pwcpwc Corporate Watch December 2004 Issue

CCDG issues FRS 102, FRS 104, FRS 105 and Amendments to In this Issue: Updates

FRS 39 CCDG issues FRS 102, FRS 104, FRS 105 and Amendments to FRS 39 ...... 1

On 6 September 2004, the Council on Corporate Disclosure and issued three Are you ready for FRS 39? ...... 1 Financial Reporting Standards (FRS), these being FRS 102 Share Based Payment, FRS 104 Contracts, FRS 105 Non-current Held for Sale and Discontinued Operations Changes in your FY 2004 & FY 2005 Annual Reports ...... 4 and Amendments to FRS 39 relating to macro hedging. Changes in existing decommissioning FRS 102 Share Based Payment requires an entity to recognise share-based payment and other similar liabilities – How does transactions in its financial statements, including transactions with employees or other parties it affect you? ...... 8 that are settled in , other assets, or instruments of the entity. This standard also sets out measurement principles and specific requirements for three types of share-based payment PwC Illustrative 2004: A guide to drafting your 2004 annual transactions. report ...... 8 FRS 104 Insurance Contracts is the first FRS to deal with insurance contracts and has been Standards covered in the previous issued to make limited improvements to accounting for insurance contracts. It requires any entity issues of Corporate Watch ...... 9 issuing insurance contracts (an insurer) to disclose information about such contracts.

FRS 105 Non-current Assets Held for Sale and Discontinued Operations sets out requirements for the classification, measurement and presentation of non-current assets held for sale and replaces FRS 35 Discontinuing Operations.

Amendments to FRS 39 relating to macro hedging provide additional guidance on certain aspects of hedging.

To read the full Financial Reporting Standard, please visit the CCDG website.

Are you ready for FRS 39?

The effective date of the revised FRS 39 Financial Instruments: Recognition and Measurement is the annual period beginning on or after 1 January 2005. FRS 39 is viewed as the most complicated standard ever issued to date. The implementation issues have been dealt with in various publications including the earlier issues of Corporate Watch. The perception of FRS 39 being an industry specific issue has been corrected for it has an impact on all entities. The following briefly outlines the FRS 39 implementation issues that should be considered by entities when implementing FRS 39, relating to:

1) Definition of financial instruments

2) Identification of financial instruments

3) Classification & measurement of financial assets & liabilities

4) Identification & accounting for embedded derivatives

5) accounting

6) Derecognition and recognition of financial assets and liabilities

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amount of cash or another financial Definition of financial instruments for a fixed number of the (FRS 32.11) entity’s own equity instruments. For The strict rules for hedge accounting require: A is any contract that this purpose the entity’s own equity • identification of hedge item and hedge gives rise to a financial asset of one entity instruments do not include instrument; and a financial liability or equity instrument of instruments that are themselves another entity. contracts for the future receipt or • assessment of hedge effectiveness; delivery of the entity’s own equity A financial asset is any asset that is: instruments. • documentation of hedge relationships; and (a) cash; An equity instrument is any contract that • profit and loss impact resulting from the (b) an equity instrument of another entity; evidences a residual interest in the assets of an entity after deducting all of its liabilities. ineffective portion of the hedge (c) a contractual right: Derecognition of financial asset and liability (i) to receive cash or another financial Identification of financial instruments asset from another entity; or (refer to Table 1) The derecognition of financial asset requires (ii) to exchange financial assets or FRS 39 is applicable to financial assets, the consideration of transfer of and financial liabilities with another entity financial liabilities and derivatives. The first rewards. The transfer of ownership risks under conditions that are potentially step in the implementation process is to and rewards precedes the evaluation of the favourable to the entity; or identify the respective financial assets, transfer of control. (d) a contract that will or may be settled in financial liabilities and derivatives. The derecognition of financial liability occurs the entity’s own equity instruments and is: when the obligation specified in the contract Classification & measurement of financial is discharged, cancelled or expires. (i) a non- for which the entity assets & liabilities (refer to Table 2a & 2b) is or may be obliged to receive a The above outlines the identification, variable number of the entity’s own Once identified, the financial assets and liabilities should be categorised into: classification, recognition/derecognition and equity instruments; or • through profit or loss; measurement requirements specified in (ii) a derivative that will or may be settled FRS 39. Fair value measurement prevails in • held-to-maturity investments (financial other than by the exchange of a fixed FRS 39. This measurement process is a assets only); amount of cash or another financial complex exercise and issues relating to • & receivables (financial assets asset for a fixed number of the effective and impairment should only); and entity’s own equity instruments. For be taken into consideration. For the this purpose the entity’s own equity • available-for-sale (financial assets only) continuous implementation of FRS 39, instruments do not include The classification process is critical as the systems and personnel requirements should instruments that are themselves measurement method is dependent upon also be taken into the equation. the categorisation. Fair is applied contracts for the future receipt or to: delivery of the entity’s own equity 1) financial assets at fair value through instruments. profit or loss; A financial liability is any liability that is: 2) available-for-sale financial assets; and (a) a contractual obligation: 3) held-for-trading financial liabilities

