Keeping Abreast with the Shifts in Regulatory Financial Reporting Requirements Under the Code on Collective Investment Schemes

This article was originally published in BDO Spotlight - January 2025

A consultation paper by the Monetary Authority of Singapore (MAS) on proposed amendments to requirements for preparation of financial statements and reports under the Code on Collective Investment Schemes (CIS Code) was published in August 2024. The MAS is proposing a shift in financial reporting standards for authorised collective investment schemes (Authorised Scheme) from the Statement of Recommended Accounting Practice 7: Reporting Framework for Investment Funds (RAP 7) to the Singapore Financial Reporting Standards (International) (SFRS(I)). 

What necessitates this shift in financial reporting standards?

This proposed change is driven by several factors, the most significant being the need to align with international practices and enhance comparability. While RAP 7 caters primarily to local investors, it may not fully address the needs of global investors accustomed to IFRS-identical standards used in major fund jurisdictions like Australia, Luxembourg, Ireland, and Hong Kong. Adopting SFRS(I) offers several advantages: 

• Facilitates better comparability of Authorised Schemes' financial statements with those of other major fund jurisdictions.
• Potential cost savings for managers of Authorised Schemes that offer international funds.
• Promotes comparability of financial statements across different capital market issuers in Singapore.

The MAS has previously allowed some REITs to use IFRS instead of RAP 7. These REITs derived most or all of their income from outside Singapore, and aligning with IFRS offers cost savings by harmonising financial reporting with their foreign sponsors and/or subsidiaries. The MAS proposes to continue allowing these REITs to use IFRS, recognising that switching to the identical SFRS(I) offers no discernible benefits. This exception also extends to new REIT listings with foreign sponsors and/or subsidiaries that have been using IFRS.

The proposed amendments to the CIS Code are slated to take effect from the financial year ending on or after 31 December 2027, providing Authorised Schemes and REIT managers with ample preparation time.

How will this change impact investors and fund managers?

This change will impact investors and fund managers in the following ways:

• Increased comparability: Adopting SFRS(I) will make the financial statements of Authorised Schemes more comparable to those in other major fund jurisdictions. This will make it easier for global investors to compare and evaluate investment opportunities across different markets.
• Continued access to key information: The MAS intends to retain critical and useful disclosures currently required by RAP 7 but not by SFRS(I) by prescribing these disclosures in the CIS Code. This ensures that investors will continue to have access to important information for their investment decisions.

Impact on Fund Managers

Potential cost savings: Managers of Authorised Schemes that offer international funds may benefit from cost savings through the harmonisation of financial statement preparation with international practices. 

• Transition period and support: MAS has proposed an effective date of the financial year ending on or after 31 December 2027, providing fund managers adequate time to prepare for the transition from RAP 7 to SFRS(I). Additionally, Institute of Singapore Chartered Accountants (ISCA) will issue guidance and illustrative financial statements to ease the transition and alleviate accounting advisory costs. 
• Continued engagement with accounting standards: ISCA will monitor accounting-related developments and provide feedback to relevant bodies on proposed changes that may impact Authorised Schemes, ensuring ongoing alignment with best practices. 

• Additional disclosure requirements: SFRS(I) 1-34 Interim Financial Reporting mandates disclosures not previously required under RAP 7, such as segment reporting information, related party transactions, and commentary on seasonal operations.
• Reclassification of units and component parts: RAP 7 classifies all units/shares or their component parts as equity upon initial recognition. However, SFRS(I) 1-32 Financial Instruments: Presentation requires an assessment of the classification of units/shares and their component parts. This could lead to changes in classification, measurement, and disclosure of issued units/shares. 
• Retrospective application of SFRS(I) standards: Authorised Schemes transitioning to SFRS(I) must apply SFRS(I) 1, which requires restatement of comparatives in the first SFRS(I) financial statements based on retrospective application of SFRS(I) standards, except where transitional provisions apply. This could result in differences between balances reported under RAP 7 and SFRS(I). 
• Impact of IFRS 18 and SFRS(I) 18: The transition to SFRS(I) coincides with the effective date of IFRS 18 (and SFRS(I) 18), which introduces additional disclosure requirements. These include reconciling management-defined performance measures in other communications with the financial statements and changes to the presentation format of the Statement of Total Return. 
• Requirement for a Statement of Cash Flows for non-Property Funds: SFRS(I) requires a Statement of Cash Flows for all entities, whereas RAP 7 only mandates it for Property Funds. This means non-Property Funds transitioning to SFRS(I) will need to prepare a Statement of Cash Flows for the first time. 
• Compliance burden with other regulatory requirements: The transition to SFRS(I) coincides with other regulatory requirements, such as ISSB climate-related disclosures and sustainability reporting requirements. These overlapping requirements could increase the compliance burden for Authorised Schemes.
• Limited transition period: The proposed effective date for the transition to SFRS(I) may not allow sufficient time for Authorised Schemes to prepare adequately.

1. Consultation Paper on Proposed Amendments to Requirements for Preparation of Financial Statements and Reports under the Code on Collective Investment Schemes: https://www.mas.gov.sg/publications/consultations/2024/proposed-amdts-to-requirements-for-preparation-of-financial-statements-and-reports-under-cis-code