a practical guide to obtaining confirmation from key ... · • sections a and b: confirmations by...

A Practical Guide to Obtaining Confirmation from Key Management Personnel on Related Party Disclosures

AbOut the InstItute Of sInGAPORe ChARteReD ACCOuntAnts

The Institute of Singapore Chartered Accountants (ISCA) is the national accountancy body of Singapore. ISCA’s vision is to be a globally recognised professional accountancy body, bringing value to our members, the profession and wider community.

Established in 1963, ISCA shapes the regional accountancy landscape through advocating the interests of the profession. Possessing a Global Mindset, with Asian Insights, ISCA leverages its regional expertise, knowledge, and networks with diverse stakeholders to contribute towards Singapore’s transformation into a global accountancy hub. Our stakeholders include government and industry bodies, employers, educators, and the public.

ISCA is the Administrator of the Singapore Qualification Programme (Singapore QP) and the Designated Entity to confer the Chartered Accountant of Singapore - CA (Singapore) - designation.

It aims to raise the international profile of the Singapore QP, a post-university professional accountancy qualification programme and promote it as the educational pathway of choice for professional accountants seeking to achieve the CA (Singapore) designation, a prestigious title that is expected attain global recognition and portability.

There are about 28,000 ISCA members making their stride in businesses across industries in Singapore and around the world.

For more information, please visit www.isca.org.sg

IntRODuCtIOn In Singapore, obtaining confirmations from Key Management Personnel (KMP) for related party disclosures is an audit procedure performed by most, if not all auditors for audits performed in accordance with Singapore Standards on Auditing.

KMP are persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.

With the objective of enhancing consistency among auditors and within the financial reporting community, ISCA has developed a practical guide to assist auditors and companies obtain the required and relevant information pertaining to related party transactions, arrangements and balances, from identified KMP.

This practical guide has been designed to facilitate compliance with the disclosure requirements of Singapore Financial Reporting Standard (FRS) 24 “Related Party Disclosures”, Singapore Companies Act and Singapore Exchange Listing Manual with regards to KMP. This practical guide does not provide guidance on the identification of KMP. Auditors are required to perform separate audit procedures to ensure that all KMP are appropriately identified.

This practical guide can be further categorised into the following:

• Sections A and B: Confirmations by KMP on related party disclosures as required for under FRS 24

Auditors are strongly encouraged to use the confirmation templates in Sections A and B for their audit engagements to enhance consistency among the profession, when obtaining KMP confirmations.

• Sections C, D and E: Disclosures required for Directors under Singapore Companies Act and Singapore Exchange Listing Manual

The confirmation templates in Sections C, D and E can be used by the companies to obtain relevant information from Directors for compliance with some of the more common disclosure requirements under Singapore Companies Act and Singapore Exchange Listing Manual. You are strongly advised to refer to respective legislations and regulations for the full list of disclosures required.

You will find explanatory notes on the following in Appendix:

• FRS 24 Related Party Disclosures – Definitions & DisclosureRequirements

• OtherlawandregulationsrelatingtoDirectors - Singapore Companies Act Cap. 50 Section 201

- Singapore Exchange Listing Manual Rule 852

InstRuCtIOn On use Of the PRACtICAL GuIDe

The confirmation templates within the Practical Guide are to be used without any changes or modifications and can be used for financial periods ending on or after 31 March 2014.

1

Name of Company:

Financial Year / Period ended:

COnfIRMAtIOn bY KeY MAnAGeMent PeRsOnneL [fOR AuDItORs’ use]

Name of Key Management Personnel:

Designation of Key Management Personnel:

1. I confirm that the compensation paid, payable or provided by the Company, or by an entity on behalf of the Company, in exchange for services I have rendered to the Company during the financial year/period, as set out in Section A on pages 2 to 4 of this confirmation, is complete and accurate.

2. I confirm that the information on other transactions during the financial year/period and outstanding balances at the end of the financial year/period between the Company and myself, my close family members and entities where I or any close family member control or jointly control whether directly or indirectly, as set out in Section B on page 5 of this confirmation, is complete and accurate.