(i) to deliver cash or another financial Amortised is applied to all other categories. asset to another entity; or

(ii) to exchange financial assets or Identification & accounting for embedded financial liabilities with another entity derivatives (refer to Table 3a & 3b) under conditions that are potentially unfavourable to the entity; or Examples of embedded derivates are listed (b) a contract that will or may be settled in in Table 1. Embedded derivatives are now the entity’s own equity instruments and is: required to be separately accounted for if they are not closely related to the host (i) a non-derivative for which the entity contract at fair value measurement. is or may be obliged to deliver a Changes in fair value are included in the variable number of the entity’s own . The identification of the equity instruments; or embedded derivative follows the assessment (ii) a derivative that will or may be settled of the relation between the host and other than by the exchange of a fixed derivative before the fair value is determined.

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Table 1: Examples of financial assets, Table 2a: Classification & Measurement of Financial Assets financial liabilities, derivatives and embedded derivatives Category Held-to-maturity & receivable FV – PL1 Available-for-sale

Examples of financial assets Measurement Amortised Cost Fair Value • Bank deposits 1 •Trade debtors FV–PL: A financial asset or financial liability at fair value through profit or loss • Inter-company loans • Staff loans Table 2b: Classification & Measurement of Financial Liabilities • Other receivables & advances • Investments Category Held-to-trading Others Examples of financial liabilities •Trade creditors and other payables Measurement Fair Value Amortised Cost • Bank borrowings • Bonds • Certain Preference shares Table 3a: Accounting for embedded derivatives Examples of derivatives • FX forwards, swaps Is contract carried at fair value through Yes • Interest rate swaps profit and loss? • Cross currency swaps

• FX options No • Interest rate options Do not segregate the • Equity options Would it be a derivative if it was No embedded derivative • Interest rate futures freestanding? • Commodity derivatives

Examples of embedded derivatives Yes • Lease with contingent rental payment Is it closely related to the host contract? • Non-financial contract denominated in Yes foreign currency

• Non-financial contract with net No settlement

• Loan with extension option Split and separately for the embedded derivative • Loan with prepayment option

Table 3b: Type of embedded derivatives

Not Closely Related Closely Related x Equity conversion or ‘put’ option in √ Interest-rate swap embedded in a debt instrument instrument x Fixed-rate debt extension option √ Inflation-indexed lease contracts x Debt security with interest or principal linked to commodity or equity prices √ Cap and floor in a sale and purchase contract x Credit derivatives embedded in a host debt instrument √ Prepayment option in a mortgage where x Sales or purchases not in: the option’s exercise price is approximately equal to the mortgage’s 1) measurement currency of either party; amortised cost on each exercise date 2) currency in which products are routinely √ A forward foreign exchange contract that denominated in international results in payments in either party’s commerce; or reporting currency 3) currency commonly used in the Dual currency bonds economic environment in which the √ transaction takes place √ Foreign currency denominated debt

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Changes in your FY 2004 & FY 2005 Annual Reports

2004 has seen a significant number of changes in accounting standards. Since December 2003, the Council on Corporate Disclosure and Governance (CCDG) has revised or issued 20 Financial Reporting Standards (FRSs) and made consequential amendments to 17 FRSs. Six exposure drafts on new or proposed revisions to the FRSs and interpretation to FRS are outstanding as of November 2004. The majority of these standards take effect on 1 January 2005 and thus affect the FY 2005 annual report.

