Summary of FRS 10: Events After the Balance Sheet Date

charlton hotel is changing

The objective of FRS 10 is to prescribe the accounting and disclosure requirements of events after the balance sheet date. Events after the balance sheet date refer to those events that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Adjusting events provide evidence of conditions that existed at the balance sheet date. Examples of adjusting events include:-

  • the settlement after the balance sheet date of a court case that confirms that the entity had a present obligation at balance sheet date;
  • the awareness of information after the balance sheet date pertaining to the impairment of an asset impaired at the balance sheet date (eg. knowledge of customer’s bankruptcy after balance sheet date warrants an adjustments to be made to the receivable from customer at balance sheet date and sale of inventories below cost after the balance sheet date)

Non-adjusting events reflect conditions that arise only after the balance sheet date.

Examples of non-adjusting events include:-

  • a decline in market value of investments subsequent to balance sheet date and before date financial statements are authorized for issue;
  • dividends declared after the balance sheet date.

Refer to FRS 10 for more examples of non-adjusting events.

For non-adjusting events, the entity discloses the nature of the event and an estimate of its financial effect.

Financial statements should not be prepared on a going concern basis if management determines after the balance sheet date that it intends to liquidate the entity or to cease trading.

Financial statements should disclose the date when the financial statements were authorized for issue and who gave that authorisation.

Source – eICPAS newsletter May 2009

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

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

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

Putting "Public" back into "Public Accountant"

amk at midnite walk

Who is Public Accountant suppose to serve? Is there a heavy emphasis on “public interest”?

Who are the people in control of financial standards setting process?

Do we all need such complex accounting standards? Are the accounting standards complex because the standards setting people want them to remain complex? For what? To ensure that we still have a job?

Or is it just the demand of some groups? Who then are these groups?

Could large public accounting firms, who have amassed valuable expertise regarding the intricacies of accounting standards and of corporations issuing financial statements be one such group?

I am reading this article entitled “What is the meaning of “the public interest”?” by Richard Baker. The article examined rhetorical claims by American Institute of Certified Public Accountants (AICPA), the Financial Accounting Standards Board (FASB), and PriceWaterhouseCoopers (PWC).

I am doing an injustice to the article by paraphrasing them as above. If you are interested to read the full article, buzz me.

Till then, smile.

Capture Theory

roaring biz

I am required to explain Capture Theory in my coming 3rd year class on Accounting Theory. The theory is used to explain the necessity of regulation in the disclosure of accounting information and the dynamics between the Regulator and the regulated.

What is Capture Theory?
The regulated party seeks to take charge (capture) of the Regulator with the intention that the rules subsequently released by Regulator will be in favour of the regulated party.

In more human language, I would paraphrase by saying, “Those people you are out to control in the first place, actually taken control of you.”

Can Edgar relate the Theory to some real life applications in Singapore context?
National Wage Council is a tripartite entity made up of the employers, the union representatives and the Government. A tripartite entity would ensure nobody get “captured”.

Under Code of Corporate Governance, the Board of Directors are required to be represented by independent directors too. Whether the independent directors are “captured” by directors who are in executive positions/representing majority shareholders are less clear and it varies from company to company.

In the recent ACCA conference, there was a rallying call from a leading accounting professional from Malaysia to fellow professionals and interest groups in this region, to speak up and participate actively in the IFRS standard-setting process. I guess this is ensure that IFRS put into law are not “captured”.

A step back for Fair Value?

Currently – Financial instruments are valued at mark-to-market ie. the price they would fetch if sold on the open market now.

To be adopted soon – They would be valued at historical cost if such financial instruments were to be held to maturity.

Who has adopted the change already?
Hong Kong, Taiwan and Europe. Quite a significant number already.

When is Singapore’s ASC expected to give their blessing?
By end of the week.

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


  • 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?

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.