Review scope and historical standards
Practice Guidance No. 2 of 2015 covers selected years ending 1 January–31 December 2015 under FRSP. It addresses misstatement risks and questions before authorisation. Accounting Standards here include then SFRS, Small Entities SFRS and Charities standards. The ten areas are not exhaustive or a substitute for standards, and ACRA may review other areas. Historical standards and examples are retained rather than recast as current rules.
Control: unanimous reserved matters
SFRS 110 removed the 50% bright line from 1 January 2014. Unanimous shareholder-agreement Reserved Matters may prevent a majority shareholder controlling an investee. Understand each significant shareholder’s contribution and the rationale, then assess substantive rights to decide activities significantly affecting returns. Such rights may mean joint arrangement instead of subsidiary consolidation; meaningfully disclose significant judgements.
Call/put options and accounting assessment
Understand why options over investee shares were entered into and their consequences for control, joint control or significant influence. Assess whether derivative accounting is required. The PDF’s put-option description states a written put entails selling shares, an apparent technical inconsistency; this article does not repeat that direction as reliable contract guidance. Determine the actual holder/writer rights and obligations from the agreement and applicable standard.
Purchase-price allocation and goodwill
Use acquisition rationale and price factors to identify separate know-how, licences or customer lists. If no in-house expertise, appoint an external valuer and do not restrict PPA to management’s preselected assets, which could omit others. Specific intangibles typically amortise, matching subsequent revenue, while goodwill is annually impairment-tested. Explain residual goodwill such as assembled workforce and disclose acquired business value meaningfully.
Impairment: four checks
Compare supportable forecasts to prior actuals and changing circumstances such as segment disposal. Challenge extrapolated terminal cash flows against contraction/expansion and asset life. Use asset-specific risk discount rates, not unadjusted borrowing rates; the guidance’s example rejects below 10% where relevant government risk-free bonds exceed 10%. Tailor commercial-cause disclosures and sensitivity for material assets with small headroom. This is an example, not a universal 10% rate.
Borrowing covenants and classification
Highly geared companies should check every covenant and timely repayment. Breach/default may make long-term borrowings immediately payable. Consider whether non-current amounts must become current; merely retaining a long-term contract label does not resolve changed rights and obligations.
Sale-and-leaseback substance
The historical guidance asks whether substantial ownership risks/rewards transfer. Purchase options, deferred consideration, residual-value guarantees or future capital-expenditure duties may leave risk with the seller. It says the resulting sale profit in that case is deferred as financing income over the lease term rather than recognised immediately. This is the source’s 2015 treatment and terminology, not a restatement of later lease standards.
Operating cash-flow errors
Do not place business-combination/disposal amounts in working-capital adjustments merely because they are balance-sheet items: examples are subsidiary-disposal progress receipts, aborted-acquisition refunded deposits and prepayments for a controlling stake. Translation differences taken directly to equity are not operating adjustments; track and allocate them to originating assets/liabilities. Operating cash measures funding capacity for operations, investments and debts.
Currency and recoverable amounts
Assess foreign-currency share/associate investments and subsidiary assets in the functional currency of the holder. Currency movements may cause impairment even with stable local prices: the source’s SGD-functional-currency example is Malaysian shares with unchanged RM price but weakened RM. Its references to Malaysia, China, Indonesia and Australia describe the period’s movements, not current exchange forecasts.
EPS after capital changes
For consolidations, splits, bonus shares and rights issues, adjust basic/diluted EPS for both current and past periods to reflect share-count changes without matching resource changes. The guidance does not provide every rights-issue formula or every potentially dilutive instrument test.
Fair-value hierarchy
SFRS 113 links hierarchy to observable inputs. Investment properties/biological assets with many significant unobservable inputs should be expected in Level 3, with fuller asset/liability disclosures at meaningful aggregation. Classification depends on valuation inputs, not merely an asset name. Seek professional help where uncertainty remains.
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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