This article outlines the changes expected in the FY 2004 annual report emanating from:

1) Operating and Financial Review (OFR) Guide

2) Companies (Amendment) Act 2004 (CA 2004)

3) SGX Listing Manual

In view of the numerous FRSs that have been issued and effective from FY 2005, entities should consider their implications on the FY 2005 annual report and the required actions. Impending legislations such as the Companies (Amendment No. 2) Bill 2004 and Proposed Revision to the Code of Corporate Governance should also be taken into consideration and is discussed in the second section of this article, under the section on FY 2005 Annual Report.

FY 2004 7) Discuss and capital subsidiaries of Singapore incorporated management policies companies from preparing consolidated Annual Report 8) Discuss overall return attributable to accounts. Following CA 2004, and in line shareholders with FRS 27 Consolidated and Separate Operating and Financial Review (OFR) Financial Statements, wholly owned Guide Company Registration Number subsidiaries of foreign companies and virtually owned subsidiaries are also Under Rule 1207(4)(a) of the SGX Listing Following the Companies (Amendment) Act exempted from preparing consolidated Manual, listed companies are required to 2004 (CA 2004), the amended section 144 accounts. conduct an Operating and Financial Review requires the company registration number to ’ Report (OFR). In February 2004, the Ministry of be included (after the name of the company) Finance accepted the CCDG’s in official documents issued by a company on Due to the deletion of Companies Act recommendations to issue an Operating and or after 1 October 2004. section 207(2)(c), auditors of a holding Financial Review (OFR) Guide. Adherence This affects business letters, statements of company are no longer required to: to the OFR Guide by listed companies is account, invoices, official notices and - disclose the names of subsidiaries not voluntary. Listed companies are urged to publications of or purporting to be issued or audited by the auditors of the holding consider the principles and guidelines in the signed by or on behalf of the company. company; OFR Guide in preparing their annual reports Therefore, all financial statements issued - state whether they have considered the for financial years starting from 1 January after 1 October 2004 must include the accounts and the auditors’ report of all 2004. The 8 principles included in the OFR company registration number. Guide are: subsidiaries of which they have not ACRA has clarified that bills of exchange, acted as auditors; 1) Focus on investor matters promissory notes, indorsements, cheques, - state whether they are satisfied that the orders, receipts and letters of credit issued 2) Describe nature of company, its accounts of the subsidiaries are properly by or purporting to be issued or signed by or objectives and broad strategies consolidated and whether they received on behalf of the company only need to have 3) Discuss key financial and non-financial satisfactory information and explanation; the company’s registered name appearing on performance indicators nor them. - state whether any auditors’ report on the 4) Discuss performance for the period Exemption from Preparation of subsidiaries’ accounts was subject to 5) Discuss the dynamics and risks factors Consolidated Accounts material qualification of the business Auditors of the holding companies are 6) Comment on maintaining and enhancing Prior to CA 2004, the Companies Act expected to have considered all these company’s and profitability specifically exempted only wholly owned matters before issuing the audit opinions.

