Author / Edgar

by Edgar

AirAsia may have to restate earnings?

Issue
In early Nov 2006, AirAsia, the Malaysian budget airline, have indicated that it may have to restate its earnings for its fiscal year ended June 2006. This is a result of difference in interpretation of a certain accounting policy. The dispute would translate to RM40mio swing in profit.

What is the accounting policy under dispute?

The focus is on FRS 112 under the Malaysian standard.

AirAsia has maintained their position that the International Financial Reporting Standard (IFRS) allows it to recognise unused investment tax allowances as deductible temporary differences.

It argued that its accounts for year ended 30 Jun 2006 will not present a true and fair view of the company’s financial performance if it were to comply strictly with FRS 112 under the Malaysian standard.

Malaysia’s Securities Commission (SC) had asked AirAsia to restate its accounts.

The Malaysian Accounting Standards Board (MASB) confirmed recently that FRS 112 was not a new standard, and that it is also consistent with the international standard.

Bottomline
AirAsia’s accounts could be qualified. The profit definition difference would have no impact on its financial position as the accounting treatment is non-cash in nature.

Anybody got any update on this case?

by Edgar

GST – It is unfair to me.


Goods and Services Tax (GST) is a pay-as-you-consume tax.

So if I were to buy anything ie. anything until the day I die and buried, part of my cash is actually going to the government coffer.

Even if I were to buy from a non-GST registered retailers, he/she would charge a price that would cover the costs of its raw materials etc etc. As most of what we consumed are imported, GST is levied on these imports as they leave the ports.

All my expenses during my retirement will be funded by savings I am accumulating since I started work. These savings are derived from after-income-tax income.

Tax and tax on the same income?

Illustration
Let say my income tax bracket is 10% and GST is 7%. I assume I spend every cent of my disposable income after tax. Let’s say, my annual income is $100,000.

$90,000 would be my after-income-tax income. 7% of $90,000 is $6,300.

I would have paid $16,300 in taxes for $100,000 income ie. 16.3%.

While this illustration is taking to the extreme, it serves to illustrate the importance of looking at your total tax burden over time.

I was looking forward to my retirement. But now I have to work harder as I have to protect my savings against normal inflation rate + a factor of GST.

So it now look that I will pay GST until all my funeral expenses are paid from my estate.

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by Edgar

Bodyguard expenses not tax deductible

What is the issue?
A company seeks the High Court’s decision to allow the expenses for the body guards for a director as tax-deductible expenses.

Decision – The High Court ruled that the expenses are not tax-deductible.

On what ground?
The costs of hiring the bodyguard in this case are ruled not wholly and exclusively incurred in the production of income. [Mr Goh Sher Wee’s voice on this line echoes in my empty head.] The company concerned is in the business of exhibiting motion pictures.

How much monies involved?
About $70,000 costs of body guards per annum. So at 20% corporate tax for example, that would translate to $14,000 in tax deductibles per annum. If the expenses were incurred back in 1970s till 2006, the amount involved would be substantial.

What defence has the appellant’s counsel presented?

  • In 1972, there was a kidnap attempt. 4 men with guns. Shot the director in the arm. Director managed to escape.
  • CID recommended that the director be given the necessary protection.

Information I don’t know

  • When were the expenses incurred?
  • What has a 1972’s incident got to do with 2006?
  • What was the motive for attempted kidnap? Was it business-related?

Even if the director is a key man to the company, the company cannot be incurring expenses for director’s personal matters.

In my opinion, there maybe some grounds for appeal if one can prove that the kidnap attempt was a consequence of the director’s action in effecting his duties for the company. The company would then be obliged to act responsibly in return.

Similarly, the President of USA is well protected at the expense of the nation and certain banks may pay for the insurance of credit card debt collection employees.

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by Edgar

ACRA goes XBRL

Wef 1 April 2007, ACRA will require companies and local branches of foreign companies to file their financial statements in XBRL format via Bizfile.

To know more, sign up for “Public Awareness Seminar” and learn how to prepare and file financial statements in XBRL format.

Seminar will be held at Supreme Court Auditorium on Thursday, 30 November 2006 at 8.30 am to 12.30 noon. The eflyer says $12 (I think).

I would love to go and learn but alas I will not be in town. So to whoever intends to attend, pls share with us. Go to http://www.acra.gov.sg for more info.

Do a bit of national service for ACRA la..

by Edgar

N Khan says…

“Dear Mr. Wong,

My name is Nus and I am one of your I.IJ (revision class) student. I am a student of Singapore Accountancy Academy as well but this is the first time I am joining your class. I have already attended the first lesson and I think you have a brilliant approach to make everybody learn the concept and actually “apply” it in examination question.

You said in class, you send reading materials and assignments through the e-mails, and I would be very glad if you send me some materials as well.

I am very determine to pass this coming 1.1 exam and I believe your help will lead me to reach my destination.

Thank You So Much for taking your time to read this.”

Your Student,
Ms Khan, May 2006 Revision Class

P/S On 15 Sep 2006, she did passed.

by Edgar

J Liew says…

“I have just completed paper 1.1 in the recent June 2005 exams.

