Knowledge Highlights 26 November 2024
ACRA issues Financial Reporting Practice Guidance No. 1 of 2024 on areas of review focus for FY2024 financial statements
On 14 November 2024, the Accounting and Corporate Regulatory Authority (“ACRA”) issued Financial Reporting Practice Guidance No. 1 of 2024 on Areas of Review Focus for FY2024 Financial Statements (“Practice Guidance”). The Practice Guidance serves as a guide for directors, particularly those in the audit committees (“ACs”), in fulfilling their duties as directors. ACRA advises ACs, in reviewing the financial statements (“FS”), to be vigilant about the current and anticipated market shifts, their potential risks and opportunities, and how these factors may impact the FS under their purview.
ACRA states that ACs should proactively involve the external auditors and oversee the audit process to address any issues collaboratively. High-quality audits are essential for fostering confidence and trust in financial markets.
ACRA’s areas of review focus for FY2024 FS include:
- Shifting macroeconomic environment: Given the current macroeconomic uncertainties due to diverse economic dynamics, ACRA advises directors to focus on the following accounting considerations in their review of the FS:
(i) expected credit losses, (ii) impairment, (iii) fair value measurement, and
(iv) business acquisition. - Climate-related considerations: Climate-related events have triggered sustainability measures and environmental policies to be put in place. Key areas highlighted in the Practice Guidance include:
- Connectivity between sustainability reporting and financial reporting: As key climate-related assumptions involve the use of judgements and estimates, a coherent and connected reporting between the sustainability report and FS will enable stakeholders to understand the financial implications and their alignment with the companies’ strategies and business models.
- Accounting and disclosure of renewable energy projects and emission schemes: As companies adopt cleaner energy through power purchase agreements (“PPAs”) to address climate change, key characteristics of PPAs, such as the terms of pricing, contracted energy volume, objectives, and duration, should be carefully evaluated to determine how PPAs should be accounted for, with reference to the applicable accounting standards.
- Impairment of non-financial assets: Climate-related risks should be considered when assessing recoverable amounts and there should be disclosure of how climate-related events are taken into account when estimating future cash flows, useful lives of assets, discount rates, or growth rates in cash flow projections used for value-in-use measurements.
ACRA advises ACs to understand and assess the potential effects of climate-related risks on FS. From FY2025, Singapore Exchange Regulation will mandate all issuers to report Scope 1 and Scope 2 greenhouse gas emissions. Companies should plan early to prepare for these requirements, considering their connection to financial reporting.
- Accounting standards: The Practice Guidance highlights recent and upcoming amendments to the Singapore Financial Reporting Standards (International) (“SFRS(I)”) and spotlights SFRS(I) 1-12 International Tax Reform - Pillar Two Model Rules, SFRS(I) 17 Insurance Contracts, and the upcoming SFRS(I) 18 Presentation and Disclosure in Financial Statements.
- Quality audits: The recent amendments to the Accountants Act 2004 have expanded the inspection powers of ACRA, which now include quality control (“QC”) inspections of accounting entities and specific enhancements at the individual engagement level. ACs should evaluate the QC findings at the accounting entity level and on individual engagements as these have a bearing on audit quality as outlined under the Audit Quality Indicators Disclosure Framework.
Reference materials
The following materials are available on the ACRA website www.acra.gov.sg:
