Accounting body warns directors of 4 listed firms

PHOTO: The Straits Times

The accounting regulator has warned directors of four companies for falling far short of standards in its first full review of the financial statements of listed firms.

They were found to have significantly misstated revenue, profits and operating cash flows.

However, the overall state of financial reporting is still considered "generally healthy", said the Accounting and Corporate Regulatory Authority (Acra), which spent a year reviewing the 2013 financial statements of 49 of the 600 or so listed firms here.

It said there is still room for improvement, noting that it issued advisory letters to directors of 29 companies over "some non-compliances" with accounting standards, including the lack of disclosures.

"Generally, there's a gap between the standards of reporting for companies with S$1 billion or more market capitalisation and the smaller ones," said Ms Cheng Ai Phing, who chaired the Financial Statements Review Committee of the Institute of Singapore Chartered Accountants during the review.

The institute assisted Acra in the review by providing expert opinions at various stages.

"The quality of the financial reporting in large-cap companies is quite good, and on a par with the standards in Australia and Hong Kong. But the small and medium-sized companies still have some room to improve," she said.

The review focused on areas that would significantly impact revenue, profit and operating cash flow.

Key findings in the report pointed to firms misclassifying operating cash flow, wrong accounting for mixed-use property, inappropriate consolidation and wrong revenue recognition.

Company directors are responsible for making sure that the financial statements are compliant with the accounting standards.

Acra's regulatory sanctions are aimed at the directors, and not the companies. In this review cycle, Acra did not impose any fines or prosecute any directors.

"Enforcement is necessary to ensure that the quality of financial reporting in Singapore is on a par with global standards and instils greater confidence in investors," said Acra's spokesman.

"This is also the practice of leading global capital markets such as the UK and the US."

Acra noted that the directors took quick action to correct the instances of non-compliance and areas for improvement.

All instances of non-compliance highlighted to the directors before the financial statements for the year 2014 were finalised have been corrected.

It is crucial that directors review the financial statements carefully and, when necessary, question management's judgments and estimates, said Acra chief executive Kenneth Yap.

"They have a duty to provide their stakeholders with an accurate picture of the financial health of the company," he said.

"We hope that the observations shared in the report will help directors avoid some common pitfalls and further enhance the quality of financial statements put out by their companies."

Acra is likely to focus on the valuations of long-term assets and their impairment assessments in the property and commodity resources sectors for the financial statements for the year 2015. It will confirm the areas of review focus when it issues the practice guidance for directors in December.

This article was first published on October 2, 2015.
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