The months of hard work have paid off and I would like to express my appreciation to Mr Edgar Wong for his unwavering commitment, patience and guidance. He has definitely helped his students cope with the subject at a more comfortable pace.”

J Liew, Sep 2005
by Edgar

Serene says…

“By the way, I must say that you teach really well, whereby you’ll put yourself in students’ shoes and explain. As I had taken accounts back in Secondary and Poly days (lecturer seems to be teaching himself or maybe he could not explain clearly).

I didn’t actually learn through so much understanding. I’ve only memorised to pass this far. As a matter of fact, I hated accounts in secondary days. I know I can’t play a fool with ACCA now. Have to work triplely hard.”

Serene, Sep 2005
by Edgar

Helena says…

“You are excellent lecturer. Your lecturing is very interesting.


I never felt boring or tired when attending your lecture after work. Besides you are very responsible lecturer who really cares about the improvement of the students.”

Helena, Sep 2005

by Edgar

“Brave New World” in Financial Reporting


The world’s biggest accountancy firms united in their call to make financial statements more meaningful for investors on 9 Nov 2006.

What are some of the proposed changes?

  • They are pushing to include more non-financial information.
  • They want quarterly financial statements to be replaced by real-time Internet-based reporting.
  • They want to create and present a menu of fraud audit proposals at different pricing.
  • Individual auditors (instead of the firm) be subject to penalty for faulty audits.

Who are the parties to this 24-page proposal?

PricewaterhouseCoopers, KPMG, Ernst & Young, Deloitte, Grant Thornton and BDO

Basis to include non-financial information

KPMG Singapore’s head of audit, Tham Sai Choy explained the close link between non-financial information and valuation of a company. Example of non-financial information – the changes to a company’s oil reserves, a telco’s subscriber numbers, an airline’s load factor etc. Is there a need for these numbers to be audited too as they become more and more meaningful in giving guidance to investors on its performance?

Basis for Internet-based reporting

The report has also suggested that information be easily accessed by users through new Internet-based reporting technologies. The main reason for the lag is the need to assure quality and reliability of business information to users. Till then, paper-based financial statements will prevail as the only legitimate form of communicating performance.

Basis for fraud audit proposals at different pricing

  • to close the expectation gap with clients to expect auditors to discover frauds and errors under current audit programmes
  • to provide clients with a choice on the level of intensity of investigative work needed

My Conclusion

It is an amazing effort for so many key players of the auditing industry to be able to come together present a united front. But what is the true underlying driving this cohesion? Is the auditing profession looking at how they can enhance their relevance to the business community and thus ensure their continued economic existence? One of the proposals highlighted the need for individual auditors (instead of the firm) be subject to penalty for faulty audits.

In any industry, the industry players are encouraged to do some self-regulation to ensure service quality and fair existence before the strong arms of the LAW come in and take full control of its destiny.

by Edgar

To pay IRAS/GST for service?

The front page of Business Times today presented a proposal for companies to pay for official GST help.

What is the pricing?
For advance GST guidance, $525 for each query of initial 4 hours plus $131.25 per subsequent hour. Please double the charges for express service.

Why charge?
My initial response is why. Are companies or their representative in the form of tax agent or untrained accounting staff abusing GST administration with excessive superfluous queries? Does this move contribute to higher business costs? How does GST administration justify the proposed pricing? Are there similar models operated by other government agencies or statutory boards or corporatised entities? What is/are the objectives and roles of IRAS in relation to the the “bigger picture”? How will the new pricing model contribute to that bigger picture?

Why don’t charge?
I humbly drawed on my experience in the property development. The architect submits plans to the various government entities for guidance and approvals for the intended development. Relevant fees are payable. You have to pay for the use of Court facilities too. Should the same be acceptable for GST’s official guidance?

There maybe some justifications.

  • Firstly, there is a need for a pricing mechanism to allocate resources efficiently as resources within IRAS/GST administration is finite too (just like everywhere else).
  • Secondly, the businesses of today are relatively complex as they traverse across national boundaries. Such business would require some level of certainty in the form of official guidance to avoid resource-sapping effort trying to recover from skirmishes with law. They want to focus on doing business. Thus the “small” sum payable for that peace of mind is definitely worthwhile.

Does it increase the costs of doing business in Singapore?
Some of these companies may be paying their tax agents for advice already. As the fees are applicable to advance (and not normal) queries, I presume such queries would only be relevant to bigger and complex companies. The fees thus would be relatively nominal.

Is there a possibility that IRAS/GST recycle official guidances? No two property development applications will ever be the same. So will 2 applications for GST guidances be similar?

Other implications
The fees, when applied, may implicitly provide a check and balance on the performance of the tax agents.

The application of the fees may also change the relationship between IRAS/GST and the enquirer. When a fee is paid for an official guidance, does it imply is a higher level of responsibility? How was it done before? Were there any official guidances given out in the past? Or does IRAS/GST wait until the actual occurrence of the transaction and relevant documents submitted for review before an official judgement is given?

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