Directors are sweating over Interim Results

What is the Rule ?
Directors are required to confirm that “to the best of their knowledge, nothing has come to the attention of the Board of Directors which may render the interim results false or misleading”. Effective 1 Sep 2006.

This is a negative confirmation rule ie. to state that generally there is nothing wrong, as compared to “generally everything is ok”.

So why are the directors sweating over it?
– unable to rely on the comprehensive audit work done by auditors in year-end audit
– they have to worry whether the internal processes and procedures are vigorious
– especially if the company has operations over many countries with thousands of employee
– wondering to buy professional assurance service and incur more compliance costs

What is the proposed solution?
ACCA has proposed that directors should be allowed to explicit:-
– add a “read-and-act-at-your-own-risk statement” and,
– the numbers are mere estimates.

There is a need to find a balance to give some interim information to shareholders on the performance of the company and yet put certain amount to pressure to ensure credibility of information presented by directors.

Reference – “Use estimates to take heat off directors: Accounting bosy”, Lee Su Shyan, ST 25 Sep 2006

SingTel got "mulled" over a possible writedown for Optus

What is the Rule?

Under Singapore FRSs, SingTel has ceased amortisation of goodwill on acquisition since April 2004.

The carrying value of goodwill continues to be reviewed annually or whenever there is an indication of impairment.

What are the possible indications of impairment?

  • introduction of a superior product by competitor
  • significant change in the business environment

How much monies are we talking about ie. size of goodwill in Singtel’s books?

  • Singtel paid $13bi0 for Optus in Oct 2001. $11.4bi0 (about 87%) of which is for goodwill.
  • By FY2005, Singtel had reduced goodwill by $1.78bio. ie. the Group’s profit had been reduced by that value.
  • The auditors had just signed off the accounts for year ended March 31, 2006 with no request to adjust the goodwill figure.

A Mr Patrick Russel, a Merrill Lynch analyst attempted to value that intangible assets from different approaches. The current book asset value of Optus is $18.2 bio.

In his first approach, he used the current Singtel’s share price of $2.50, multiplied by the no. of shares outstanding and then less all liabilities. It churned out a figure of $10.6 bio.

He calculated the present value of Optus’ future cash flows in his second approach to give $9.4 bio.

Both Mr Russel’s approaches highlighted the difference of about $5 – 8 bio from book value. I would love to know how Singtel does its valuation. While it may be true that goodwill amortisation and impairment charges are non-cash accounting adjustments in post-acquisition years, Singtel did pay good monies of about $13 bio back in 2001.

Merrill Lynch has reaffirmed its SELL recommendation on Singtel. So if you were one of those Singaporeans who are holding Singtel shares, should you panic and sell? Mr Heng, Singtel spokesman, correctly highlighted the need for investors to read widely from other analysts for a balanced view.

Till my next post, good night…

Exemption for Foreign Income

Dividends, branch profits and service fee income from overseas will be exempt from tax when remitted into Singapore.

Two conditions to be fulfilled:-

  • The country from which the income is received imposes a corporate tax rate of 15% or more and;
  • that some tax is actually imposed in that country.

Issue #1
Tax has to be paid in the country where the profits were earned.
It must be on a first-tier “subsidiary” level basis.

Issue #2
IRAS will need to examine and grant exemption only a case by case basis upon all conditions duly satisfied.

If total dividends paid do not exceed total cumulative taxed profits, then you should be all right on the assumption that taxed profits are deemed to have been distributed first. For a young company, it would be relatively easier to sort out the taxed income from untaxed income; and why they were untaxed.

However in circulars issued in May 2006 by IRAS, exemption for foreign income would still be applicable even if no tax suffered on those income given the following:-

  • utilisation of tax losses
  • existence of tax free capital gains


The exemption is a move in the right direction as observed by Mr Sandison. Especially when our neighbours in Malaysia and Hong Kong have already done this. Why is Singapore seems to be lagging behind in inplementing changes?

But are we still too careful in loosening the apron strings?