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Listing Rules Although these pronouncements are not This retrospective application requirement effective for FY 2004, entities should affects the revisions arising from the One of the January 2004 changes in the consider their implications and especially Improvements Project, especially those SGX Listing Rules relate to the audit report. whether any decisions are required before relating to new requirements and Previously, any qualification or emphasis of the commencement of FY 2005. disclosures. Therefore, it would be efficient matter in the audit report of the listed to consider the implications on the FY 2005 company or its subsidiaries must be Improvements Project comparatives now. announced immediately and this rule was Furthermore, current events and/or extended to the audit report of associates. On 12 April 2004, the CCDG issued 12 2 transactions being negotiated and expected Now, only a qualification or emphasis of improved standards (5 of which had some to be finalised in 2005 could be affected by matter that has a material impact on the further refinements compared to the IASs) the revised standards. Such transactions group financial statements needs to be and withdrew FRS 15, Information Reflecting should be identified as soon as possible. announced. the Effects of Changing Prices. The improved FRSs are effective for financial Examples include the identification of idle assets for the of assets from the FRS 101 First-Time Adoption of Financial periods beginning on or after 1 January 2005 day it is available for use till it is idle or held- Reporting Standards and comprise: for-sale, and accounting for restoration cost • FRS 1 Presentation of Financial Statements of property, plant and equipment. FRS 101 was issued in November 2003 and • FRS 2 effective for the annual period beginning on Revised requirements such as annual review or after 1 January 2004. In the first • FRS 8 Accounting Policies, Changes in of residual values may affect resource instance, entities should note that FRS 101 Accounting Estimates and Errors requirements, which should be identified and does not apply to companies that had been planned for accordingly. complying with the Statements of • FRS 10 Events after the Accounting Standards (SAS). However, Date Additional information may need to be collated due to changes such as the usage FRS 101 would apply to other companies • FRS 16 Property, Plant and Equipment preparing financial statements in compliance of uniform accounting policies and no greater • FRS 17 Leases with FRSs for the first time. than three month difference in the specified in FRS 28. • FRS 21 The Effects of Changes in FRS 101 requires an entity to apply Foreign Exchange Rates retrospectively each FRS effective at the FRS 102 Share-Based Payments reporting date in preparing its first FRS • FRS 24 Related Party Disclosures financial statements. FRS 101 grants FRS 102 was issued in September 2004 and • FRS 27 Consolidated and Separate limited exemptions from this requirement in effective for the annual period beginning on Financial Statements specified areas. Retrospective application or after 1 January 2005. It is applicable for: of FRSs is also prohibited in areas such as: • FRS 28 Investments in Associates • grants on or after 22 November 2002 not • derecognition of financial assets and • FRS 31 Interests in Joint Ventures yet vested by 1 January 2005; liabilities; • FRS 33 • modifications of grants on or after • hedge accounting; and 1 January 2005; and Some changes, relating to the removal of • estimates accounting choice or new guidance/ • liabilities as at 1 January 2005 disclosures, are highlighted in Table 4. Disclosures include explanation(s) of how It should be highlighted that FRS 102 is Before considering the implications of these the transition from previous GAAP to FRSs applicable even when the parent company is revised standards, it is important to note the affected the entity’s reported financial issuing shares or share options to employees revised requirements in FRS 8 in relation to: position, financial performance and cash of the subsidiary. In such circumstances, flow. • retrospective application of accounting both the parent and subsidiary are required policy upon initial application of a to recognise the transaction in their Standard or an Interpretation that does respective books. Generally, entities are FY 2005 not include specific transitional required to recognise an and to Annual Report provisions; measure all share-based payment • retrospective application of voluntary transactions for goods and services received In addition to the FRSs that have been changes in accounting policies; and by the entity at fair value. issued since December 2003 (i.e. • retrospective restatement to correct prior Improvement Project, FRS 101, FRS 102, period errors 1 FRS 104 Insurance Contract is an industry specific FRS 103, FRS 104 and FRS 1051), the standard and thus, will not be included in the current discussion. Ministry of Finance has also issued the In particular, the retrospective application of 2 Proposed Revisions to the Code of accounting policy requires the new FRS 32 and FRS 39 were also revised as part of the Improvements Project and issued in December 2003. Corporate Governance and issued the accounting policy to be applied to the This has been dealt with in an earlier article Are you ready for FRS 39? (Refer to Page 1) Companies (Amendment No. 2) Bill. comparatives as far back as practicable.

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In order to implement fair value accounting • assets held-for-sale to be stated at the are effective for financial period from for share-based payments, it would be lower of carrying value and fair value 1 January 2005 (1 July 2004 for FRS 103) necessary to identify transactions that are less cost to sell, with no requirement for but there are implications and action within the scope of FRS and obtain depreciation or amortisation; required to be taken now in order to be information for the computation of fair value, prepared to meet reporting requirements in • classification of discontinued operations i.e. fair value of instrument and behavioural FY 2005. The developments of the Code of at the earlier of the date the operation considerations affecting number of Corporate Governance and Companies meets the criteria to be classified as instruments expected to vest. Given the (Amendment No. 2) Bill, both of which are held-for-sale or when the entity has requirement to restate comparatives, it is expected to be finalised in 2005, should disposed of the operation; and imperative to commence the information also be closely monitored. collation exercise prior to FY 2005. • separate presentation of discontinued and continuing operations FRS 103 Business Combinations The classification of assets held-for-sale is subject to strict criteria and entities should FRS 103 was issued in July 2004 and review the criteria to determine assets that effective for the annual period beginning on may fall within this classification. or after 1 July 2004. Requirements in FRS Presentation formats of the annual reports 103 include: should be reviewed to ensure compliance • prohibition of pooling-of-interest method; with FRS 105. • application of the acquisition method; Code of Corporate Governance • identification and measurement of intangible assets at fair value; On 1 December 2004, the CCDG issued a • exclusion of restructuring cost from consultation paper on the Proposed purchase price allocation; Revisions to the Code of Corporate Governance which was first issued in March • measurement of contingent liabilities of 2001. Comments close on 15 February acquiree at fair value; 2005. • allocation of to cash-generating units at acquisition and no later than the Companies (Amendment No. 2) Bill end of first annual period beginning after acquisition; The Ministry of Finance sought public comments on the proposed draft Companies • replacement of goodwill amortisation with (Amendment No. 2) Bill 2004. The following annual impairment test; and items covered in the Bill are relevant to • no reversal of impairment loss on financial reporting: goodwill - abolishing the concept of par value and For existing business combinations, goodwill authorised share capital; impairment should be reviewed and consideration should be taken for the - introducing an alternative capital reversal of goodwill impairment loss in reduction process which does not FY 2004 as it is strictly prohibited under require court sanction; FRS 103. - redemption of preference shares using For new acquisitions, which require the capital; implementation of the acquisition method, - share buy-backs out of profits or capital, specialist help may be required in the provided the company is solvent; and identification and valuation of identifiable asset/liabilities and contingent liabilities of - introduction of treasury shares instead the acquiree. of cancelling re-acquired shares

FRS 105 Non-Current Assets Held-for-Sale Conclusion and Discontinued Operations With less mandatory changes in the FY 2004 FRS 105 was issued in September 2004 and annual report to contend with, effort should effective for the annual period beginning on be expended to prepare for the numerous or after 1 January 2005. It requires, amongst changes affecting the FY 2005 annual many: report. Evidently, the FRSs outlined above

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Table 4 – Selective Changes Arising from Improvements Project3

New Guidance New Disclosures FRS 2 FRS 1 • Circumstances that would trigger a reversal of a write-down of • Judgements made in applying accounting policies inventories recognised in a prior period • Key assumptions concerning the future, and other key sources of FRS 10 estimation uncertainty at the balance sheet date • If an entity declares after the balance sheet date, the • Profit or loss for period disclosed on the face of income statement entity shall not recognise those dividends as a liability at the and statement of changes in equity balance sheet date •To present the allocation of profit or loss for period between ’profit FRS 16 or loss attributable to ’ and ’profit or loss attributable • An entity is required to measure the residual value of an item of to equity holders of the parent’ on the face of the income statement property, plant and equipment as the estimated amount it would and statement of changes in equity receive currently for the asset if the asset were already of the age FRS 2 and in the condition expected at the end of its useful life • Carrying amount of inventories carried at fair value less to sell • The residual value and useful life should be reviewed at least at •Write-downs of inventories recognised as an expense in the period each financial year end FRS 8 • An entity is required to begin depreciating an item of property, plant and equipment when it is available for use and to continue • Impending change in accounting policy when an entity has yet depreciating it until it is derecognised, even if the item is idle to implement a new Standard or Interpretation that has been during that period of time issued but not yet come into effect FRS 17 FRS 21 • Initial direct costs of lessors cannot be charged as as • Change in functional currency and the reasons for the changes incurred FRS 24 FRS 21 • Compensation of key management personnel • Replaced ‘reporting currency’ with ’functional currency’ and/or • Amounts, in place of proportions, of transactions and outstanding ‘presentation currency’ balances • An entity does not have a free choice of functional currency • Expense recognised during the period in respect of bad or doubtful • An entity is required to translate its results and financial position due from related parties from its functional currency into presentation currency using the • Classification of amounts payable to, and receivable from, related closing rate for the assets and liabilities, and the transaction or parties into different categories of related parties average rate for income and expenses FRS 28 FRS 24 • Prepare investor’s separate financial statements • Expansion of related party to include parties with joint control FRS 31 over the entity, joint ventures in which the entity is a venturer and post-employment benefit plans for the benefit of employees • Prepare investor’s separate financial statements • Method used to recognise interests in jointly controlled entities • Clarified that non-executive directors are key management (proportionate or ) personnel FRS 27 Removal of Accounting Choice • Modified exemption from preparing consolidated financial statements FRS 8 • Requirement to use uniform accounting policies for reporting like • Removed allowed alternative to retrospective application of transactions and other events in similar circumstances voluntary changes in accounting policies and retrospective restatement of restatement to correct prior period errors4 • Present minority interests in the consolidated balance sheet within equity • Eliminated the concept of fundamental error • Investment in subsidiaries, jointly controlled entities and associates accounted for at cost or in accordance with FRS 39 if Withdrawn Disclosures an entity elects or is required to present separate financial FRS 1 statements • Results of operating activities FRS 28 • Extraordinary items • Investments in associates over which the investor has significant influence must be accounted for using the equity method whether or • Number of employees not the investor also has investments in subsidiaries and prepares FRS 2 consolidated financial statements • Inventories carried at net realisable value • When financial statements of an associate used in applying the FRS 24 equity method are prepared with a reporting date that is different from that of the investor, the difference must be no greater than • Pricing of transactions and related disclosures between related three months parties • Requirement to use uniform accounting policies for reporting like transactions and other events under similar circumstances 3 These changes are extracted from the ‘Introduction’ section of the respective FRSs. FRS 33 4 Comparative information for prior periods is presented as if new accounting policies had • Illustrative examples of complex matters always been applied and prior period errors had never occurred. • Need to take into account dilution effects on earnings of investment in subsidiaries

