Corporate Advisory

Director Must Know!

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Warning :

This may be a heavy sharing for some, but you as Director ( most likely you are also the Business Owner ) of the company Must Know if you do not want to be held back in your expansion path later on, moreover, it’s  also the time of the year ( year end ) where most companies would be closing your books…

I met a new prospect client yesterday for the first time, after talking to me for slightly less than an hour, decided to appoint CBO as his Named Company Secretary, CFO on Retained basis, Corporate Advisory on retained basis & outsourced his company’s bookkeeping to CBO.

He recently received a letter from ACRA summoning him to go attend a course to learn how to be a Director of the company, even after he & his directors were slapped with & they have already paid compound fines.

After reviewing his case, I learnt that he has violated a few sections of the Companies Act, which his current Named Secretary did not guide him, & I also learnt his Accounting has not been not properly maintained, with unaccounted documents, over-claimed expenses, unrecorded sales, unapproved payments, just to name a few…

In order to prevent the business owners from risk of being disqualified by ACRA to be a director of your company in future, this is my little sharing here, hope it helps…

 

Companies Act requirements

Under sections 201(2) & 201(5) of the Companies Act directors are responsible to present & lay before the company, at its annual general meeting, financial statements that:
* comply with Accounting Standards issued by the Accounting Standards Council; &
* give a true and fair view of the financial position & performance of the company.

In addition, directors of a company incorporated in Singapore are responsible to maintain a system of internal accounting controls & keep proper accounting & other records that will enable the preparation of true and fair financial statements under sections 199(2A) and 199(1) of the Act, respectively.

 

My simple guidance to directors in carrying out these financial reporting duties :

1. Annual Financial Statements
* Directors should exercise care, competence & diligence in the review of the financial statements that are presented to shareholders & subsequently filed with ACRA.

* Directors should read, understand & enquire into the form & content of the financial statements to ensure that the financial information presented is clear, complete & consistent with their understanding.

* Even if they are not accounting experts, directors should question the accounting treatments applied when the treatment does not reflect their understanding of the substance of arrangement.

* They should also apply professional scepticism when assessing management views’ on areas of significant judgement & estimates.

 

2. Financial literacy
* Directors are not expected to be accounting experts, but should have sufficient & up-to-date knowledge of the accounting principles & practices to perform an effective high-level review of the financial statements.

 

3. Appointment of management
* Directors should ensure that senior management of the company, such as the Chief Financial Officer (CFO), has adequate knowledge, competence, experience & integrity to undertake their roles.

* Under the Code of Corporate Governance 2012, directors of listed companies should comment in the Annual Report on whether they have received assurance from the CFO :

(a) that the financial records have been properly maintained and the financial statements give a true and fair view of the company’s operations and finances; &

(b) regarding the effectiveness of the company’s risk management and internal control systems. Whilst the assurance from the CFO do not diminish the directors’ responsibility in these areas, it can provide directors assurance that management has exercised due care in the financial reporting process.

 

4. Competent & adequately resourced finance function
* Directors should ensure that management maintains competent & adequately resourced finance function who can prepare high quality financial statements.

* Qualified accountants should be recruited to understand the financial reporting developments.

 

5. Using external help
* Directors could seek professional accounting advice and/or outsource to professional accounting service providers the keeping of accounting & other records & the preparation of financial statements.

* However, they remain responsible & should ensure any such advice and/or service(s) are provided by suitably qualified persons with an appropriate level of expertise & knowledge of the accounting standards, & that such advice is unbiased and objective.

 

My client has committed Annual General Meeting ( AGM ) & Annual Return ( AR ) Breaches, let me share some of them here :

1. A director of a company incorporated under the Companies Act has to comply with a number of statutory obligations under the Companies Act.

The following are the three most common statutory obligations that are often breached by companies and/or their directors for which ACRA will take enforcement action:

* S 175(1) of the Companies Act requires the company & its directors to hold an Annual General Meeting (AGM) every calendar year & < 15 months after the holding of the last AGM (Exception: The very first AGM for a company can be held < 18 months of its incorporation instead of 15 months).

* S 201(1) of the Companies Act requires the directors of the company to lay at the AGM, accounts that are made up to a date that is not more than 6 months (if the company is not a listed company) & < 4 months (if the company is a listed company) before the date of the AGM for non-listed companies and listed companies respectively.

* S 197(1)(b) of the Companies Act requires the company & its directors to lodge an Annual Return (AR) < 30 days after its AGM.

 

2. The AGM provides shareholders with the opportunity to question the directors on the management & financial performance of the company. This is facilitated by requiring the directors to lay the company’s financial statements at the AGM & provide these financial statements to all shareholders > 14 days before the AGM.

 

3. The AR provides critical information that helps the company’s stakeholders to make informed decisions. The format of the AR is prescribed under the Companies Act.

* AR is an electronic form lodged with ACRA through its online filing system & contains important particulars of the company such as : – the name of the directors, its shareholders, the date to which the financial statements of the company are made up & the date of the AGM at which those financial statements were laid before the company.

 

4. COMPANIES & DIRECTORS MAY BE GIVEN A CHANCE TO COMPOUND FOR THE BREACH(ES)
* Based on the information provided, the online system will ascertain if the company/director is in breach and calculate the relevant composition sum and late lodgement fee as follows:

* Section 175(1)
The AGM is held late
Composition sum of $300

* Section 201(1)
Financial statements laid at AGM > 6 months old for non-listed Company or > 4 months old for listed Company
Composition sum of $300
* Section 197(1)(b)
The AR is lodged late
Late lodgement fee of $300

Good Luck !

If you need help, feel free to contact us at :

(O) +65 63851011

(M) +65 90880669

(E) [email protected]

www.corporatebackoffice.com.sg

Written by Kelvin Loh