Firms urged to give quality financial reports

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Companies should avoid generic statements in their disclosures but be specific, balanced and fair, SGX Regco noted.

Companies have been urged to provide high-quality financial statements amid the pandemic to keep investors well informed, said the Accounting and Corporate Regulatory Authority and Singapore Exchange Regulation (SGX RegCo).

Firms should focus on areas like asset valuations and going concern assessments when compiling these reports, SGX RegCo noted in a column.

“The interim financial reports for the period ended June 30 may be the first reports since Covid-19 took hold and brought on various challenges and restrictions,” it said.

“Significant uncertainty, or even threats to business prospects, have hit issuers across various sectors.

“High-quality financial statements, including interim reports, are fundamental to the integrity of Singapore’s capital markets.”

Surveys in April showed that companies such as those in manufacturing and services have a gloomy view of prospects for the coming months.

SGX RegCo chief executive Tan Boon Gin and listing compliance head June Sim noted in the column that such challenges make it even more vital that firms ensure their interim reports are reliable.

Companies have to confirm that to the best of their knowledge, nothing has come to the attention of the board of directors which may render the interim financial statements false or misleading in any material aspect. “In providing the negative assurance confirmation, boards should consider whether the interim financial statements provide a balanced and fair view of any material factors that have affected the issuer’s business conditions and financial position, including the impact of Covid-19,” they added.

Boards and management should also carefully assess if asset values are appropriately reported in financial statements and review whether the pandemic may have changed valuations significantly. These aspects should also be clearly explained to investors and companies should disclose key assumptions used, such as forward-looking information on earnings growth rates.

“We understand the present challenges faced by issuers in making significant judgments and estimates on asset valuation,” Mr Tan and Ms Sim said.

“Boards should use best endeavours to ensure that the fair value of assets is not overstated, and engage management closely and question the appropriateness of key assumptions made in asset valuations.”

TIMELY DISCLOSURE

Financial statements should provide comparable and relevant information that adequately reflects the impact of Covid-19 on the issuer. Timely disclosure of any changed circumstances will enable investors to make an informed investment decision.

SGX REGCO CHIEF EXECUTIVE TAN BOON GIN AND LISTING COMPLIANCE HEAD JUNE SIM, in a column.

If a company has seen its business conditions deteriorate, it should assess its ability to operate as a going concern and disclose these uncertainties. That could also mean a request for a trading suspension.

Companies also should avoid generic statements in their disclosures but be specific, balanced and fair without omitting important facts that might be unfavourable, they noted. In addition, if firms use alternative performance measures such as free cash flows, they should not mislead investors but use them consistently between periods with clear explanations.

Mr Tan and Ms Sim noted: “Financial statements should provide comparable and relevant information that adequately reflects the impact of Covid-19 on the issuer.

“Timely disclosure of any changed circumstances will enable investors to make an informed investment decision.”

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A version of this article appeared in the print edition of The Straits Times on July 27, 2020, with the headline ‘Firms urged to give quality financial reports’. Print Edition | Subscribe
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