do have more rights, whether rightfully or otherwise, than the others.

The following are real examples where my simple answer holds true:-

  • The issue of consolidating the accounts of 2 companies which are publicly listed. The holding company requires a lot more than statutory info to prepare its consolidated accounts and satisfy its auditors. So we have possible situation of a majority shareholder being given access to non-publicly available info.
  • How about the situation of a major shareholder getting sensitive info through its nominee directors in the subsidiary company? A nominee director is appointed by a major shareholder. Who do that director owe a duty and responsibility to? The major shareholder or to the company?

How to resolve this?

FRS 7 – Cash Flow Statements Apr 2009

Summary of FRS 7: Cash Flow Statements

FRS 7 requires all enterprises to present cash flow statement. The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.

Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

  • direct method (disclosure of major categories of gross cash receipts and payments; or
  • indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.

Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.

Source – ICPAS ePublication April 2009

MOM’s position on Company Stamp Part II


To be fair, I am presenting MOM’s response received today on Company Stamp for your consideration.

MOM said,
“Our requirement to have company stamp endorsing our documents reduces the likelihood of unauthorised transactions or applications by a third party. Such cases do happen and companies become invariably implicated or inconvenienced due to fraudulent transactions.

While there is no legal requirement for companies to have a company stamp, such a requirement will safeguard the interests of our customers such as yourself. We will also accept alternative means of authorisation such as an official company letter in lieu of a company stamp endorsement.” Unquote.

Questions for your consideration.

  1. What is a Company Stamp?
  2. Can anyone make a Company Stamp?
  3. How much to make a Company Stamp?
  4. How does a Company Stamp protect your company if it is not legally binding to use a Company Stamp in official documents and contracts?
  5. Is it different from Company Seal?

  1. What is a Company Letterhead?
  2. What are the statutory information that must be found on a letterhead?
  3. How to make Company Letterheads? Must I ask the printer to print or can I print them using my printer?
  4. When is a letterhead a letterhead and when is it not a letterhead?

If the primary objective is to prevent false or fraudulent applications and transactions, you verify the person that is making the application / transaction by checking the identity card/passport.

I don’t think a Company Stamp or Company Letterhead can prevent a fraudulent application/transaction.

Company Stamp? Do we need it?

Recently my company went into a tangle with Ministry of Manpower (MOM) over the requirement to place the company stamp on a work permit form.

I told the MOM officer that my company does not use any company stamp. The officer then requested my company to issue a letter on my company letterhead saying my company does not use company stamp.

I seek an explanation for the need of such a piece of paper with the company letterhead generated by MS Word. What is the legal importance of that piece of paper?

I seek feedback from MOM and EnterpriseOne on whether there is a legal requirement for companies to use company stamp. MOM’s email response that I seek is still pending after more 3 business days as per their explicitly stated service standard. EnterpriseOne responded the very same day. Fantastic service! EnterpriseOne simply state that company stamp is not a legal requirement.

If that is the case, why are some banks and government bodies insist on use of company stamp?

Don’t ask for things if they are not necessary in the first place. It is time to stop creating unnecessary work.

Anyone with legal knowledge, please correct me if I have mistaken. Cheers.

Proposed changes to Revenue Recognition

my last Sat’s lunch – ICPAS AGM

Which FRSs could be affected? FRS 18 Revenue and FRS 11 Construction Contracts are proposed to be merged into a single revenue recognition model in a discussion paper published in Dec 2008.

What is the proposed underlying principle?
The underlying principle in the proposed model is that revenue is recognised when a company satisfies a performance obligation in a contract; in other words, when the company fulfils one of its promises in the contract.

Who will be affected?
The abolition of FRS 11 would affect industries involved in ship building and property development. Particularly those industries delivering products and services with long gestation period.

What would be the difference in treatment?
Currently, revenue is recognised on a percentage of completion basis.
In proposed model, revenue can only be recognised if and only if the work-in-progress is transferred to the Customer as it is created. Since the Customer will not be accepting the handover of partially completed products/services, the business entities involved could experience fluctuations in reported earnings.

For those in the software business – For eg. a software developer is paid $1 million to develop a software with a warranty period of 3 months after delivery date. The developer cannot recognise the full $1 million upon delivery of the software. To satisfy the proposed change, the $1 million must be apportioned as separately identifiable revenue to software development and warranty respectively. Over the delivered portion can be recognised as revenue.

Reference – Accounting and Business 04/2009

FRS 1 – Presentation of Financial Statements Apr 2009

The objective of FRS 1 is to prescribe the basis of presentation of general purpose financial statements, to ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

a) Fair presentation and compliance with FRS;
b) Going concern;
c) Accrual basis of accounting:
d) Consistency of presentation
e) Materiality and aggregation
f) Offsetting
g) Comparative information

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements.

FRS 7 sets out the requirements for presentation of a cash flow statement.

FRS 1 also specifies that entities discloses information that is presented in the financial statements such as the accounting policies, judgements and key sources of estimation uncertainty at the balance sheet date.

Source – CPA Singapore Wire Apr 2009