Sample Disclosure – Property, Plant and Equipment (27 November 2008)

Property, plant and equipment and depreciation

All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Freehold land has an unlimited useful life and therefore is not depreciated. Capital­work-in-progress is not depreciated as these assets are not available for use. Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates:

Buildings 2%

Plant, machinery, mould, die and laboratory equipment 10%

Office equipment, fixtures, fittings, renovations and computers 10% – 20%

Motor vehicles 20%

The residual values, useful life and depreciation method are reviewed at each financial year end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in income statement.

Sample Disclosure – Intangible Assets (26 November 2008)

Intangible assets

i. Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but instead, it is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

ii. Product development expenditure

All research costs are recognised in the profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditures which do not meet these criteria are expensed when incurred.

Development costs, considered to have finite useful lives, are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding 3 years. Impairment is assessed whenever there is an indication of impairment and the amortisation period and method are also reviewed at least at each balance sheet date.

 

 

Sample Disclosure – Accounting Policy on Subsidiaries and Consolidation (25 November 2008)

Subsidiaries and basis of consolidation

i. Subsidiaries

Subsidiaries are entities over which the Group has the ability to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity.

In the Company’s separate financial statements, investments in subsidiaries are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.

 

ii. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances.

Acquisitions of subsidiaries (except for those which meet the conditions of merger) are accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition.

Any excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in profit or loss.

Acquisitions of certain subsidiaries which meet the conditions of merger were accounted for using the merger method. When the merger method is used, the cost of investment in the Company’s financial statements is recorded at fair value of the shares issued at the date of exchange. The difference between the carrying value of the investment and the nominal value of shares acquired is treated as merger reserve or merger deficit. Where the carrying value of investment is less than the nominal value of shares acquired, the merger reserve should be treated as a reserve arising on consolidation. Where the carrying amount of investment is greater than the nominal value of shares acquired, the merger deficit is treated on consolidation as a reduction of reserves. The results of the companies being merged are included as if the merger had been effected throughout the current and previous financial year.

Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity since then.

Sample Disclosure – Auditors’ Report with Disclaimer Opinion (25 November 2008)

Independent auditors’ report to the members of ABC Bhd. (Incorporated in Malaysia)

Report on the Financial Statements

We were engaged to audit the financial statements of ABC Bhd., which comprise the balance sheets as at (date/month/year) of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages XX to XX.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Because of the matters described in the Basis for disclaimer of opinion paragraphs, we were not able to provide a basis for an audit opinion.

 

Basis for disclaimer of opinion:

1. As disclosed in Note XX to the financial statements, there were total payments by the Group of RMXX million on behalf of and to various parties, including related parties in settlement of total receipts of RMXX million from various parties, including related parties during the financial year and RMXX million due to certain of these parties as at (date/month/year).  Certain of these payments made by the Group resulted in net amounts due from various parties ranging from RMXX to RMXX million on various dates between (date/month/year) and (date/month/year).  

The total payments and receipts referred to in the preceding paragraph included total payments by the Company of RMXX million on behalf of and to various parties, including related parties in settlement of total receipts of RMXX million from these various parties including related parties during the financial period and RMXX million due to certain of these parties as at (date/month/year).  Certain of these payments made by the Company resulted in an amount due from one of the various parties amounting to RMXX million on (date/month/year).  

During the financial year ended (date/month/year), there were no gains or losses recorded in the income statements of the Group and of the Company arising from the above transactions and neither were there any amounts owing to or from any parties as at (date/month/year).

2. In the previous financial year, one of the Company’s wholly-owned subsidiaries, DEF Sdn. Bhd. (“DEF”) entered into a business arrangement with a company (“Financial Promoter”) to inter alia, assist in the winding down of the operations of DEF and various other activities on the terms and conditions as further disclosed in Notes XX and XX to the financial statements. However, the details of the above arrangements were only provided to us in (month/year) arising from our enquiries on certain receipts and payments noted in paragraph (1) above. We were also informed that the said business arrangement had no effects on the financial statements of the Group. The said arrangement was rescinded in (month/year).

There was no evidence that approvals were obtained from the Board of Directors prior to entering into the above transactions.

As at the date of this report, we are unable to satisfy ourselves as to the intent, purpose, nature and extent of the above transactions. Accordingly, we are unable to determine as to whether these transactions have any effects on the financial statements of the Group or the Company for the financial year ended (date/month/year).

Opinion

Because of the significance of the matters as discussed in the Basis for disclaimer of opinion paragraphs, we do not express an opinion on the financial statements of the Group and the Company for the financial year ended (date/month/year).

 

Report on other legal and regulatory requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act, except in respect of the matters described in the Basis for disclaimer above.

(b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note XX to the financial statements.

(c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes, except in respect of the matters described in the Basis for disclaimer above.

(d) The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment required to be made under Section 174(3) of the Act, except as disclosed in Note XX to the financial statements.

 

Other matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose.  We do not assume responsibility to any other person for the content of this report.

Sample Disclosure – Change of Financial Year End (25 November 2008)

This is usually disclosed in the Directors’ Report and also as a Note to the Financial Statements

Change of financial year end

The financial year end of the Company was changed from 31 March to 30 June.

Accordingly, the comparative figures for the income statements, statements of changes in equity, cash flow statements and the related notes are for twelve months from 1 April 2006 to 31 March 2007.