Changes to Financial Reports of SGX Firms

This post is based on the Business Times article “A tale of two bottom lines” published on 4 Aug 2009. The focus is on the changes in the financial statements reported by Singapore-listed companies that investors must know. Here, CashBench provides a summary of the article, and includes additional supplementary information to help every investor understand these changes.

 
[Photo: Ramp Creative]

Due to changes made to the Financial Reporting Standard 1 (FRS 1) effective 1 Jan 2009, Singapore-listed companies will change or has changed the presentation of their financial statements. For investors, the key is to understand that the balance sheet is now the statement of financial position, the income statement is renamed as the statement of comprehensive income, and the cash flow statement is now the statement of cash flows.

Companies can choose to report a single statement of comprehensive income, or show two separate statements.

In particular, companies can choose to report a single statement of comprehensive income, or show two separate statements. The second option means companies will include both an income statement and a statement of comprehensive income when reporting company results.

What’s more, additional items reported under comprehensive income will include any changes in equity that are not due to actions by the owners of the company. Some examples include changes in the fair-value of assets meant for sale, gains or losses through hedging, and the translation of foreign currencies back into the reported currency. All these scenarios can affect earnings. Additional explanation for these as follows.

The fair-value (i.e. market value) of assets that are meant to be sold over the short-term can rise or fall in value. Many companies used to report such value changes in the statement of changes in equity, and not in the income statement. With the change in FRS 1, such gains or losses must now be reported directly in the statement of comprehensive income.

Hedging is the process where companies manage risk, usually through the buying or selling of derivative products. An example is the use of futures to manage price risk. A well-known example is Singapore Airlines, who regularly hedges against prices of jet fuel increasing in the future. However, hedging may result in losses if the company made a wrong assessment on the direction of market prices. These gains or losses will now be reported in the statement of comprehensive income too.

Translation of foreign currencies back into the reported currency affect all companies that has operations overseas, or imports & exports to overseas markets. Since a portion of the cash earned is not in Singapore dollars, these must be “translated” back into Singapore dollars for consolidation into the financial statements. Again, companies may gain or lose, depending on the strength of the Singapore dollar. Such gains or losses are also reported in the statement of comprehensive income now.

Overall, these changes means that every investor who regularly tracks the quarterly results or annual reports of Singapore-listed companies will have a better idea of the actual financial situation within these companies.