Illustrative Annual Report 2022

Co-creating tomorrow with trust and transparency

The way businesses operate and what drives success is changing. Their response to urgent issues such as climate change, the pandemic, rising interest and inflation rates is under scrutiny, and expectations are increasing. Corporate reporting needs to communicate the value that a business creates, and it is not just shareholders who consume this information. Other stakeholders are looking at a company’s broader performance and impact, including customers, suppliers, employees, governments, regulators and society in general.

The 2022 edition of PwC’s Illustrative Annual Report will serve as an excellent resource to assist you in the preparation of your company’s annual report, ensuring quality, completeness and fair presentation of information to users of your corporate reporting, helping you build trust and transparency.

Three key highlights in 2022

Sustainability Report

Sustainability reporting is becoming increasingly important and investors are asking for more holistic information about companies’ long-term value creation opportunities and their wider impact to the society and the environment. This includes how environmental issues such as climate change are affecting companies, and how physical and transition risks are being managed.

Consequently, the call for mandatory climate-related disclosures has gained momentum. In Singapore, the SGX baseline reporting guideline was revised to expand mandatory climate reporting from specific sectors to all SGX issuers regardless of industry. The phased approach adopted in Singapore is aligned to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Even with new guidelines that set the parameters for reporting, figuring out what information is most relevant, and to whom, is a complex task, and engagement with stakeholders will be necessary. In addition, collating information required to satisfy regulations and stakeholders will involve planning; specialised expertise in areas like carbon footprinting to measure and assess the information; a way to assure it is reliable; and a strategy to deal with the results.

This publication highlights these considerations in the Sustainability Report.

Climate change-related financial statement disclosures

The impact of climate change on financial statements is a high-profile issue. Investors and regulators expect entities to consider the impact of climate change in financial reporting. The accounting standards also have an overarching requirement to disclose information that is relevant to users’ understanding of the entity’s financial position and financial performance. Therefore, in light of the current focus on, and impact of, climate change, entities should ensure that they have assessed the impact of climate change on the measurement of their assets and liabilities, how estimates and judgements have been made, and what disclosures are necessary for the financial statements.

It is imperative that the climate-related considerations and their impact to the financial statements are also consistent with an entity’s sustainability reporting. This would require greater collaboration between the preparers of sustainability reports and the financial statements in an entity.

This publication highlights these considerations in the Impact of climate change on financial statements section and discusses how climate change could affect certain measurements and disclosures in the financial statements.

Rising inflation rates

Geopolitical tensions and supply-chain disruptions have put more pressure on energy, agricultural and commodity prices globally. In Singapore, inflationary pressures were intensified by overall manpower shortages and an increase in labour costs. In October 2022, the Monetary Authority of Singapore (MAS) revised the MAS Core Inflation to 4% (up from 2.5% to 3.5) and CPI-All Items Inflation to 6% (up from 4.5% to 5.5%).

Challenges that an entity faces as a result of rising inflation can have a wide-reaching effect on the financial statements and need to be considered when applying many of the SFRS(I) requirements. Some effects will seem relatively obvious (for example, increases in discount rates used to reflect the time value of money and adjustments to cash flows to account for the effect of general inflation). However, there are also many indirect effects that will impact the financial statements, for example:

predictions for specific price increases and any limits on the extent to which an entity can pass those price increases on to its customers;
changes in customer behaviour, for example switching to lower-priced goods or reducing consumption; and
likelihood of financial difficulty of an entity, its customers, suppliers or other counterparties.

In this publication, we have identified areas that may be affected by rising inflation, and provided guidance to address these financial reporting issues.