28 August 2020

In an article posted on the Regulator’s Column on 27 July 2020, Singapore Exchange Regulation (“SGX RegCo”) set out what it expects of issuers’ financial reports amid the Covid-19 situation. The article highlights key areas that issuers should exercise care when preparing their interim financial statements, such as asset valuations and going concern assessments. It seeks to give some practical guidance to issuers on navigating these areas, while at the same time recommending key disclosures that would be relevant to investors for making informed investment decisions.

Key issued covered by the article include the following:

  • Negative assurance confirmation: Rule 705(5) of the Listing Manual (Mainboard Rules) requires issuers 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. Complying with Rule 705(5) requires boards to provide a negative assurance confirmation about the interim financials without any attempt to carve out caveats or exceptions. While this may be difficult under current conditions, it is precisely in these circumstances that investors need reliable financial information to make informed investment decisions. Boards should consider whether the interim financial statements provide a balanced and fair view of any material factors that have affected the issuer’s business conditions and financial position, including the impact of Covid-19.
  • Asset valuations: Boards and management should carefully assess if asset values are appropriately reported in the interim financial statements. They should review whether the effects of Covid-19 present any indication that the asset values as at the previous financial year-end have changed significantly. The assessment of the impact and its associated uncertainties should be clearly explained so that investors can better appreciate the significance of the numbers. 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, as well as management’s basis for selecting those assumptions. Material uncertainties on the asset valuations should also be disclosed. If helpful, issuers can also 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. In the rare circumstances that the board is unable to quantify the impact to asset valuation, it should clearly explain why.
  • 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. Issuers that are unable to continue as a going concern should make a request for trading suspension pursuant to Rule 1303.
  • Disclosures: Disclosures are expected to be entity-specific, relevant and useful to investors. Issuers must eschew boilerplate disclosures, such as broad or generic statements that Covid-19 have negatively impacted the valuation measurements, without elaborating on the effects on each business segment. Disclosures must also be balanced and fair and avoid omission of important unfavourable facts.
  • Alternative performance measures (“APMs”): APMs if used, should be presented consistently between periods with clear explanations on how they are calculated. Covid-19 and its far-reaching impact have led to discussions on whether EBITDAC, or earnings before interest, taxes, depreciation, amortisation and Covid-19 should be considered as a possible APM. SGX RegCo cautions issuers against presenting such a hypothetical APM that attempts to recast earnings as if the effects of the pandemic had not occurred. Such hypothetical APMs are unreliable and present a misleading picture of financial performance to investors.

In a press release issued also issued on 27 July 2020, Singapore Exchange (“SGX”) stated that it strongly encourages issuers to also refer to the following guidance when presenting their financial statements to investors during this period:

Reference materials

The following materials are available on the SGX website www.sgx.com and ISCA website isca.org.sg: