Financial Reporting

Pillar Two Legislation: Multinational Enterprise (Minimum Tax) Act and its Accounting Implications

As announced in Singapore Budget 2024, the Multinational Enterprise (Minimum Tax) Act and its subsidiary legislation, Multinational Enterprise (Minimum Tax) Regulations 2024 (“Pillar Two legislation”) are effective for financial years starting on or after 1 January 2025. Both tax legislation is applicable to constituent entities that are members of a Multinational Enterprise (“MNE”) Group that has annual revenue of EUR 750 million or more in the consolidated financial statements of the ultimate parent entity in at least two of the last four years.

As Singapore had enacted Pillar Two legislation before 31 December 2024, impacted MNE entities are required to comply with the applicable requirements in SFRS(I) 1-12 and FRS 12 for financial reporting periods ended 31 December 2024.

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ISCA Comments on IASB’s ED Equity Method of Accounting IAS 28 Investments in Associates and Joint Ventures (revised 202x)

The ED aims to reduce diversity in practice by answering application questions about the equity method of accounting and to improve the understandability of IAS 28. The proposed amendments are intended to clarify and amend the requirements of IAS 28, with new disclosure requirements to enhance the information companies provide about equity accounted investments. In addition, a reordering of the requirements is being proposed to improve the understandability of IAS 28.

We are supportive of the approach taken by IASB to address specific application questions which would provide solutions to long-standing application difficulties, reduce diversity in practice and lead to more comparable and understandable information for users. However, we note that further clarifications and guidance might be required to ensure consistent application of the proposed amendments. For example, the proposed definition of the cost of associate or joint venture is silent on the accounting of expenses directly attributable to the acquisition of the investment. Hence, we recommend IASB to provide clarity on whether such expenses should be included in the cost of associate or joint venture.

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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 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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