MAS: Annual report 2006 / 2007
 
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MAS FY 2006/2007
FINANCIAL STATEMENTS
Highlights 66
Statement by Directors 67
Auditor's Report 68
Income Statement 69
Bal ance Sheet 70
Statement of Changes in Equity 71
Cash Flow Statement 72
Statement of Backing of Currency in Circulation 73
Notes to the Financial Statements 74
 
  NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2007
 

These notes form an integral part of and should be read in conjunction with the accompanying financial statements.

 
1 GENERAL

The Authority is a statutory board established in Singapore under the Monetary Authority of Singapore Act (Chapter 186, 1999 Revised Edition) on 1 January 1971 and is located at 10 Shenton Way, MAS Building, Singapore 079117.
     
2

PRINCIPAL ACTIVITIES

The principal activities of the Authority are:

  a) the conduct of monetary policy, issuance of currency, management of the official fo reign reserves and acting as the banker to and financial agent of the Government; and
  b) the supervision of the banking, insurance, securities and futures industries, and development of strategies in partnership with the private sector to promote Singapore as an international financial centre.
     
3 SIGNIFICANT ACCOUNTING POLICIES
  3.1 Compliance with the Monetary Authority of Singapore Act, Currency Act and Singapore Financial Reporting Standards
   
a) The financial statements of the Authority, are prepared in accordance with the Monetary Authority of Singapore Act (Chapter 186, 1999 Revised Edition), Currency Act (Chapter 69, 2002 Revised Edition) and applicable Singapore Financial Reporting Standards (FRS). Section 34(3) of the Monetary Authority of Singapore Act and Section 21(10) of the Currency Act provide that the Authority, in preparing its financial statements, may comply with accounting standards to the extent that it is, in the opinion of the Authority, appropriate to do so, having regard to the objects and functions of the Authority. The Authority, having considered its responsibilities for managing the Singapore dollar exchange rate and the Official Foreign Reserves, is of the opinion that, for effective management of Singapore’s monetary policy, it is appropriate not to meet, in some respects, the Singapore Financial Reporting Standards. The financial statements accordingly disclose less information than would be required under those Standards.
     
   
b) In addition, due to information system constraints, the Authority recognised interest income on a straight-line basis instead of on an effective interest basis as required by FRS 18 “Revenue”. Premiums and discounts were amortised on a straight-line basis over the remaining life of the securities, except for discounts on zero-coupon non-convertible bonds and negotiable certificates of deposit that are amortised on an effective interest basis as required by this standard. With the cutover to a new investment accounting system on 30 October 2006, interest income is now recognised on a time-proportionate basis using the effective interest method in accordance with FRS 18. The financial impact of this change in accounting policy, based on the Authority’s estimation, is immaterial. Due to information system constraints, the Authority is unable to apply this change in accounting policy retrospectively.
     
   
c) The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Authority’s accounting policies, having regard to the objects and functions of the Authority. It also requires the use of accounting estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenditure during the financial year. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from these estimates.
     
   
d) Changes in Accounting Policies

To align with market practices, the Authority has changed from settlement date to trade date accounting and revised the valuation policy from the lower of cost and market value to fair value for financial instruments subject to margin requirements. The accounting policy changes were made on 1 April 2006 and the effects are as follows:

     
   
  (i) Effects of restatement on 1 April 2006 balances
   
 
 
 
  3.2 Basis of Accounting
    The financial statements have been prepared under the historical cost convention and on an accrual basis.
     
  3.3 Recognition and Derecognition
    Purchases and sales of investments are recognised on the trade date when the Authority commits to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Authority has transferred substantially all risks and rewards of ownership.
     
  3.4 Foreign Currency Translation
   
b) The financial statements are presented in Singapore dollars, the Authority’s functional currency, and rounded to the nearest thousand, unless otherwise stated
   
b) Transactions in foreign currency are measured at the exchange rate prevailing at the date of transaction. Foreign currency gain or loss resulting from the settlement of such transactions are recognised in the income statement.
   
c) Assets and liabilities denominated in foreign currencies are translated into Singapore dollars, at the exchange rate prevailing on the balance sheet date, except for shareholdings in Bank for International Settlements (BIS) and Society for Worldwide Interbank Financial Telecommunication (SWIFT) which are translated at the rates of exchange prevailing on the acquisition dates. Exchange differences arising from the translation are recognised in the income statement.
     
  3.5 Income Recognition
   
a) Dividend income is recognised when the right to receive payment is established.
   
b) With the cutover to a new investment accounting system on 30 October 2006, interest income is recognised on a time-proportionate basis using the effective interest method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or where appropriate a shorter period to the net carrying amount.
   
c) Profits/losses on disposal of investments are taken to the income statement.
   
d) Licence fee income is recognised on a straight-line basis over the period of the licence.
     
