Accounting for extraordinary items in Singapore: Empirical findings and international implications

Abstract

This study examines the need for a more stringent accounting standard to restrict the usage of extraordinary items (EI) in Singapore given recent international reforms in EI reporting. It seeks to identify signs of the abuse of EI and to predict the impact of a more stringent EI accounting standard on the financial statements of firms in Singapore. Data from the Stock Exchange of Singapore (SES) were examined to analyse statistical trends and test three hypotheses to determine if there was any manipulation of EI The findings generally indicate no evidence of income smoothing or earnings management with respect to EI. This may be due to the fact that Singapore has a fairly efficient capital market and companies perceive no incentive to manage the earnings figure via EI. Thus, the implementation of Provisional Statement of Accounting Standard (PAS) 19 to restrict the usage of EI would not necessarily have had an unusually great impact on the attitude of firms toward accounting for EI. It would, however, act as a further deterrent to any abuse and enable better comparison between financial statements. On the other hand, it could lead to more erratic earnings and perhaps sudden share price movements. Finally, the implications for international harmonisation of the withdrawal of PAS 19 are also discussed.