Signed: _________________ Date: _________________

2

seCtIOn A – KeY MAnAGeMent PeRsOnneL COMPensAtIOn1 [fOR AuDItORs’ use]

DesCRIPtIOnPaid/Payable by Company

[A]

Paid/Payable by an entity2 on behalf of

the Company [b]

total (Company)

[A+b]

Paid/Payable by Group entities (delete, if not applicable) [C]

total (Group) (delete, if not

applicable) [A+b+C]

Remarks

$ $ $ $ $

short-term employee benefits

Directors’ fees

Wages/salaries

Leave pay3

Bonuses/commissions4

Allowances5

Other short-termbenefit–please specify

Sub-total

1. Compensation includes all forms of consideration paid, payable or provided by the Company, or by an entity on behalf of the Company, in exchange for services rendered to the Company, including equity compensation benefits to which FRS 102 Share-based Payment applies. It also includes such consideration paid by the Company on behalf of the parent (or other related companies) of the Company for services rendered to the Company. If a person served in a key management capacity (including as a director) for any part of a financial period, disclosure is required of the person’s actual compensation for the period that the person had served as key management personnel (or director).

2. Please specify name of entity and relationship of the entity to the Company.3. Include cost of unutilised annual leave and sick leave that are carried forward and can be used in future periods if the current period’s entitlement is not used

in full (even if unused entitlement cannot be en-cashed).4. Include bonuses, profit share, commissions and incentive payments to the extent determinable at the balance sheet date and accounted for in the financial

statements of the Company for the financial year/period.5. Include non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services). The amount should be determined on the

basis of the cost to the Company and not the taxable value to the recipient. For example, the benefit of a durable asset such as a car or residential property leased by the Company should be computed with reference to the rental costs to the Company. If the durable asset is owned by the Company, it would be appropriate to show an estimation of the benefit in some narrative form, for example, with reference to amount that the employee would have to pay to lease a similar vehicle or property. The part of the operating cost of the vehicle (including petrol, insurance, road tax, parking fees, repair and maintenance, etc) attributable to the key management personnel’s private use should also be included.

Obtaining Confirmations from KMP on Related Party Disclosures

3

seCtIOn A – KeY MAnAGeMent PeRsOnneL COMPensAtIOn1 [fOR AuDItORs’ use] (COntInueD)

DesCRIPtIOn

Paid/Payable by Company

[A]

Paid/Payable by an entity2 on behalf of the Company

[b]

total (Company)

[A+b]



applicable) [A+b+C]

Remarks

$ $ $ $ $

Post-employment benefits

Company's contribution to provident fund, pension fund

Other retirement schemes

Sub-total

share-based payment6

Share options

Performance shares

Othershare-based payment - please specify

Sub-total

6. Include options or rights to shares in the Company, its subsidiaries, its Parent and other related companies if the compensation represents consideration for services rendered to the Company. Amount declared is the expense for the year determined in accordance with IFRS 2/FRS 102 Share-based Payment. A summary of share-based payment transactions, together with the bases of computing the amounts declared, should be attached.

4

seCtIOn A – KeY MAnAGeMent PeRsOnneL COMPensAtIOn1 [fOR AuDItORs’ use] (COntInueD)

DesCRIPtIOnPaid/Payable by Company

[A]

Paid/Payable by an entity2 on

behalf of the Company [b]

total (Company)

[A+b]



applicable) [A+b+C]

Remarks

$ $ $ $ $

termination benefits

Compensation for loss of office

Others - please specify

Sub-total

Other long-term benefits7

Please specify

Sub-total

Grand total

7. Examples: sabbatical leave, deferred bonus, other compensation payable more than 12 months after balance sheet date.


5

seCtIOn b – tRAnsACtIOns AnD bALAnCes WIth KeY MAnAGeMent PeRsOnneL (OtheR thAn COMPensAtIOn) [fOR AuDItORs’ use]

During the financial year/period, transactions8 (other than key management personnel compensation) have been entered into between the Company and the following related parties:

(a) key management personnel9 of the Company or of a parent of the Company;(b) close family members of key management personnel; and(c) entities where any individual referred to in (a) or (b) above control or jointly control, whether

directly or indirectly.

