CEO fined over Singapore firm's failure to recognise S$16 million loss in financial statements

SINGAPORE: The chief executive officer of a Singapore manufacturing firm was fined S$22,400 (US$16,400) on Friday (Jan 10) over the company's failure to recognise a S$16 million impairment loss in its financial statements.

According to the charge sheet, Miyoshi Limited’s executive director and CEO Andrew Sin Kwong Wah had laid out the financial statements for the year ending Aug 31, 2019, before the company at its annual general meeting.

However, these statements did not meet the accounting standards set out in the Companies Act.

The S$16 million impairment loss came from a decline in the value of the company’s equity investment in a foreign company, Core Power (Fujian) New Energy Automobile.

According to its website, Miyoshi manufactures and sells electric cars in China through its investment in the company.

An impairment loss is when the value of something a company owns drops below what is recorded on the books.

Miyoshi had engaged an independent valuer to assess if the investment in the Chinese company was impaired.

The independent valuer’s draft report, which was later finalised by the independent valuer with no material changes, showed that a significant impairment had occurred.

Despite this, Miyoshi failed to recognise the S$16 million loss on the investment and overstated the value of its net assets by the same amount, said the Accounting and Corporate Regulatory Authority (ACRA).

This meant Miyoshi Group’s financial statements in the 2019 financial year were "materially misstated" and gave an “inaccurate picture” of the company’s financial health.

Had Miyoshi recognised the S$16 million impairment loss in its FY2019 financial statements, the group’s loss, before income tax, would have increased by more than 30 times to S$16.78 million and its total assets would have reduced by 19 per cent to about S$67.9 million.

The firm, which is listed on the Singapore Exchange (SGX), called for a trading halt at about noon on Friday. 

In a bourse filing the following Monday, the company said Mr Sin would stay on as CEO and executive director of the company.

He has been "instrumental" to the group and the performance of his duties as CEO and executive director "has not been compromised nor impeded by this incident", said the company in its statement.

Besides the fine, there has been no other condition or restriction imposed by any regulatory authority on him, it added.

According to the statement, the CEO has demonstrated the "soundness of character and integrity expected" from a director of a listed company, and it continues to require his expertise, experience and relationships with business partners and other stakeholders.

"For the above reasons, the board is unanimously of the view that it is (in) the best interests of the group that Mr Sin remains the chief executive (officer) and executive director of the group," said Miyoshi.

It also requested the lifting of the trading halt.

FINANCIAL STATEMENTS SELECTED FOR REVIEW

Miyoshi’s audited financial statements were selected for review by ACRA under the financial reporting and surveillance programme. 

The authority reviews selected financial statements to check for compliance with accounting standards, and Miyoshi’s non-compliance was uncovered during the review.

“Directors have a fundamental duty to provide accurate and reliable financial information,” said ACRA.

“Providing investors with reliable and meaningful financial information for decision-making will bolster investors' and other stakeholders' confidence in the transparency, integrity, and quality of financial reporting in Singapore.”

Failure to comply with accounting standards carries a penalty of up to S$250,000. For offences committed on or before Jun 30, 2023, the penalty is a fine of up to S$50,000.

ACRA said it would not hesitate to take action against non-compliance with accounting standards.

“This is to maintain confidence in the credibility and reliability of financial reporting in Singapore,” added the authority.