What SGX RegCo expects of financial reports amid Covid

Previously on 22 April 2020, SGX RegCo had provided regulatory guidance to issuers on the disclosure expectations of material developments arising from the Covid situation. In view of the upcoming interim financial result season for the period ended 30 June 2020, SGX RegCo, ACRA and ISCA have each published their guidance notes (on 27 July 2020) to help issuers to address high-risk areas such as cash balances, accounts receivables and accounting matters that requires estimation such as impairment. A summary of the published guidance from (1) SGX RegCo, (2) ACRA, (3) ISCA are provided below:

1. SGX RegCo- Expectation of Financial Reports (in collaboration with MAS and ACRA) 1. Negative Assurance Confirmation. Under listing rule 705(5), the issuer is 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 to be false or misleading in any material aspect. This confirmation provides the board’s assurance that all material information has been assessed to ensure the reliability of the financial results. In view of the Covid situation, ▪ Issuers should provide negative assurance confirmation without including caveats or exceptions; and ▪ Board to assess that the interim financial statement provides a balanced and fair view of the issuer’s business conditions and financial positions, taking into account the (i) Impact of COVID; and (ii) Impact of any material factors (aside from COVID). 2. Asset Valuation. In the current Covid situation, issuers are challenged in making significant judgements and estimates on asset valuations. The issuer should rely on the best available information in making well-reasoned and supported judgements and estimates. ▪ Issuers should review whether the asset values have been changed significantly due to the effects of COVID. Assessment of the impact and its associated uncertainties should be clearly explained so that investors can better appreciate the significance of the numbers. ▪ Issuers may decide on the best way to conduct a valuation assessment – whether internally; with the assistance of an external valuer; or by performing an assessment of certain assets which are materially impacted. When in doubt, issuers should consider whether expert advice is needed. ▪ Where adjustments to the inputs of the valuation models are made to reflect material changes in business conditions, issuers should disclose the key assumptions used, such as forward-looking information on earnings growth rates, and the management’s basis for selecting those assumptions. Material uncertainties on the asset valuations should be disclosed. ▪ Issuer to consider providing illustrations on the potential impact a change in valuation will have on relevant financial metrics, such as net asset value, net tangible assets or leverage ratio. ▪ Boards should engage management and question the appropriateness of key assumptions made in asset valuations. In the rare circumstances that the board is unable to quantify the impact to asset valuation, it should clearly explain why. 3. Going Concern. Where there is a deterioration in business conditions, issuers should undertake an assessment of the ability to operate as a going concern and disclose these uncertainties and their plans to address such uncertainties. ▪ Where issuers are unable to continue as a going concern, they should make a request for trading suspension pursuant to Listing Rule 1303. 3. Alternative Performance Measures (APMs). APMs, such as EBIT, EBITDA and free cash flows, are often used to supplement information provided under relevant accounting standards. ▪ APMs (if used) should be presented consistently between periods with clear explanations on how they are calculated. ▪ Issuers must ensure that the APMs do not mislead investors and in particular, should not be used to present a more favourable view, or to avoid presenting a less favourable view of the issuer’s performance. ▪ To avoid using APMs such as EBITDAC (Earnings before interest, taxes, depreciation, amortisation and COVID) as such hypothetical APMs are unreliable and present a misleading picture of financial performance to investors.