Highlights and Practical Application of FRS 27 (Revised), FRS 103 (Revised) and Clarified SSA 600 

The Technical Group Discussion session covering Highlights and Practical Applications of Financial Reporting Standard (FRS) 27 (Revised) Consolidated and Separate Financial Statements, FRS 103 (Revised) Business Combinations and Clarified Singapore Standard on Auditing (SSA) 600 Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors) was facilitated by Mr Shariq Barmaky, Audit/Technical Partner, Deloitte & Touche LLP, on 20 July 2010 at Singapore Management University to a group of 47 participants.

Mr Barmaky started the session by stating that FRS 103 (Revised) and FRS 27 (Revised) were issued by the Accounting Standards Council (ASC) in June 2009 and were effective for periods beginning on or after 1 July 2009. Distinction has to be made between the two, since FRS 103 (Revised) is to be applied prospectively, with certain exceptions, while FRS 27 (Revised) is to be applied retrospectively (subject to specified provisions) in accordance to the relevant transitional provisions.

Mr Barmaky highlighted that the difference between a “business” and an “asset”, is that a “business” contains systems capable of current or future production in addition to “assets” such as land, which are incapable of output by themselves. Distinction between the two is important, since FRS 103 (Revised) does not apply to the acquisition of an asset or group of assets that does not constitute a business.

Mr Barmaky went on to highlight other major changes in existing requirements found in FRS 103 (Revised) and FRS 27 (Revised), such as acquisition costs, contingent consideration, non-controlling interest, goodwill measurement, changes in ownership interests, recognition and measurement of intangibles, determining what is part of the combination, and transition requirements.

Having covered FRS 103 (Revised) and FRS 27 (Revised), Mr Barmaky proceeded to highlight the changes put in place in Clarified SSA 600 to the participants. He stressed that Clarified SSA 600, which is effective for audits of group financial statements for periods beginning on or after 15 December 2009, will place emphasis on the group engagement partner to direct and control the engagement, even when there are component auditors involved. As a result, group auditors may need to perform more work under the revised requirements, in order to meet the revised auditing requirements.

In closing, Mr Barmaky urged the participants to plan ahead for group engagements for financial periods that will be covered under Clarified SSA 600. Although SSAs are usually more relevant for auditors, Clarified SSA 600 will also be relevant to accountants, since the incremental work required by group audit teams may result in a rise in the audit fees.