What SGX Regco Expects Of Disclosures Around Key Financial Indicators

Boon Gin Tan and June Sim discuss SGX RegCo’s expectations of disclosures in respect of three financial indicators that are actively monitored.

In 2021, Singapore Exchange Regulation (“SGX RegCo”) began using artificial intelligence and regtech solutions to enhance its monitoring of issuers’ financials. These solutions were initially used to automatically extract relevant financial data. Technology was also used to compute certain pre-determined financial indicators.

The data generated helped SGX RegCo identify issuers where queries on their financials were warranted. The ultimate objective was to ensure that Boards fully apprise investors of the issuer’s financial position so that investors can make an informed investment decision and better understand its financial performance.

Since then, we have surmised that if we make clear our expectations around disclosures in respect of financials, we may be able to help issuers improve their exchange filings around such matters. Better disclosures will call for fewer regulatory queries as issuers take it upon themselves to ensure their disclosures are clear, current and complete. Overall governance will improve as the market learns to self-regulate.

We are taking a step towards this self-regulated market with this column summarizing our expectations of disclosures in respect of three financial indicators, namely liquidity ratios, non-current trade and other receivables, and significant advances or prepayments. In particular, we note that most issuers currently produce what we have described below as “standard disclosures”.

With the issuance of this column and our Guidance Note on Financial Statements Disclosure, issuers whose financial indicators are at concerning thresholds should consider pivoting towards more “substantive disclosures” on a proactive basis, thereby ensuring timelier disclosure of key information and minimizing regulatory queries.

We have selected three financial indicators to be included in this column out of all the indicators the SGX RegCo uses regtech to track, as they are the likeliest to be material enough to warrant investor concern given the prevailing economic conditions where relatively high interest rates and inflation have weighed on demand and as the effects of Covid-19 continue to affect the longer-term outlook for some businesses.

Liquidity ratios

This indicator measures the issuer’s ability to meet short-term financial obligations due within the next 12 months, taking into account its cash and cash equivalent balances, the cash flow generated from its operating activities and the effects of changes to the interest rate environment.

Liquidity ratios are one of the commonly used financial measures to estimate an issuer’s ability to (i) meet its short-term financial obligations as and when they fall due; and (ii) operate as a going concern.

Standard Disclosures

An issuer with a lower liquidity ratio faces an increased risk of:

  • Breaching its debt covenants and potential cross-defaults; and
  • Inability to operate as a going concern.

For issuers with low liquidity ratios, the Board and management are expected to make a rigorous assessment of whether the issuer’s current assets are adequate to meet short-term liabilities and provide the appropriate substantiation to the assessment.

It is important for the Board to engage the management closely and determine how the issuer would fulfill its significant payment obligations in the next 12 months. Where a debt repayment plan to fulfil its debt obligations has been worked out, enquiries should be made of the management as to whether the issuer is on track to fulfilling these obligations.

Issuers are expected to disclose these assessments in conjunction with its financial results announcements.

Substantive Disclosures

In response to SGX RegCo’s queries on liquidity ratios, some issuers have made comprehensive disclosures on how they planned to meet their short-term financial obligations along with the Board’s assessment. Such disclosures included the following:

  • A detailed breakdown of the sources of funds which are expected to be available to the issuer for the next 12 months (including proposed equity fund-raising exercises, divestment of non-core assets);
  • Available credit facilities and their unutilized amounts, as well as whether such facilities are committed/uncommitted;
  • Cost-cutting measures;
  • New financing or refinancing arrangements;
  • Strategies and plans to improve collection of outstanding receivables;
  • Confirmation as to whether any breach of financial covenant(s) have been rectified or waived; and
  • Confirmation as to whether the Board has reviewed and is satisfied with, at the minimum, a 12-month cashflow forecast from the date of the latest financial statements.

For cases where the issuer relies on an undertaking of financial support from its parent company or Sponsor to operate as a going concern, to enable investors to make an informed investment decision, it would be helpful if the Board made certain assessments and disclosed them in its financial results announcements.

For example, the Board should carefully assess the financial standing of its parent company or Sponsor as well as the effectiveness of financial support. The Board should consider the types and timing of the committed financial support so as to be assured of its effectiveness.

