SG-IFRS Transition – Are You Affected?

From 2018, Singapore-incorporated companies listed on the Singapore Exchange (SGX) are required to transition to a new financial reporting framework identical to the International Financial Reporting Standards (SG-IFRS). Non-listed Singapore-incorporated companies may also voluntarily transition to the new framework at the same time.

Transition issues arise because SFRS is not identical to IFRS. In addition, certain SFRS requirements that only applied to transactions beyond stipulated dates, may be extended to earlier transactions upon transition, e.g. for business acquisitions (M&A). In October 2017, the Institute of Singapore Chartered Accountants published “IFRS Convergence 2018 – Implementation Roadmap”. This alert provides a non-exhaustive summary of the most common issues:
 

1	Under SFRS, reporting differences between pre-and post-July 2009 M&As, which continue to affect the balance sheet while the acquired companies are held, include the following areas:
	-  Earn-outs
	-  Transaction costs
	-  Non-controlling interests
	-  Pre-existing interests in acquired companies that were already owned by the         acquirer at the point of gaining control
	-  Gain or loss upon partial or full disposal of ownership interests
	Upon adoption of SG-IFRS, adjustments are required to address these differences, unless optional exemptions are adopted and disclosed.
2	Under SFRS, goodwill on foreign M&As in 2005 and beyond are subject to currency fluctuations, whereas those arising from earlier M&As are not. Upon transition, these differences may lead to adjustments, unless optional exemptions are adopted and disclosed.
3	Under SFRS, an intermediate holding company is exempted from consolidating its subsidiaries if its parent company produces consolidated financial statements for public use (whether IFRS or otherwise). Upon transition to SG-IFRS, consolidation is exempted only if the above consolidated financial statements comply with IFRS.
4	Under SFRS, certain fixed asset revaluation gains/losses prior to 1997, and investment property valuation gains/losses prior to transition to current rules in SFRS 40 Investment Properties, can be retained even if these assets are reported using the cost model. Upon transition, such gains/losses are excluded unless optional exemptions are adopted and disclosed, or a switch is made to the revaluation accounting model supported by regular revaluations.
5	Under SFRS, certain pre-2009 borrowing costs need not be capitalised, even if they meet the capitalisation requirements effected since then. Upon transition to SG-IFRS, reporting rules for all borrowing costs are aligned, unless optional exemptions are adopted and disclosed.
6	Companies that continue to report under SFRS in 2018 have an option to avoid restating comparative figures when applying the new revenue recognition requirements in SFRS 115 Revenue from Contracts with Customers. Companies that are transiting to SG-IFRS, however, have to restate comparatives.
7	Under SFRS, the lease capitalisation rules that took effect since 2005, need not be applied to certain preceding leases. Upon transition, reporting rules for all leases are aligned.
8	Under SFRS, intangible assets prior to July 2004 need not be capitalised, even if they meet the capitalisation rules effected since then. Also, certain rules associated with reacquired intangible assets[1], which took effect only after July 2009, are not applied to previous similar transactions. Upon transition, reporting rules for all such transactions are aligned.
9	Under SFRS, intangible assets prior to July 2004 need not be capitalised, even if they meet the capitalisation rules effected since then. Also, certain rules associated with reacquired intangible assets[1], which took effect only after July 2009, are not applied to previous similar transactions. Upon transition, reporting rules for all such transactions are aligned.
10	Under SFRS, unremitted foreign-sourced income (e.g. interest income on foreign deposits) are exempted from recognition of deferred tax liabilities if certain conditions are met. These exemptions are removed upon transition.

The SG-IFRS transition process also offers opportunities for companies to streamline financial numbers and accounting records. For example, a voluntary exemption permits companies to clean up currency translation reserves and restart the translation process afresh. For investment properties reported at fair value, the transition process offers an opportunity to revert to cost-based accounting, a procedure which is otherwise discouraged.

In conclusion, even though SFRS is already largely aligned to SG-IFRS, significant reporting adjustments may still result from the transition process. Affected companies that have yet to commence the transition process should do so soon, since the post-transition numbers may need to be reported as early as May 2018 (for first quarter SGX reporting), merely half a year away. If in doubt or you require further clarification, please get in touch with your usual Moore Stephens contact, or reach out to us at email@moorestephens.com.sg.

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[1]  For example, where a franchisor buys over its franchisee, and in doing so, buys back the franchise license it previously granted.