ACRA highlights areas for focus for FY2022

Last updated on 27 February 2023

As 2023 kicks into gear after the Chinese New Year celebrations, many businesses will focus on preparing financial statements for the previous financial year (financial year ending 2022).

Last year, the Accounting and Corporate Regulatory Authority (ACRA) published a guide for directors highlighting areas of focus for preparing financial statements for their companies.

Due to geopolitical uncertainties such as the war in Ukraine, global supply chains have again been disrupted. This comes after more than 2 years of Covid-19 restrictions globally.

The areas of focus highlighted by ACRA were:

  • Provisions  should be recognised for possible obligations for damages due to delayed fulfilment or delivery.

  • Inventories  that are obsolete or too slow-moving should be written down to net realisable values. This is particularly so for inventories from countries under trade sanctions.

  • Impairment risks  should be factored in as trade sanctions may render assets’ carry amount unrecoverable or lower their value.

  • Expected credit loss  (i.e. defaults) from customers in jurisdictions with political uncertainties should be factored into risk assessment.

  • Investments  in sanctioned countries such as Russia may no longer be under the companies’ control. This may be due to retaliatory measures from sanctioned countries, such as the nationalisation of assets.

While the above list is not exhaustive, directors and audit committees need to pay particular attention to the above as they could significantly impact the bottomlines, assets and liabilities of their companies.

Furthermore, macroeconomic uncertainties from higher energy, agricultural and commodity prices have pushed up interest rates and business costs.

Discount Rates used to compute the value in use (VIU) or fair value less costs of disposal (FVLCD) may rise due to rising interest rates. Furthermore, inflation may affect the assumptions used in these computations. Lower VIU or FVLCD could lead to impairment loss, lowering a company’s bottom line. Income-based valuations of financial and non-financial assets would be similarly impacted.

Rising interest rates may affect companies’ ability to service their debts and interest payments. Similarly, higher discount rates would reduce asset values and possibly affect the debt-to-equity or asset-to-liability ratio.

The preceding 2 points may ultimately affect assessments of businesses as going concerns. Accordingly, all such reviews should consider the above points and not be based on “business as usual” assumptions. Furthermore, higher interest rates necessitate updating cash flow projections.

Regardless you are doing accounting inhouse or engaging third parties for accounting services in Singapore, it would be worthwhile to discuss or check in with the accountants on matters highlighted above, so that the financial statements and information prepared are meaningful and useful. You may also wish to consider engaging business advisory service providers for in-depth business assessments during this uncertain period.