Those transactions and the related outstanding balances as at the end of the financial year/period are as follows:

no. name and relationship of related party

nature of transaction

Amount transacted during the financial

year/period

Outstanding balance at

the financial year/period-

end, including commitments

terms and conditions10

$ $

8. The following are examples of transactions that should be disclosed if they are with a related party:(a) purchases or sales of goods (finished or unfinished);(b) purchases or sales of property and other assets;(c) rendering or receiving of services;(d) leases;(e) transfers of research and development;(f) transfers under license agreements;(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);(h) provision of guarantees or collateral;(i) commitments to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised);(j) settlement of liabilities on behalf of the entity or by the entity on behalf of another party; and(k) professional or consulting fees received by a key management personnel personally, or paid to a firm in which the key management personnel is a proprietor, owner, beneficiary or partner should be separately disclosed.

9. Key management personnel of an entity’s parent are to be included for the purpose of this template only if they have a role in directing the entity’s affairs.10. Including whether they are secured, and the nature of the consideration to be provided in settlement; and details of any guarantees given or received.

6

seCtIOn C - DIReCtORs’ InteRests In the COMPAnY AnD Its ReLAteD CORPORAtIOns [fOR COMPAnIes’ use]

Name of Company:

Financial Year/ Period ended:

Name of Director:

In accordance with Section 201 (6)(g) or (6A)(h) of the Companies Act, I hereby give notice that I have interest in the following shares11/debentures/rights/options etc of the Company, its Holding Company, its subsidiaries and/or fellow subsidiaries, as registered in the names indicated below.

name of Company/

related corporations

in which shares etc are held12

name(s) in which

registered12

- self, spouse, children,

nominee, trust, investor

type

- shares or debentures or rights or options etc

no. of shares/debentures/rights/options etc held

balance at

start of year or date of

appointment if later

Additions during

the year

Disposed/ exercised/ Cancelled during the

year

balance at end of year

Signed: _________________ Date: _________________

11. Includes shares issued by virtue of the exercise of options to take up unissued shares of the Company, whether granted before or during the financial period and the unissued shares of the Company under option as at the end of the financial period. The following information of the unissued shares are required to be disclosed: a)Number&relatedclassoftheshares. b) Date of expiration. c) Exercise price or basis upon which the option may be exercised and any participation rights.

12. A director’s interest in shares or debentures are deemed to include shares or debentures held by the director’s spouse or infant children, including step and adopted children. Shares or debentures registered in the names of nominees in which a director has a beneficial interest should also be disclosed. Shares or debentures registered in the names of directors, the beneficial interest of which is rested in another party should be disclosed together with details of the beneficial shareholder(s). In addition, under Companies Act Section 7, a director is also deemed to have an interest in the shares/debentures of the Company (Company A) where an investor Company (Company B) owns shares in the Company (Company A) and the director(s) (or with his associates) owns 20% of the voting shares of the investor Company (Company B).


7

seCtIOn D – DIReCtORs’ InteRests In COntRACts AnD OtheR ARRAnGeMents [fOR COMPAnIes’ use]

Name of Company:


Name of Director:

1. DIReCtOR’s InteRests In COntRACts13

Pursuant to the provisions of the Singapore Companies Act and other than what is disclosed in Section C, I further declare an interest in the following contracts entered into by the Company during the year/period ended at the above date.

names of the parties to the contract (other than the

Company)

nature of the contract (including whether the contract is subsisting or

exists)

nature of the directors’ interest in the contract

1

2

3

I hereby declare that to the best of my knowledge and belief (except for the above), I do not and did not have, in any way, whether directly or indirectly, an interest in any contracts with the Company which subsisted at the end of the financial year/period or at any time during the year/period.

2. DIReCtOR’s InteRests In OtheR ARRAnGeMents

At the end of the financial year/period or at any time during that year, there did not subsist any arrangements, to which the Company is a party, whereby I, as a director, might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, other than what is disclosed in Section C.

If yes, give particulars:

Signed: _________________ Date: _________________

13. Interests in contracts should not only refers to contracts entered into by the Company but also, its related corporation, a firm in which the director is a member of, or a Company in which he has a substantial interest.

