2006 - August
ICPAS emphasises the use of proper accounting treatments & the roles & responsibilities of director & management
18 Aug 2006 Category: Media Releases
The Corporate Governance Committee (CGC) of the Institute of Certified Public Accountants of Singapore (ICPAS), as an advocate of best corporate governance practices, would like to express its view on specific accounting treatments and the roles and responsibilities of company directors and management.
Accounting Treatments - Substance Over Form and Revenue Recognition
Substance Over Form
Firstly, the Institute would like to remind preparers of financial statements to account for and present the business transactions in accordance with their substance and not merely their legal form. This is because the substance of transactions is not always consistent with what is apparent from their legal or contrived form.
Entity A may be holding only a small percentage (say, less than 20%) of voting shares of Entity B, but may be controlling Entity B by virtue of a power to cast the majority of votes at meetings of the board of directors. In such a situation, Entity A has control over Entity B in substance although this does not appear to be so in form. As such, Entity A would need to prepare consolidated financial statements for reporting purposes in accordance with the Financial Reporting Standards (FRSs).
Entity C may dispose off an asset to Entity D in such a way that the documentation purports to pass legal ownership to Entity D. Nevertheless, agreements may exist that ensure that Entity C continues to enjoy the future economic benefits embodied in the asset. In such circumstances, the reporting of a sale would not represent faithfully the transaction entered into.
Secondly, the Institute would like to emphasise that recording of sales prior to delivery of goods to customers is inappropriate. Preparers of financial statements should be cognizant of revenue recognition principles that comprise conditions like the transfer of beneficial ownership and measurement reliability.
Dr Ernest Kan, Chairman of the Institute’s CGC and Vice President of ICPAS, commented: “Financial statements are used by investors, employees, suppliers and government agencies, etc. to satisfy their different needs for information. When financial statements comply with FRSs, such financial statements provide users with meaningful information for their purposes.”
Roles and Responsibilities of Company Directors and Management
Thirdly, the Institute would like to state its views on the roles and responsibilities of company directors and management:
Directors of companies that are listed on the stock exchange or are planning a listing on the stock exchange should be cognizant of their responsibilities not only with regard to corporate legislation but also with regard to the stock exchange’s listing rules and other relevant regulations.
Directors who are not familiar with their duties and responsibilities should attend appropriate training in these areas, as well as other areas like corporate governance.
As a corporate governance measure, the audit committee is required to be established by a listed company. One of the major responsibilities of the audit committee is to oversee the financial reporting process. As such, management should assist in and not obstruct the audit committee’s efforts to uphold good corporate governance.
Dr Kan added: “The Corporate Governance Committee of ICPAS would like to emphasise that company directors and the management should take it upon themselves to ensure that they are fulfilling their roles and responsibilities to the best of their abilities. They should work together with their audit committees, internal and external auditors to implement good corporate governance practices in their organisations.”
ICPAS would like to reiterate that it expects all its members to comply fully with the Institute’s Code of Professional Conduct and Ethics. Members should always uphold integrity in all their assignments and endeavours.
Financial statements of companies in Singapore are prepared in accordance with Financial Reporting Standards (FRSs) issued by the Council on Corporate Disclosure and Governance (CCDG) and are a principle-based accounting framework based on International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).
The Institute of Certified Public Accountants of Singapore (ICPAS) is the national organisation for the accountancy profession in Singapore. With a membership of close to 18,000 members, ICPAS’ mission is to develop, support and enhance the integrity, status and interests of the accountancy profession in Singapore.
About the Corporate Governance Committee
The Institute of Certified Public Accountants of Singapore is a strong advocate of best corporate governance practices and this is normally achieved through the activities of its Corporate Governance Committee. The Corporate Governance Committee (CGC) aims to draw on the experience of auditors, accountants, consultants and business people working in different fields to take a proactive role in the development, implementation and promotion of sound corporate governance. Its terms of reference include reviewing matters relating to corporate governance, conducting relevant research and consultation on corporate governance in a proactive manner, drafting of consultative papers and other legislative and regulatory proposals, and guidelines to members in the form of study reports, proposing changes to the Listing Rules and the Code of Corporate Governance and other related laws and regulations as appropriate and exchanging views with government, regulatory bodies, professional bodies and other relevant organisations on matters relating to corporate governance.
The members of CGC are:
Dr Ernest Kan Yaw Kiong - Chairman
Vice President, ICPAS
Partner, Deloitte & Touche
Associate Professor Mak Yuen Teen - Deputy Chairman
Director, Corporate Governance and Financial Reporting Centre, NUS Business School, National University of Singapore
Mr Bill Bowman
Director – Business Processes, Infineon Technologies Asia Pacific Pte Ltd
Dr Ayadurai Jothidas
Vice President / Chief Administrative Officer Asia Pacific, Via Systems, Inc.
Mr Rohan Kamis
Managing Partner, Rohan Mah & Partners
Mr Kon Yin Tong
Managing Partner, Foo Kon Tan Grant Thornton
Associate Professor Lee Kin Wai
Assistant Professor, Nanyang Business School, Nanyang Technological University
Mr R. Dhinakaran
Managing Director, MB Melwani Pte Ltd
Mr Tom Yee Lat Shing
Council Member of ICPAS
Independent Director, Various listed companies