Financial Reporting

ISCA issues FRB 9 (Revised June 2024) on Accounting Implications Of The Interest Rate Benchmark Reform In Singapore

The global shift away from interbank offered rates and move towards the adoption of alternative, nearly risk-free benchmark rates is commonly known as Interest Rate Benchmark Reform (IBOR Reform). In Singapore, Singapore Overnight Rate Average (SORA) will replace Swap Offer Rate (SOR) and Singapore Interbank Offered Rate (SIBOR) as the alternative interest rate benchmark by 2024. This will affect all existing Singapore dollar-denominated financial products referencing SOR or SIBOR in their contracts.

ISCA issues FRB 9 (Revised June 2024) Accounting Implications of the Interest Rate Benchmark Reform to share accounting considerations to assist entities in their understanding of the accounting for financial instruments and hedge accounting which are affected by the replacement of interest rate benchmarks within these contracts.

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ISCA Issues FRB 3 (Revised April 2024) Classification of Liabilities as Current or Non-current (Amendments to SFRS(I) 1-1)

FRB 3 (Revised), published on 30 October 2020, guides readers in understanding and applying the amendments to SFRS(I) 1-1 Presentation of Financial Statements issued in 2020 (“2020 amendments”) to certain common scenarios in Singapore such as long-term loans with callable clauses and term loans with rollover facilities.

FRB 3 (Revised April 2024) has been issued to incorporate the clarifications (“2022 amendments”) to the 2020 amendments for SFRS(I) 1-1, which together with the 2020 amendments, would be effective for annual reporting periods beginning on or after 1 January 2024 retrospectively.

One salient clarification is on the classification of liabilities with the right to defer settlement which are conditional on the compliance with specified conditions (commonly known as covenants). Only covenants which an entity must comply with on or before the end of the reporting period will affect a liability’s classification as current or non-current.

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ISCA Comments On IASB's ED Financial Instruments With Characteristics Of Equity (Proposed Amendments To IAS 32, IFRS 7 And IAS 1)

The ED aims to address diversity in accounting practices for the classification of financial instruments with both debt and equity features.

We are generally supportive of the proposals except for 2 areas:

- Impact of relevant laws and regulations

We are concerned with the contradiction within the proposals on the need to consider rights and obligations created by relevant laws and regulations, and the proposals potentially leading to practical challenges due to the need for complex and in-depth legal analysis, as well as potentially significant disruptions to current practice(s).

- Reclassification of financial liabilities and equity instruments

We are concerned about the proposed prohibition to reclassify financial liability to equity when the liability feature has expired. This would not faithfully represent the entity's condition at reporting date, and can lead to reduced comprehensibility and comparability of financial statements.

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ISCA Comments On The IASB’s ED Annual Improvements - Volume 11

In general, we support and agree with the Board’s proposals in the ED. In addition, we have two suggestions in relation to the proposed amendments to IFRS 9 on the derecognition of lease liabilities - (i) suggested amendments to be made in IFRS 16 to be aligned with the proposed amendments in IFRS 9, and (ii) suggested clarification on when a change to the lease agreement is to be accounted for in profit or loss in accordance with IFRS 9 or as an adjustment to right-of-use asset in accordance with IFRS 16.

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ISCA Issues FRB 10 “Real Property Valuation for Financial Reporting – Fair Value Based on the Highest and Best Use”

Is the ‘market value’ of a property the same as its ‘fair value’?

FRB 10 explains both concepts and provides guidance on what management should do in assessing the appropriateness of the reported value for financial reporting purposes. This FRB also includes an example to illustrate the application of highest and best use as the valuation premise.

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ISCA Issues Technical Bulletin 1 Addressing Climate-Related Risks in Financial Statements and Audits of such Financial Statements (TB 1)

Arising from the strong focus on climate globally and in Singapore, TB 1 provides guidance on climate-related risk considerations in financial reporting and audits of financial statements. It also includes an example of a Singapore entity in the transportation industry to illustrate how climate-related risks could affect how the principles of the financial reporting standards and auditing standards are applied.

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