WITH small and medium enterprises (SMEs) making up about 80 per cent of companies, the proposed simpler accounting standard for them could hamper Singapore's efforts to become a financially transparent economy, Institute of Certified Public Accountants of Singapore (Icpas) council member Kon Yin Tong warned yesterday.

It's in the numbers: While the simpler standard may help smaller companies save costs in producing accounts, they may find it difficult to present financial records and comply with the full accounting standard should they decide to go public

'SMEs are now using the full set of financial reporting standards, but they are now coming down to a lesser standard which has fewer disclosure requirements,' said Mr Kon, who is managing partner of accountancy firm Grant Thornton.

The new standard is offered by the Council on Corporate Disclosure and Governance (CCDG) and will cut the current volume of accounting requirements for SMEs by more than 85 per cent.

Further, because SMEs can choose between the simpler or full standard, similar companies may present financial information differently, causing problems for users of financial information such as tax authorities and lenders, according to Mr Kon.

'Similar companies using different standards will end up reporting profit differently, and tax authorities for instance will have more work in cutting through transactions to determine taxable income,' Mr Kon said. He was speaking at an Icpas seminar yesterday on the proposed SME standard.

Lenders will also be faced with different sets of accounts from companies in the same industry, hampering assessment of their creditworthiness, Mr Kon said.

While the simpler standard may help companies save costs in producing accounts, they may find it difficult to present financial records and comply with the full accounting standard should they decide to go public, Mr Kon said.

He claimed that the definition of SMEs was too wide - the new standard is intended for companies with no public accountability and who are not financial institutions.

Mr Kon said that a wide range of companies would fall under this definition, from the small shops for whom even the SME standard may be too onerous, to large companies that could easily comply with the full accounting standard.

It is therefore important to come up with a good definition of SMEs to which the simpler accounting standard applies, Mr Kon said.

On another issue - corporate scandals, deputy chairman of the Icpas auditing and assurance standards committee Yeoh Oon Jin said that discovery of corporate fraud does not necessarily indicate an audit failure.

Speaking at the seminar yesterday, Mr Yeoh said that the auditor's responsibility is simply to give an opinion on whether the financial statements show a true and fair view of the company's state of affairs. 'The audit report provides reasonable but not absolute assurance that the financial statements do not contain material misrepresentations as a result of fraud or error,' Mr Yeoh said.

More information about the SME standard can be found at the CCDG's website at www.ccdg.gov.sg. Any comments should be made by Sept 1.

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