TO: All clients of
RE: Updates on Recent Changes to the Financial Reporting Framework in
The
accounting standards and financial reporting framework in
We
would like to highlight that accounting standards in
Companies
with financial period starting on or after 1 January 2003 have to comply with Financial
Reporting Standards (FRS) issued by the Council of Corporate Disclosure and Governance
(CCDG) instead of Statements of Accounting Standards (SAS) issued by the
Institute of Certified Public Accountant of Singapore (ICPAS). A summary of
differences between FRS and SAS is available in Appendix 2.
Some
of the significant changes are highlighted as follows:
Audit Exemption
Dormant
companies and exempt private companies whose revenue (as defined in FRS 18) is
below the prescribed threshold (set at $2.5 million for financial years
commencing on or after May 15, 2003 and increased to $5 million after 1 year)
are exempt from the obligation to appoint auditors to audit their
accounts. However, they must continue to
maintain proper accounting records and prepare financial statements that comply
with the Accounting Standards.
The
threshold for private exempt companies is pro-rated for financial years of less
than 12 months, but not for those over 12 months.
A
company is dormant if there are no accounting transactions except those
relating to:
(a)
the taking of
shares in the company by a subscriber to the memorandum in pursuance of an
undertaking of his in the memorandum;
(b)
the appointment
of a secretary of the company under Section 171;
(c)
the appoint of an
auditor under Section 205;
(d)
the maintenance
of a registered office under Sections 142, 143 and 144;
(e)
the keeping of
registers and books under Section 88, 131, 173, 189 and 191;
(f)
the payment of
any fee specified in the Second Schedule of the Companies Act or an amount of
any fine or default penalty paid to the Registrar under Section 409(4); and
(g)
such other matter
as may be prescribed.
An accounting transaction need not create a cash
in-flow or out-flow, so the writing-off of a debt, impairment of an asset, adjustment
of a provision, or revaluation of an asset will result in a company not being
dormant. Likewise, transactions not
related to the exempt activities resulting in the payment of interest or taxes,
or the payment of or receipt of dividends (even if passed through), will result
in a company not being dormant.
Shareholders
representing 5% or more of a company’s ordinary shares may require the company
to have an audit performed on the accounts.
The Registrar has the same authority.
The Accounting and Corporate Regulatory Authority
(ACRA), formerly the Registrar of Companies and Businesses (RCB) has indicated
that a company that is exempt from audit and/or filing requirements is still
required to prepare a full set of financial statements including explanatory
notes in accordance with the Financial Reporting Standards.
IRAS’s August 6, 2003 circular Review of Companies’ Income Tax Filing Requirement in View of Audit
Exemption under the Companies Act states that for income tax filing
purposes, companies that qualify for the audit exemption and chose not to have
their accounts audited, can file the unaudited accounts in place of the audited
accounts for income tax filing purposes.
The unaudited accounts (including explanatory notes to the accounts)
must be accompanied by the Directors’ Report and the Statement by Directors,
which must be prepared in compliance with the Companies Act. On the other hand, companies that qualify for
the audit exemption and have chosen to have their accounts audited will still be
required to file the audited accounts with their tax returns.
A company that is dormant from the time of formation
will still have to comply with the requirements of the Companies Act for filing
of annual returns and accounts.
If your
company qualifies for audit exemption, please let us know whether you would
want to continue with the audit of your financial statements.
Penalty
Provisions
If any director fails to comply with the prescribed
accounting standards or Companies Act provisions, he is guilty of an offence
and shall be liable on conviction up to $50,000 and or imprisonment for a term
not exceeding two years.
Registration
Numbers
The
Companies Act requires a company to show its registration number on all
business letters, statements of accounts, invoices, official notices and
publications issued by the company from 1 October 2004.
Appointment of Professionally
Qualified Secretary
The
requirement for private companies to appoint professionally qualified
secretaries is removed. However, a
private company still needs a secretary, and the ACRA may require a private
company to appoint a professionally qualified company secretary if the company
has failed to maintain its records in accordance with the requirements of the
Companies Act.
Annual General Meeting (AGM)
Private
companies need not hold a physical Annual General Meeting (AGM) if all of its
shareholders agree that AGM is not required.
Matters to be decided at the AGM will be decided by written means.
Members
can require the holding of an AGM at three points in time:
1. Members can do so within 3 months before the end of
the year. The year refers to calendar
year. The ACRA notes that there may be
an anomaly here as it is possible that the due date for an AGM is over while
the calendar year is not up yet.
However, there are two additional avenues below. [S 175A(4)]
2. Members can do so within 28 days from the day on which
the accounts and applicable documents are sent out. Such a right is also exercisable by the
auditor. [S 203(4)];
3. Members can do so within 7 days after the text of the
resolution or necessary documents have been circulated to them. [S 184D(1)]
Ordinary Shares with no votes
All
private companies, including those that are subsidiaries of public companies,
will be allowed to issue ordinary shares with no votes or any number of votes
per share.
Reappointment of Directors over 70
years of Age
A
director of a public company or a subsidiary of a public company who has
reached 70 years of age must seek annual reappointment. This reappointment must be approved by an
ordinary resolution passed at an annual general meeting. Directors of private companies that are not
subsidiaries of public companies will not be required to go for annual
reappointment.
