SINGAPORE - Directors from two listed companies received warnings after inspectors from the Accounting and Corporate Regulatory Authority (Acra) combed through the 2014 financial statements of 50 companies listed here, Acra said on Tuesday (Sept 27).
Each year, about 50 of 600 or so Singapore-incorporated companies listed on the Singapore Exchange are selected to go under the microscope as part of Acra's Financial Reporting Surveillance Programme (FRSP).
Acra does not reveal the identities of the companies inspected, but this year's FRSP report flagged four areas in which it saw the highest instances of non-compliances with accounting standards.
These included the application of new consolidation standards, business acquisitions, impairment of long-lived assets, and fair value accounting of properties.
In particular, the new consolidation-related standards became effective for the first time during Acra's review cycle for the 2014 financial reports.
The standards were developed after the fallout from the 2007 crisis heightened the criticism that some entities were not honestly consolidating the entities they controlled, or funding distressed entity that had not been disclosed.
In one case described in the report, Acra queried a listed company here that had avoided consolidating a loss-making investment into its bottomline by way of a structured transaction. That is, an arrangement packaged to achieve a certain outcome.
This company basically invested S$200 million by subscribing to notes in a shell company legally owned by a third party individual with S$1 in share capital.
To protect its investment, the listed company procured contractual rights enabling it to unilaterally direct the relevant activities of the shell company.
The listed company also held warrants convertible to shares which would let it capture 99.99 per cent of the returns made by the shell company from day one.
"Even though it did not hold a single equity share in the investee, the listed company should have consolidated the loss-making investee as if it owned 99.99 per cent interests," the report said.
Overall, Acra found a good level of quality in financial reporting, although it noted that some companies continued to make straightforward errors in their cash flow statements.
For example, one company wrongly presented the cash paid for the acquisition of a business as an operating cash flow, instead of an investing cash flow, thereby understating its net operating cash inflows by 12 per cent.
Acra's surveillance programme is meant to address the apparent lack of ownership from company directors here.
Perhaps the most well-known alumnus of Acra's surveillance programme is China Environment. Last year, Acra issued warning letters to two of the company's directors after finding that the group had included the amount unbilled of 167.6 million yuan as progress billings and trade receivables as at Dec 31, 2013. China Environment was also made to re-state and re-file its financial statements for 2013 and 2014.