Year End Closing and Compliance Alert

Basics of Financial Year End Closing and Compliance Alert

As we quickly approach year end it’s again time to focus on closing your company’s accounts.

Accounts and financial statements will be required to:

  • Provide key information to stakeholders
  • Review company performance, track cash flows in addition to budgeting
  • Analyze assets, liabilities, and changes in owner equity
  • Hold management, directors and shareholder meetings
  • Comply with statutory and income tax filing regulations

Regardless of whether the account will be audited or not, there is a hard and fast list of factors that must be considered when closing an account. Let’s review.

Key Considerations for Standalone Companies

Revenue Recognition

FRS 115 requires entities to recognize revenue in an amount that represents the consideration to which they expect to be entitled for the goods and services provided by a company. It is crucial that the company review its revenue recognition policy and determine when control of goods and services will transfer and when revenue should be recognized.

Based on the five-step model framework of FRS 115, revenue is usually recognized “at a point in time” (typically, upon delivery) or progressively “over time” (typically, by using the percentage of completion method).

Functional Currency

Functional currency reflects the primary economic environment in which an entity generates and expends cash and the accounting ledgers that are usually maintained. As an example, a company that trades timber internationally, buying from Indonesia in USD and selling to India in USD, with the currency used entirely USD. Therefore, the company’s functional currency should be USD and not Singapore dollars.

Assessment of Principal or Agent

When it comes to its activities, the company must assess whether it is acting as a principal or an agent. This is crucial for determining whether revenue should be reported on a gross or net basis.

If the company acts as a principal in a transaction, revenue is reported on a gross basis, and if it is acting as an agent, revenue is reported on a net basis.

Accountants / and management should consider the above when performing year-end closings for standalone companies.

Key areas for a single company, as well as considerations if being audited:

Key Area Detail If Being Audited
Taking Inventory
  • Conduct a physical stock check. Take into account goods in transit / consignment stock and cut off
  • Reconcile system figures with physically counted stock
  • Identify old, damaged, obsolete stocks and remove these from the stock list and pass adjustments
  • Perform costing for closing stock per accounting standards (i.e. FIFO / WAC method)
  • Apply the appropriate historical rate for foreign currencies purchases
In the event that an audit is required, notify your auditing firm to attend the taking of inventory
Cash Count
  • Conduct a physical cash count
Auditor should observe the count if the amount is material
  • Reconcile each bank statement to the cash book
  • Translate foreign currency balances at the appropriate closing rate
  • Consider stale and unpresented cheques
Contact your auditors to send bank confirmations
Trade Receivables
  • Send debtors statements and reconcile any differences with your trade debtors
  • Send remainders to past due trade debts
  • Consider the following:
    1. Revenue recognition / receivables / sale cut-off procedures
    2. Credit balances / treatment of returns or discounts
    3. Foreign currency translations
    4. Ageing calculations
    5. Bad debts recovery and
    6. Allowance for expected credit losses
  • Reconcile GST control accounts and revenue to GST F 5 forms
Contact your auditors to send trade confirmations
Trade Creditors
  • Request creditor statements and reconcile any differences in your accounts payables
Contact your auditors to send out trade confirmations
Property, Plant, Equipment (PPE)
  • Conduct year end physical sighting and reconcile to asset register and general ledger
  • Review fully depreciated, unused, damaged and / or disposed assets and make adjustments where required
  • Review valuation of properties is required
  • Assess any impaired assets
  • Allowances for impairments
Notify your auditing firm to attend the physical sighting
Right-of-Use asset (ROU) / Leases / Provisions for Restoration Costs
  • Compute ROU assets / leases liabilities, depreciation
  • Perform an independent professional valuation making necessary adjustments where applicable
  • Consider adjustments for new purchases / transfers / disposals
ROU pertains to the lessee’s right to occupy, operate, or hold a leased asset during the rental period and will be important to any audit
Investment Properties
  • Perform an independent professional valuation making necessary adjustments where applicable
  • Consider adjustments for new purchases / transfers / disposals
Investment in Other Financial Investments
  • Quoted / unquoted to be measured at fair value at year end
  • Fair value adjustments on assets
  • Keep a copy of the statements
The investment in unquoted shares (private companies) must be measured at fair value in accordance with FRS113 Fair Value measurement
Accrual / Provisions
  • Review revenues and expenses recorded in the relevant year and review cut off procedures
  • Accrual of deferred income or unbilled revenue / interest income / etc
  • Pass accruals of expenditure including salary, CPF, bonuses, director fees, unpaid bills, ect
  • Provisions for reinstatement costs / any legal costs etc
  • Make adjustments for any prepayment, like insurance, advance payments for services, depreciations, interest expense, etc
  • Any dividends need to be proposed and adjustments made
Provision for Income Tax
  • Compute income tax payable and make adjustments
Year End Account Closing
  • Restrict any accounting entries in accounting software after specific dates
Prepare Financial Statements
  • Using the previous soft copy of financial statements, insert the current figures
  • Update policies / notes / comparative figures

Over the years accounting standards and compliance with tax laws have become more complicated, increasing the importance of outside accounting firms. An excerpt from the November 17, 2021 issue of Singapore Business Review.

“Looking into the last five years, the study found that 82% of businesses have already encountered accounting and tax compliance-related challenges.

These businesses said their failure to comply has brought them reputational damage (53%), internal disciplinary action (37%), and fines (35%).

To counter future challenges, 78% of businesses said they will invest in new accounting and tax compliance technology over the next five years; however, 39% of them are being held back by a lack of team knowledge and skill.”

Do you need assistance with any of the above areas with your year-end closing? If so, please get in touch with us.

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