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Changes in existing PwC Illustrative Annual Report 2004 : A guide to decommissioning and other drafting your 2004 annual report similar liabilities – How does it This publication provides a sample annual report of a fictitious group. It affect you? illustrates the financial statements disclosures required by the following regulations that are applicable for Background financial year commencing on or after The International Accounting Standard Board’s International Financial Reporting 1 January 2004: Interpretations Committee (IFRIC) released the IFRIC Interpretation 1 Changes in Existing • Singapore Companies Act Decommissioning, Restoration and Similar Liabilities on 27 May 2004. Locally, the Council • Singapore Exchange Securities on Corporate Disclosure and Governance (CCDG) issued the Singapore equivalent Trading Listing Manual; and interpretation, namely Interpretation of Financial Reporting Standards (INT FRS) 101 Changes in Existing Decommissioning, Restoration and other Similar Liabilities on 31 • Singapore Financial Reporting August 2004. This Interpretation contains guidance on accounting for changes in existing Standards and Interpretations decommissioning, restoration and similar liabilities that are recognised both as part of the It also includes selected global best cost of an item of property, plant and equipment in accordance with FRS 16 Property, Plant practice disclosures. and Equipment and as a liability in accordance with FRS 37 Provisions, Contingent Liabilities and Contingent Assets. This publication also includes an Illustrative Directors Report, a sample corporate governance report, a listing How is the change in the estimated liability Under FRS 37, the amount recognised as a of Financial Reporting Standards of decommissioning or restoration should be the best estimate of the (FRS) and Interpretations, and a accounted for? expenditure required to settle the obligation at the balance sheet date. This is measured comparison between FRS and International Financial Reporting Currently, neither FRS 16 nor FRS 37 at its present value, which the Interpretation Standards as of August 2004, as well specifically addresses the accounting for the confirms should be arrived at using a current as a summary of the key changes that effect of changes in such liability although market-based discount rate. are effective from 1 January 2005. FRS 37 requires companies to assess the The Interpretation deals with three scenarios measurement of the provision at every where changes in an existing liability for A copy of this publication can be balance sheet date. such costs can occur. downloaded from our PwC Singapore website. Generally, companies would account for The two main kinds of changes are those changes in the estimated decommissioning that arise from a revision of: liabilities in the income statement in the a) estimated outflow of resources required period where the estimate is adjusted. to settle the obligation; or