8

seCtIOn e – DIReCtORs’ COnfIRMAtIOn Of PARtICIPAtIOn In shARe OPtIOn sCheMes AnD/OR shARes sCheMes [fOR LIsteD COMPAnIes’ use OnLY]

Name of Company:


Name of Director:

Other than the share options disclosed in Section C, I confirm that the information14 as detailed below is correct.

name of participant

Options granted during financial

year/period under review

(including terms)

Aggregate options granted since

commencement of scheme to end of financial year/

period under review

Aggregate options exercised since commencement

of scheme to end of financial year/

period under review

Aggregate options outstanding as at end of financial

year/period under review

I confirm that there have been no changes to my interests declared in the table above within 21 days after the year/period end15.

Signed: _________________ Date: _________________

14. In accordance with SGX Listing Manual Rule 85215. In accordance with SGX Listing Manual 1207 (7).


9

sInGAPORe fInAnCIAL RePORtInG stAnDARD 24 RELATED PARTY DISCLOSURES (fRs 24)

Definition of related party

The definition of related party in FRS 24 has been simplified in 2010 so as to clarify its intended meaning and to eliminate inconsistencies.

Under FRS 24, related parties of a Company include, but are not limited to, the following:

A. Person(s) Related to a Reporting Entity (RE)

1. The Person controls16, has joint control or has significant influence over the RE.

2. The Person is Key Management Personnel17 of the RE or a parent of the RE.

3. The Person is child, spouse/domestic partner or dependent of the Person in A1 and A2 above.

4. The Person is a child or dependent of the Person’s spouse/domestic partner.

B. Entity(s) Related to a RE

1. All parent, subsidiaries, fellow subsidiaries, joint ventures and associates of the RE.

2. All associates and joint ventures of the parent, subsidiaries or fellow subsidiaries of the RE.

3. All entities of which the RE is an associate or joint venture.

4. All entities which are joint ventures and associates of another entity (third entity) of which the RE is also a joint venture or associate of the third entity.

5. The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the RE. If the RE is itself such a plan, the sponsoring employers are also related to the RE.

6. The entity is controlled or jointly controlled by a person identified in A.

7. An entity in which a person who has control or joint control over the RE has significant influence over the entity or is a member of the key management personnel of the entity or a parent of the entity.

16. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Joint control is the contractually agreed sharing of control over an economic activity. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Significant influence may be gained by share ownership, statue or agreement.

For financial periods beginning on or after 1 January 2014, the terms ‘control’, ‘joint control’ and ‘significant influence’ are defined in FRS 110 Consolidated Financial Statements, FRS 111 Joint Arrangements and FRS 28 Investments in Associates and Joint Ventures respectively.

17. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company. Key management personnel of an entity’s parents are to be included for the purpose of this template only if they have a role in directing the entity’s affairs.

APPENDIX

10

sInGAPORe fInAnCIAL RePORtInG stAnDARD 24 RELATED PARTY DISCLOSURES (fRs 24) (Continued)

Related party disclosures

In general, FRS 24 requires a reporting entity to disclose:

(a) Parent, ultimate controlling party (if different from parent) and subsidiaries.

(b) If neither the Parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior Parent that does.

(c) Key management personnel compensation in total and for each of the following categories:

i) Short-term employee benefits;

ii) Post-employment benefits;

iii) Other long-term employee benefits;

iv) Termination benefits; and

v) Share-based payment.

(d) If the RE has related party transactions during the period covered by the financial statements, to disclose:

i) Nature of the related party relationship;

ii) Information about those transactions and amount of the transactions;

iii) Outstanding balances, including commitments;

iv) The terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement;

v) The details of any guarantees given or received;

vi) Provisions for doubtful debts related to the amount of outstanding balances; and

vii) The expense recognised during the period in respect of bad or doubtful debts due from related parties.

(e) The disclosures in (d) are required to be made separately for each of the following categories:

i) The parent;

ii) Entities with joint control or significant influence over, the entity;

iii) Subsidiaries;

iv) Associates;

11

sInGAPORe fInAnCIAL RePORtInG stAnDARD 24 RELATED PARTY DISCLOSURES (fRs 24) (Continued)

v) Joint ventures in which the entity is a venturer;

vi) Key management personnel17 of the entity or its parent; and

vii) Other related parties.