Reference – Singapore Tax Roundup – David Sandison, PricewaterhouseCoopers, The Directors’ Bulletin, Second Quarter 2006

Revenue recognition on trial at Informatics

Informatics, a private education school, apparently booked revenue even though students had yet to attend a single course.

Apparently, quite a few people in top management team back in the few years pre-2004 were not aware that the company’s revenue recognition policy in 2003 may have contravened financial reporting standards or its own finance manual.

Ex Informatics senior vice-president Lawrence Wee said in court yesterday that he was not advised of possible contravention.

Ex Informatics chief executive (CEO) Ong Boon Kheng too said he wasn’t advised so.

The ex finance team consists of Group’s financial controller and the chief financial officer (CFO) Patrick Lau apparently didn’t know they could have violated any law too.

The company’s ex finance controller and former franchise department senior vice-president are expected to testify on this question too.

Another interesting point to note is that there is/was a “Finance Manual” written and the management then may have possibly contravened its content. I wonder who had the knowledge to write it then. Was he or she part that management team then? Who approved the manual as a guidance document for the company? Ex Board of directors?

We await the outcome of the trial.

The demise of the Auditors?

On Sep 1, Mr David Mason, was a partner with PricewaterhouseCoopers in Singapore for 14 years, opined that auditing was once a coveted profession and auditor’s opinion on the financial statements was held in high regard. His letter is entilted, “Prognosis not optimistic for auditing profession”.

He observed that auditing as a service has been commoditised, whose pricing could be reduced to capture the more lucrative advisory business.

There is some possible linking between some corporate failures in Singapore with “audit failure”.

Have the corporate failures hastened the demise of the auditing profession? Mr Mason certainly think so as he is now a business consultant in UK.

On the 6th Sep, Ms Penelope Phoon, head of ACCA Singapore, in her letter entitled “Prospects good for accounting profession”, came to the defence of auditors.

When I first read the title, I was expecting information supporting the growing demand for accountants given the expanding economy.

I was duly disappointed when the reference to “auditors” precipitated the whole letter. Maybe it is not her fault. Perhaps it was due to the person who nominated that title to her letter. I am of the opinion that accountants and auditors are 2 very different terms.

Are all auditors accountant?
Are all accountants auditors?

Clearly Ms Phoon was defending the growing prospect for auditors and their assurance services. She said auditors are getting higher fees due to greater audit risks. There is demand for qualified personnels to attend to assignment relating to Sarbanes-Oxley’s. Will a nationalised audit office prevent audit failures? Or does the man on the street want to let the government take the rap in corporate failures?

For those aspiring auditors out there, these 2 letters are certainly worth reading.


Term Assurance

While this is not strictly an accounting matters, I am putting up the info as part as our overall financial awareness.

Give it a thought at both personal level and corporate need.

What is term assurance?
It is for pure protection for a specific period.
No cash value at the end of period.

When sourcing for term assurance for yourself, review the following areas:-
– any cash values
– Does it bundled with total and permanent disability?
– Does it budnled with terminal /critical illness benefit?
– Is it guranteed renewable despite changes to the condition of your health?

The observed trend – Insurers are cutting term rates as life expectancies improve admist competition driving down prices.

Reference – BT Executive Money 30th Aug 2006

Apple to pay Creative USD$100m

The biggest number being tossed around town in recent days is the $100m in USD that Apple Computer Inc. will pay for licence to use (and had used?) Creative Technology Ltd’s patented technology.

  1. Will this settlement encourage other fringe yet significant alleged “infringer” of the patent to play ball like Apple albeit for smaller sum?
  2. Singapore companies have been shown an example of how the act of registering an intellectual property promptly has been translated to real tangible benefits to the registrant.
  3. If Apple had NOT use the patent, would its iPods still be as successful? And Creative would have rule the MP3 world?
  4. I am really eager to know how much the next violator would pay?
  5. What is the formula used in arriving at this ball park figure of USD$100m?

What are the lessons for accountants?
– Remember to consider the benefits of IP.
– Do you know that you too have a role in safeguarding assets, tangible or intangible, purchased or internally generated?