Loans to Directors
Private
companies may not provide loans to directors unless they fall within the scope
of Section 162 of the Companies Act, that is, a loan to a director who is a
full-time employee of the company who wants to buy a home. The Companies (Amendment) Act 2003 clarifies
this by limiting this to a single loan at any one time and that the property
must be occupied by the director.
Special Resolution
The
current requirement of 21 days’ notice for meetings to pass a special
resolution for private companies is amended to 14 days.
Members
can pass a special resolution without a physical meeting provided that the
resolution is approved by members who represent at least 75% (or such greater
majority as may be required by the Memorandum or Articles) of the total voting
rights of all members. Ordinary
resolutions will require the approval of members who represent at least a
majority (or such greater majority as may be required by the Memorandum or
Articles) of the total voting rights.
These written resolutions may be passed using e-mail or other electronic
means.
Repeal of the Ninth Schedule of the
Companies Act.
The Ninth Schedule is repealed in its entirety. The requirements of the Companies Act in
respect of accounting and disclosure matters are now to be covered by the
Financial Reporting Standards (FRS) and the Interpretations of the FRS (INT
FRS).
As a result, consolidation by attachment, which was
allowed by the Ninth Schedule, is no longer acceptable. A line-by-line consolidation will need to be
prepared now. Alternatively, an
exemption may be obtained from the Registrar from preparing consolidated
financial statements. Where consolidated
accounts are prepared and presented, only the balance sheet of the company is
required.
One
Shareholder, One Director Companies
With effect from 1 April, 2004 companies are allowed
to have one director and one shareholder, subject to the Articles of
Association. At least one director has
to be locally resident. If a company has
only one director, that sole director can be the sole shareholder but cannot concurrently
act as secretary of the company.
A
copy of this circular is also available on our website at http://www.philipliew.com.sg. Details
of the Companies Act can be found at http://statutes.agc.gov.sg. Should you need clarification, please do not
hesitate to contact us.
Liew
Secretarial Services
April
2004
Appendix
1: Summary of Changes to the Companies Act
|
Companies (Amendment) Act 2002 Effective for financial years beginning on or after January 1,
2003. |
|
|
|
|
|
Section
200A |
·
Requires
Financial Statements to comply with the requirements of the Accounting
Standards. |
|
Section
201 |
·
Significantly changes
the disclosures required in the Directors’ Report; and ·
Eliminates the
need for a company level profit and loss statement in consolidated accounts. |
|
Section
201(14B)(a) and 207(2)(aa) |
·
Provides for a
true and fair override only if the auditor concurs. |
|
Section
202 |
·
Does not allow
the Registrar the authority to waive the provisions of the prescribed
Accounting Standards. |
|
Amendment
No. 61 |
·
Repeals the
Ninth Schedule of the Companies Act. |
|
Companies (Amendment) Act 2003 The
amendments to the Companies Act in 2003 are effective from May 15, 2003,
except for provisions relating to audit exemptions, which are effective for
financial years beginning on or after May 15, 2003. |
|
|
|
|
|
Section
162 |
·
Housing loans
to full-time directors limited to one at a time. |
|
Section
171 |
·
Private
companies no longer need to appoint “professionally qualified” company
secretaries, but must appoint a company secretary. |
|
Section
175A |
·
Physical AGMs
need not be held if all shareholders agree. |
|
Sections
205B and 205C |
·
Private exempt
companies below S$2.5 million in turnover and dormant private companies are
exempt from audit requirements. |
|
Companies
(Amendment) Act 2004 The amendments to the Companies Act in
2004 are effective from April 1, 2004 |
|
|
Section 20A |
·
Minimum one
shareholder required for companies |
|
Section 144(1) |
·
Inclusion of
Registration numbers on company letterheads, invoices, statements of accounts
etc. with effect from 1 October 2004 |
|
Section 145(1) |
·
Minimum one
director for companies who is ordinarily resident in |
|
Section 171(1E) |
·
Sole director
of company cannot act or be appointed as secretary of company. |
|
Section 204 |
·
If director
fails to comply the Section 201, he shall be guilty of an offence and shall
be liable on conviction to a fine not exceeding $50,000. ·
If director
fails to comply with any provision of this Division, he shall be guilty of an
offence and shall be liable on conviction to a fine not exceeding $10,000 or
to imprisonment for a term not exceeding 2 years. |
Appendix 2: Summary of Differences Between FRS and SAS
|
Differences
between FRS and SAS The
new accounting standards issued by the CCDG contain some differences from the
equivalent SAS. All FRSs are effective
for financial years beginning on or after January 1, 2003, except for FRS 39. Key differences are shown below. |
|
|
|
|
|
FRS
7/SAS 7 |
·
Cash Flow
Statements (exemptions removed) |
|
FRS
16/SAs 14 |
·
Property, Plant
and Equipment (silent on disclosure on valuation of assets not made by
qualified or independent valuers and annual valuation) |
|
FRS
17/SAS 15 |
·
Leases (certain
operating lease disclosures added) |
|
FRS
22/SAS 22 |
·
Business
Combinations (goodwill previously taken to reserves not addressed) |
|
FRS
23/SAS 19 |
·
Borrowing Costs
(silent on capitalization of borrowing costs beyond TOP) |
|
FRS
28/SAS 27 |
·
Accounting for
Investments in Associates (certain exemptions from applying equity method of
accounting removed.) |
|
FRS
39/SAS 33 |
·
Financial
Instruments: Recognition and Measurement (effective in 2005 and likely to be
significantly revised before that date) |