(f) Participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities is a transaction between related parties.

(g) Disclosures that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions are made only if such terms can be substantiated.

(h) Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statement of the entity.

sInGAPORe COMPAnIes ACt (CA) AnD sInGAPORe eXChAnGe LIstInG MAnuAL (sGX LM)

Disclosure requirements under both CA and SGX LM are the responsibility of the Directors and the Company.

Singapore CA (Cap. 50) Section 201 requires the directors to state the following details in the directors’ report attached to the financial statements:

(a) Interests in shares in, or debentures18 of, the Company, its Holding Company, its subsidiaries and/or fellow subsidiaries and interested parties in the group at the beginning and end of the period[CA201(6)(g)&CA201(6A)(h)];

(b) Rights, options or any other arrangements at the end of or during the period to enable directors to acquire the shares or debentures of the Company, its Holding Company, its subsidiaries and/or fellow subsidiaries and interested parties in the group [CA 201(6)(f) &CA201(6A)(g)];and

(c) Contracts to which the director is a party or under which the director is entitled to a benefit, being contracts under which the director has a right to or entitled to exercise control over the callortomakedeliveryofsharesanddebenturesortrustsorsettlements[CA201(8)].

In addition, both CA Section 201(12) and SGX LM Rule 852 requires the disclosure on directors’ entitlement to share options.

17. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company. Key management personnel of an entity’s parents are to be included for the purpose of this template only if they have a role in directing the entity’s affairs.

18. Debentures includes debenture stock, bonds, notes and any other securities of a corporation (e.g. options) whether constituting a charge on the assets of the corporation or not but does not include — (a) a cheque, letter of credit, order for the payment of money or bill of exchange;(b) subject to the regulations, a promissory note having a face value of not less than $100,000 and having a maturity period of not more than 12 months;(c) for the purposes of the application of this definition to a provision of this Act in respect of which any regulations made thereunder provide that the word

“debenture” does not include a prescribed document or a document included in a prescribed class of documents, that document or a document included in that class of documents, as the case may be.

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About IsCA technical standards Development and Advisory

The Technical Standards Development and Advisory (TSDA) team is part of the Technical Knowledge Centre and Quality Assurance division of the Institute of Singapore Chartered Accountants (ISCA). It is committed to supporting the Institute in advancing and promoting technical developments within the profession as part of the effort to transform Singapore into a leading global accountancy hub by 2020.

ISCA TSDA engages external stakeholders in soliciting meaningful feedback on accounting and auditing related issues to develop a consistent approach to addressing industry issues identified. It also prescribes auditing and assurance standards that are closely aligned to international best practices, champions thought leadership initiatives with key stakeholders and drives projects in collaboration with various ISCA technical committees.

It actively engages international standard setters and strives to be an advocate of matters pertinent to the development of Singapore’s accountancy profession. Furthermore, it aims to cultivate a mindset change and raises awareness of new and revised standards through the publication of articles authored by the team.

Additionally, ISCA TSDA seeks to empower members and the profession at large to achieve their aspirations by equipping them with relevant technical expertise and this is achieved through the development of a range of resources that that they can tap on.

Knowledge sharing with the accounting community is facilitated through a variety of print and online channels including the sharing of regular updates and thought leadership articles via in-house publications like the journal, “IS Chartered Accountant”, the E-newsletter, “ISCA Weekly”, and various online knowledge centres and a technical forum. Seminars and workshops are regularly organised and ISCA TSDA also provides value added technical clarification services to assist the profession in resolving accounting, auditing and ethics related issues.

Disclaimer

This document contains general information only and ISCA is not, by means of this document, rendering any professional advice or services. This document is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a professional advisor. Whilst every care has been taken in compiling this document, ISCA makes no representations or warranty (expressed or implied) about the accuracy, suitability, reliability or completeness of the information for any purpose. ISCA, its employees or agents accept no liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.

Institute of Singapore Chartered Accountants60 Cecil Street, ISCA House, Singapore 049709

Tel: (65) 6749 8060 Fax: (65) 6749 8061

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