Non-current trade and other receivables

Receivables that are to be collected after more than 1 year may raise questions about collectability. The concern for significant non-current receivables is whether the issuer will face cashflow issues from delays / non-collectability or has adopted inappropriate revenue recognition policies. In the worst-case scenario, the non-current trade receivables may raise concerns about the veracity of the sales.

While non-current trade and other receivables may have been more prevalent during the Covid-19 pandemic and plausible reasons may exist to explain why such receivables will only be collected after 1 year or more, as businesses return to normalcy, issuers should employ targeted efforts to reduce such non-current receivables in an effort to improve collectability.

Standard Disclosures

For issuers that report significant non-current receivables, the Board and management are expected to make an assessment of the collectability of such non-current receivables and to disclose these assessments in conjunction with its financial results announcements.

To do so, the Board and management should closely monitor such non-current receivables, including but not limited to, analysing the nature, breakdown and ageing schedule of such receivables and tracking the issuers’ plans for collection.

Substantive Disclosures

In addressing our queries over trade and other receivables, some issuers have provided substantial insights into factors considered when assessing collectability. These include credit evaluation of customers’ financial conditions, reviewing information such as payment history, age of debts, external ratings and credit agency information, audited financial statements, cash flow projections, and available press information.

Issuers also disclose a credit loss assessment that has been performed in accordance with the relevant accounting standards. Some issuers have also disclosed whether the external auditors tested the reasonableness of the assumptions pertaining to collectability of trade and other receivables.

Issuers may also consider including an explanatory note to the financial statements, to explain the nature of these non-current receivables and why they remain persistent on the balance sheet. The note could further explain whether this stems from an industry wide systematic risk or an issuer specific risk. The Board should also state if there are any underlying governance issues and whether any improvement in controls is required.

Existence of significant advances or prepayments

Significant advances or prepayments may be considered to be in the ordinary course of business for certain issuers or may have arisen as a consequence of macroeconomic factors like the Covid-19 pandemic and related supply chain disruption. However, an issuer may want to pay attention to significant advances or prepayments, especially when it does not commensurate with the issuer’s scale of operations.

Standard Disclosures

The concerns for significant prepayments and advances include whether these prepayments are long outstanding and hence are exposed to impairment, and the sufficiency of controls in place for such payments (e.g. approval limits).

The Board must assess the rationale and need to make significant advances or prepayments as well as the risks associated with it. Such an assessment is expected to be included in the issuer’s financial statements to provide greater assurance to shareholders on the collectability and veracity of such prepayments or advances.

For issuers with significant advances or prepayments, the Board and the management are expected to assess the breakdown of these advances and prepayments (e.g. deposits to subcontractors, prepayment for projects), the nature and terms of the respective advances and prepayments, and determine whether such balances should be impaired.

It is also important for the Board to understand the rationale for recognizing significant prepayments and/or advances, especially in cases where the counterparties are related parties of the issuer.

Substantive Disclosures

In addressing our queries over significant advances or prepayments, some issuers have made comprehensive disclosures such as detailed explanations on the nature of the prepayments and/or advances, the specific projects it relates to, the progress of transactions involved, whether it would be utilized or offset against any expected costs, and an explanation on whether any allowance for impairment loss is required.

Issuers may also consider disclosing in its financial statements whether it is common market practice for entities in the same industry to recognize such prepayments and advances, the adequacy and effectiveness of the issuer’s internal controls, and the efforts taken to recover or utilise such prepayments and advances.


Singapore’s disclosure-based regime requires the Board to continuously disclose material information, including information to do with the three financial indicators highlighted here when these indicators may give rise to investor concern.

Since the roll-out of SGX RegCo’s initiative to use regtech to analyze financial data, we have observed more detailed disclosures in response to our queries. Shareholders could further engage the Boards of their investee companies with regard to these queries to seek clarity or further action where needed.

As mentioned earlier, SGX RegCo directs the use of regtech on a broad range of indicators though only three are discussed here. This list of indicators is thus not exhaustive and investors should continue to be vigilant and monitor disclosures by issuers in their annual report as well as financial statements and updates on SGXNet.

It is conceivable that SGX RegCo will add other indicators to this AI-assisted review and expand our expectations of disclosures around these indicators in future.

Boon Tan Gin is CEO at SGX RegCo; June Sim is Head of Listing Compliance.

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