TECHNICAL EXCELLENCE

PREPARING FOR IFRS CONVERGENCE

NG KIAN HUI

ESSENTIAL NOTES FOR SGX-LISTED COMPANIES

 

On 29 May 2014, the Singapore Accounting Standards Council (ASC) announced that Singapore-incorporated companies listed on the Singapore Exchange (SGX) will move to a new financial reporting framework identical to International Financial Reporting Standards (IFRS) for annual periods beginning on or after 1 January 2018. Non-listed Singapore-incorporated companies will be able to adopt this framework on a voluntary basis.

 

While the new framework (which we call “SG-IFRS” in this article) has not yet been released by the ASC, the transition will involve application of IFRS 1: First-time Adoption of International Financial Reporting Standards (IFRS 1). In order to report 31 December 2018 financial statements under SG-IFRS, IFRS 1 requires presentation of comparative information for 2017 and an opening balance sheet as at 1 January 2017 that comply with SG-IFRS, as illustrated in Figure 1. The basic principle in IFRS 1 is that the latest version of each IFRS must be applied retrospectively, unless a specific exemption or relief is provided in IFRS 1.

 

It is important to note that IFRS 1 also applies to any interim financial statements prepared under IAS 34: Interim Financial Reporting for a period covered by those first financial statements that are prepared under IFRSs, and SGX-listed companies are expected to provide IFRS-compliant comparatives and disclosures about the transition in their 2018 quarterly and half-yearly announcements. Companies need to be ready to articulate the impact by the first-quarter announcement or half-year announcement, whichever is applicable

 

A key part of the convergence process involves identification of the differences between Singapore FRS and IFRS that may affect the company’s financial statements, and understanding how to apply IFRS 1, which may result in restatements to the financial statements even if existing accounting policies under Singapore FRS are consistent with IFRS.

DIFFERENCES BETWEEN SINGAPORE FRS AND IFRS

 

Although Singapore FRS have been substantially aligned with IFRS, there are certain differences. Certain standards were adopted as part of Singapore FRS with a different effective date (example, IFRS 2, 7, 10, 11 and 12) and some localisation amendments were also made to certain standards at the time when they were initially adopted as part of Singapore FRS. Table 1 shows two examples of the differences that could affect transition.

 

APPLYING IFRS 1: MANDATORY EXCEPTIONS TO RETROSPECTIVE RESTATEMENT

 

In order to prevent companies from using hindsight in their transition adjustments, IFRS 1 restricts retrospective application and provides specific guidance in certain situations, including the following:

  • Accounting estimates;
  • Derecognition of financial assets and financial liabilities;
  • Hedge accounting;
  • Classification and measurement of financial assets;
  • Impairment of financial assets, and
  • Non-controlling interests.

Companies will need to familiarise themselves with the specific guidance on these areas, as relevant to them, in order to fully comply with IFRS 1. In the case of financial instruments, these requirements also interact with the specific transition provisions under IFRS 1 for IFRS 9: Financial Instruments (see below).

 

APPLYING IFRS 1: OPTIONAL EXEMPTIONS

 

IFRS 1 also includes a large number of optional exemptions from full retrospective restatement. Although it is not mandatory to apply any of these exemptions, it is important for companies to assess these carefully in order to decide whether electing any of them would be worthwhile in their circumstances.

 

For companies expecting or hoping for minimal adjustments to their Singapore FRS financial statements, it may in some cases be necessary to take up some of the exemptions to reduce the impact of transition. On the other hand, other companies may be able to achieve a more favourable financial outcome by applying these exemptions. Table 2 are examples of the choices available.

 

NEW STANDARDS EFFECTIVE IN 2018; DIFFERENCES IN TRANSITIONAL PROVISIONS FOR FIRST-TIME ADOPTERS

 

Two of the major new IFRSs, IFRS 15: Revenue from Contracts with Customers and IFRS 9: Financial Instruments also have the same effective date (1 January 2018) as convergence with IFRS. Additionally, although IFRS 16: Leases is effective in 2019, it is available for early adoption. Some listed companies may consider adopting IFRS 16 at the time of transition to IFRS to avoid further changes in accounting policies in the second year of IFRS reporting.

 

Each of these new IFRSs contains detailed transition provisions, including choices between different methods of transition, reliefs and practical expedients. However, it is important for listed companies moving to SG-IFRS in 2018 to note that they have to apply the transition provisions in IFRS 1 instead of those in the respective new IFRSs. IFRS 1 includes specific transition guidance in the Appendices for each of the major new IFRSs, but the effect is not exactly the same. For example, IFRS 15 allows a choice between a fully retrospective approach and a modified retrospective approach with various practical expedients, whereas under IFRS 1, only retrospective restatement following IFRS 15 is allowed but certain reliefs are available.

 

ACTION REQUIRED BEFORE 2018

 

In order to achieve a smooth transition to SG-IFRS, companies should prepare early for convergence, including taking the following steps and considerations:

  • Understand IFRS 1, including the basic rules, mandatory exceptions and optional exemptions relevant to the company;
  • Evaluate the transition choices available and model the impact of each option;
  • Identify any required changes to systems or processes resulting from the approach chosen;
  • Consider compliance with loan covenants and remuneration arrangements;
  • Consider potential tax implications of transition choices and adjustments and look out for any pronouncements that may be made by IRAS about the tax treatment;
  • Consider implications for distributable reserves and dividend payments;
  • Seek Board of Directors and Audit Committee input and approval;
  • Gather information required for transition adjustments and calculate final adjustments;
  • Communicate the impact with all stakeholders.

 

Ng Kian Hui is Audit & Assurance Partner, BDO LLP. This article was adapted from the “BDO Connect Q3 newsletter published in October 2016.