The review period and source scope
ACRA’s FRSP selected statements with financial years ending from 1 January to 31 December 2014 for compliance review. The guidance addresses directors and preparers, and the source’s Accounting Standards include SFRS, SFRS for Small Entities and Charities Accounting Standards issued by the Accounting Standards Council. It is a historical review-focus document; the areas are not exhaustive and ACRA may review others.
Consolidation without a 50% bright line
The five-standard suite effective 1 January 2014 consists of SFRS 110, 111, 112, 27 and 28. SFRS 110 replaces a simple 50% voting-power boundary with a control assessment. A shareholder below 50% may still need to consolidate a company it effectively runs where other shareholders are widely dispersed and do not commonly vote. Directors should examine first-time application carefully.
Joint arrangements and new disclosures
SFRS 111 distinguishes a joint venture from a joint operation. Joint ventures use equity accounting; proportionate consolidation is no longer an option. Joint operators recognise their rights in assets, liabilities, revenue and expenses under the agreement, with such arrangements common in oil and gas, energy and construction. Explain reasons and effects of accounting changes and SFRS 112 disclosures, including summary financial information for each material associate, joint venture and subsidiary with significant non-controlling interests.
Goodwill versus acquired intangibles
Material acquisition goodwill calls for scrutiny of overpayment and separately identifiable intangibles such as know-how, licences and customer lists. SFRS 103 illustrative paragraphs IE16–IE44 identify 28 classes, including brands, production backlog and licensing rights. Experts may be needed to identify and value items absent from the acquiree’s accounts. The distinction matters because goodwill is tested annually for impairment while intangibles are typically amortised.
Contingent share consideration
An acquisition may require extra payment in shares if future profit or other targets are met. Share settlement alone does not justify equity classification: a variable number of shares can result in liability classification. A liability is remeasured through profit or loss; equity is not remeasured. Directors should assess the payment terms rather than just its settlement medium.
Cash-flow translation and classification
Translation differences from overseas subsidiaries with functional currencies different from the group presentation currency go directly to the foreign-currency translation reserve, not into an operating cash-flow non-cash adjustment to pre-tax profit. Under the cited SFRS 7, classify by underlying operating, investing or financing nature. Intercompany borrowings and deposits placed to acquire investments are generally inappropriate as operating cash flows. Operating net cash shows whether operations can be sustained without external funding.
Five impairment-testing checks
Long-life assets must not exceed recoverable amounts through use or sale. Test goodwill annually and other long-life assets when indicators exist. Assess separate business units to avoid surplus hiding losses; challenge reasonable supportable forecasts against past actuals and changes such as lost customers; use asset-risk-specific discount rates rather than unadjusted borrowing rates, with industry and jurisdiction differences; consider tests when market capitalisation is significantly below net assets; and disclose material losses or reversals, causes and sensitivity where material assets have little headroom.
Three EPS errors to avoid
Adjust comparative basic and diluted EPS for bonus shares or rights issued in the year. Include every dilutive potential ordinary share, such as options, in diluted EPS effects. Shares issued as acquisition consideration enter the weighted-average ordinary-share count from the acquisition date. The source gives these errors, rather than a comprehensive EPS formula.
Segments through management’s eyes
Under SFRS 108, use the information management uses to run operations and evaluate performance. Question inconsistent segments between financial statements and annual-report management discussion. Require clear support for aggregation, particularly dissimilar economic characteristics. The guidance refers to separate reporting when the stated quantitative threshold of 10% revenue or assets is met; this review summary is not a full listing of every standard threshold.
Fair-value hierarchy and meaningful aggregation
SFRS 113 provides the measurement/disclosure framework from 1 January 2013. Level 3 involves significant unobservable inputs. Question Level 2 categorisation of investment property and biological assets because valuations typically use substantial unobservable inputs. Expect more Level 3 asset/liability disclosures at a meaningful aggregation level. Directors should obtain professional help when uncertain; the guidance does not replace the standards.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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