Required treatments under INT FRS 101 b) current market-assessed discount rate Changes in Existing Decommissioning, Most entities account for their property, plant Restoration and other Similar Liabilities and equipment using the cost model. In such cases, the aforementioned changes should In general, the Interpretation requires changes be capitalised as part of the cost of the item in the liability resulting from changes in cash and depreciated prospectively over the flows or discount rates to be capitalised in remaining life of the item to which the costs full and depreciated prospectively over the relate. This is consistent with the treatment life of the item to which they relate. It also under FRS 16 of other changes in estimate requires the unwinding of the discount to be relating to property, plant and equipment. recognised in profit or loss as a finance cost as it occurs and provisions to be measured Where entities account for their property, using a current market-based discount rate. plant and equipment using the fair value The Interpretation also addresses the model, a change in the liability would not accounting for changes in existing affect the valuation of the item for decommissioning, restoration and similar accounting purposes, but rather the liabilities that fall within the scope of FRS 16 revaluation surplus or deficit (that is, the and FRS 37. difference between its valuation and its

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carrying amount under the cost model). Difference between the issued INT Standards covered in previous Any change is thus treated consistently FRS 101 and the original exposure draft issues of Corporate Watch with other revaluation surpluses or deficits, (ED INT FRS 2) where any cumulative deficit is taken to The following standards were covered in profit or loss, and cumulative surplus Previously, the draft interpretation required the previous issues of Corporate Watch: credited to equity. retrospective adjustments. That is, January 2004 The adjusted depreciable amount of the adjustments relating to the depreciated IAS 16 Property, Plant and Equipment portion of the asset would be adjusted to asset is depreciated over its useful life. IAS 17 Leases opening retained earnings and the portion to Once the related asset has reached the IAS 40 Investment Property end of its useful life, all subsequent be depreciated in the future would be changes in liability should be recognised capitalised at the date of the adoption of the February 2004 in the profit or loss account as they occur. draft Interpretation. IAS 1 Presentation of Financial Statements This applies under both the cost and During the comment period, the revaluation models. respondents observed that anomalies could IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors The third kind of change dealt with by the result from such a retrospective treatment – Interpretation is an increase in the liability if other changes in estimate were to be dealt March/April 2004 with prospectively as set out in FRS 8 that reflects the passage of time – also IAS 27 Consolidated and Separate Accounting Policies, Changes in Accounting referred to as the unwinding of the discount. Financial Statements Estimates and Errors – and that a This is recognised in profit or loss as a IAS 28 Investments in Associates prospective treatment would be consistent finance cost as it occurs. The unwinding of IAS 31 Interests in Joint Ventures the discount is not regarded as a borrowing and easier to apply. May/June 2004 cost under FRS 23 Borrowing Costs, Thus, in the issued Interpretation, such because FRS 23 addresses funds borrowed changes in accounting policies are IAS 21 The Effects of Changes in Foreign specifically for the purpose of obtaining a accounted for prospectively, according to Exchange Rate particular asset. Therefore, the allowed the requirements of FRS 8 Accounting IAS 24 Related Party Disclosures alternative treatment of capitalisation under Policies, Changes in Accounting Estimates July/August 2004 FRS 23 is not permitted. and Errors. IFRS 3 / Business Combinations FRS 103 For a copy of the entire Interpretation, FRS 105 Non-current Assets Held-for-sale please visit the CCDG website. and Discontinued Operations

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Contact Us:

For any comments or further information, please contact our team in corporate reporting:

Yeoh Oon Jin Leader, Corporate Reporting [email protected] Tel: (65) 6236 3108

Peter Low Partner, Corporate Reporting [email protected] Tel: (65) 6236 3348

Kok Moi Lre Associate Director, Corporate Reporting [email protected] Tel: (65) 6236 3049

Choo Eng Beng Senior Manager, Corporate Reporting [email protected] Tel: (65) 6236 7003

Chew Tong Gunn Senior Manager, Corporate Reporting [email protected] Tel: (65) 6236 4360

Corporate Watch is a periodic newsletter produced by the Professional Standards Group of Assurance/ Business Advisory Department of PwC Singapore, with the objective to apprise corporates of emerging corporate reporting issues.

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PricewaterhouseCoopers has exercised professional care and diligence in the preparation of this publication. However, the information contained herein is intended to be a general guide and should not be used or relied upon as a substitute for specific professional advice. While every effort has been made to ensure accuracy, no liability is accepted by PricewaterhouseCoopers or any employee of the firm on any grounds whatsoever to any party in respect of any errors or omissions, or any action or omission to act as a result of the information contained in this publication.

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