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Corpwatch May 04 pwcpwc Corporate Watch May 2004 Issue Companies (Amendment) Act In this Issue: 2004 – How would it affect you? Accounting Updates The Companies (Amendment) Act 2004 (CA 2004) was passed by the Singapore Parliament Companies (Amendment) Act 2004 on 6 February 2004 and is effective from 1 April 2004, except for specified sections. These – How would it affect you?.................1 amendments follow a public consultation in June 2003 proposing amendments primarily New Regulations on Review of . to put forth the recommendations of the Company Legislation and Regulatory Framework Auditors’ Independence.................... 3 Committee (CLRFC). CCDG to embark on review of Code of Corporate Governance......................3 CA 2004 did not legislate all the proposed amendments in the consultation paper. Proposed amendments such as abolishing the concept of par value, allowing repurchased IFRS News - May 2004.......................4 shares to be held as treasury shares and capital to be reduced without court sanction, IASB Improvements Project Series were not included in CA 2004. On the other hand, CA 2004 included clarifications in – The Effects of Changes in Foreign respect of corporate reporting requirements. Exchange Rates and Related Party Disclosures...........................5 This article examines the impact of selected amendments effected via CA 2004, focussing on those directly affecting corporate reporting. Companies need not prepare consolidated accounts, even if they are not required to do consolidated accounts. CA 2004 has removed accounts if not required to do so by so under FRS. this requirement. Singapore Financial Reporting Standards CA 2004 has removed these conflicting That said, even though the directors are no (FRS) requirements. It clarifies that companies longer required to receive the audited exempted from preparing consolidated accounts of each subsidiary before issuing The Companies Act requires that statutory accounts under FRS would not be required to consolidated accounts, they should proceed to accounts be prepared in accordance with do so under the Act. do so only when they are satisfied that each FRS. FRS 27 Consolidated Financial subsidiary’s accounts are properly prepared Statements and Accounting for Investments in Going forward, when the “improved” FRS 27 for consolidation purposes and that the Subsidiaries exempts wholly-owned and Consolidated and Separate Financial consolidated accounts present a true and fair virtually owned (90% or more of the voting Statements becomes effective on 1 January view of the group’s state of affairs, results of power) subsidiaries, regardless of their 2005, the exemption from preparing business, changes in equity and cash flows. parents’ countries of incorporation, from consolidated accounts would be extended to preparing consolidated accounts provided that subsidiaries with less than 90% of voting Directors are accorded protection for (i) their parents publish consolidated accounts, power, provided certain conditions (e.g. reasonable reliance on advice and and (ii) for virtually-owned subsidiaries, they informing other owners about the subsidiary information from professionals and experts have obtained the approval of their minority not presenting consolidated financial statements and they do not object to it) are interests. With CA 2004, directors may rely on reports, met. However, prior to CA 2004, Companies Act statements, financial data and other information prepared or supplied, and on specifically exempted only the wholly-owned Directors are no longer required to receive professional or expert advice given by any of subsidiaries of Singapore-incorporated the audited accounts of each subsidiary the following persons : companies from preparing consolidated before issuing the consolidated accounts accounts. Wholly-owned subsidiaries of • an employee of the company whom the foreign companies and virtually owned Section 201A previously required the directors director believes on reasonable grounds to subsidiaries were required under the of a holding company to receive the audited be reliable and competent in relation to the Companies Act to prepare consolidated accounts of each subsidiary before issuing the matters concerned; *connectedthinking 1 pwc • a professional adviser or an expert in This requirement does not prohibit the Private companies can raise capital through relation to matters which the director provision of non-audit services by the auditors public means believes on reasonable grounds to be but serves to ensure that the independence of Private companies were prohibited from inviting within the person’s professional or expert the auditors are not compromised during the the public to (i) subscribe for its shares or (ii) competence; and process. See further discussion in page 3 of deposit any money with them. CA 2004 has this newsletter. • any other director or any committee of removed these restrictions, enabling certain directors upon which the director did not private companies to raise capital though private Additional information may be required in serve in relation to matters within that and exempted offerings without the need to directors’ report other director’s or committee’s designated convert to public companies. authority. The Minister is now empowered to prescribe However, these private companies would be Notwithstanding that, such reliance is any additional information in the directors’ subjected to the disclosure requirements of warranted only if the director (i) acts in good report. CA 2004 also explains that such the legislations governing the raising of capital faith, (ii) makes proper inquiry where the additional information may extend beyond the from the public. They would also need to convert circumstances necessitates the need for profit or loss or the state of affairs of the to public companies once they have more than inquiry and (iii) has no knowledge that such company or the group. 50 shareholders and/or do not impose any reliance is unwarranted. restriction(s) on transfer of shares. Statutory reports and other documents can Revised penalties for directors who fail to be distributed electronically Other amendments comply with Companies Act Other amendments in CA 2004 which are With CA 2004, statutory reports can now be CA 2004 distinguishes the penalties for non- effective from 1 April 2004 include: electronically distributed to members of the compliance with the requirements of preparing • Companies are statutorily conferred with company. Similarly, notices of meetings and FRS-compliant financial statements from all the powers of a natural person. The other documents can be electronically transmitted those for non-compliance with other provisions ultra-vires doctrine is abolished, except in to members, officers or auditors of the company. in the same Division of the Act. Specifically, specified circumstances • if a director fails to comply with Section The member, officer, or auditor must however • Entrenching provisions, which limit the 201(1A), (3), (3A) or (15), he or she shall agree to the method of electronic transmission, majority rights, may be included in the be liable on conviction to a fine not which could take the form of either: memorandum and articles of companies exceeding $50,000 (previously, $10,000 or • sending the notice or document using • Companies are no longer required to display an imprisonment not exceeding 2 years); electronic communications to the current their names outside their offices and e-mail address of the recipient; or • Companies are no longer required to notify • if this offence is committed with the intent the Registrar of their intention to close their to defraud creditors of the company or • publishing the notice or document on a register of members creditors of any other person or for a website which is accessible by the recipient. fraudulent purpose, the offender shall be • Any person can now apply to the Minister Private companies can have only one liable on conviction to a fine not exceeding to be an approved liquidator shareholder and one director $100,000 or to an imprisonment for a term • Investors are deemed to have direct not exceeding 3 years or both (previously, Private companies incorporated in Singapore relationship with issuers for a wider range $15,000 or an imprisonment not exceeding that are owned by individuals are now allowed of securities 3 years or both). to have one shareholder and one director • Trust assets of Central Depository (Pte) The penalties for non-compliance with other ordinarily resident in Singapore. The shareholder Limited (CDP) are statutorily shielded from provisions remain unchanged. and director can be the same person, but where CDP’s creditors in the event of insolvency the company has only one director, the director • The Minister is empowered to exempt script Public companies shall review the fees, must not be the secretary of that company. lending intermediaries from Division 4 of expenses and emoluments of their auditors Part IV of the Companies Act Public companies shall undertake a review of If a company operates without appointing any With effect from 1 October 2004, the Companies the fees, expenses and emoluments of their directors, the Registrar may, either of his own Act will require companies to include their RCB auditors if the total amount of the fees paid to motion or on the application of any person, registration numbers in their business letters, the auditors for non-audit services in any compel the member (s) to appoint
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