  3.6 Singapore Government Treasury Bills and Bonds

Singapore Government Treasury bills and bonds are stated at cost. Provision has been made for diminution in value, if any, based on the lower of cost and market value on an individual investment basis.
     
  3.7 Gold

Gold is a long-term investment stated at cost. Provision for diminution in value would be made in the event of a decline other than temporary in its value.
     
  3.8

Foreign Assets

Foreign assets represent the Authority’s investments in a global diversified portfolio and are stated at cost. Provision has been made for diminution in value, if any, based on the lower of cost and market value on an individual investment basis.

     
  3.9 Financial Derivatives

Financial derivatives include forwards, swaps, futures and options. Other than financial instruments that are subject to margin requirements which are fair valued, provision has been made for diminution in value, if any, of other financial derivatives based on the lower of cost and market value on an individual investment basis, except for forwards and currency swaps which are valued on a portfolio basis.
     
  3.10 Repurchase and Reverse Repurchase Agreements (“Repos” and “Reverse Repos”)

Reverse Repos are treated as collaterised borrowing and the amounts borrowed are included in “Provisions and Other Liabilities”. The securities sold under reverse repos are treated as pledged assets and remain on the balance sheet. Repos are treated as collaterised lending and the amounts lent are included in “Other Assets”. The difference between the amount received and the amount paid under repos and reverse repos is recognised as interest incom e and interest expense respectively.
     
  3.11 Operating Leases
   
a) Leases where substantially all the rewards and risks of ownership remain with the lessors are accounted for as operating leases. Rental receipts or payments under operating leases are accounted for in the income statement on an accrual basis according to the terms of the agreements.
   
b)

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an income or expense in the period in which termination takes place.

     
  3.12 Employees’ Benefits
   
a) Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Authority pays fixed contributions into entities such as the Central Provident Fund, and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. The Authority’s contributions to defined contribution plans are recognised in the financial year to which they relate.
   
b)

Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for annual leave as a result of services rendered by employees up to the balance sheet date.

     
  3.12 Property, Other Fixed Assets and Depreciation
   
a) Property and Other Fixed Assets are stated at cost less accumulated depreciation and impai rment losses, if any. The cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line

  Useful lives
Leasehold Land Period of lease
Buildings 50 years or period of lease whichever is lower
Building Improvements 10 years
Computer Hardware and Software 3 to 5 years
Furniture, Fixtures, Motor Vehicles and Other Equipment 3 to 5 years

The residual values and useful lives are reviewed and adjusted as appropriate, at each balance sheet date.
   
b)

Computer software costs of less than $100,000 and other assets costing $1,000 and below are expensed off in the year of purchase. Any computer software costs not written off, are included in fixed assets

   
c)

Property and Other Fixed Assets are reviewed for impairment whenever there is any indication that these assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated to determine the amount of impairment loss. The impairment loss is recognised in the income statement for the period.

Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal, if any, is recognised in the income statement. However, the increased carrying amount of an asset due to a reversal of an impairment is recognised to the extent that it does not exceed the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment losses been recognised for the asset in prior years.

   
d) On disposal of fixed assets, the difference between the net disposal proceeds and its carrying amount is taken to the income statement.
     
 
4

INCOME FROM FOREIGN OPERATIONS

Income from foreign operations includes interest, dividends, profit/loss on disposal of investments, foreign exchange gain/loss and write-back of/additional provision for diminution in value of investment.

   
5

INCOME FROM DOMESTIC AND OTHER OPERATIONS

Income from domestic and other operations includes mainly interest and write-back of/additional provision for diminution in value of Singapore Government Treasury bills and bonds, licence and inspection fees, revenue from currency-related operations, custody fee and revenue from services rendered to banks and financial institutions on MAS Network and MAS Electronic Payment System which provides real-time gross settlement of payments.

   
6 NON-OPERATING INCOME

Non-operating income includes rental and carpark income, liquidated damages and management service fees.
   
7 INVESTMENT, INTEREST AND OTHER EXPENSES

Investment and interest expenses include management fees, futures/options commissions and bank, custody and other charges arising from foreign operations and interest paid on borrowings and reverse repurchase agreements arising from domestic and other operations. Other expenses include costs of printing of currency notes and coin operations.
   
8 PERSONNEL EXPENDITURE
  8.1 This includes the following:
 
   
  8.2 The key management personnel compensation is as follows:
 
   
9 GENERAL AND ADMINISTRATIVE EXPENDITURE
  This includes the following:
 
   
10 ISSUED AND PAID-UP CAPITAL
  The issued and paid-up capital of $100 million is wholly owned by the Government of the Republic of Singapore.
   
11 GENERAL RESERVE FUND
  The General Reserve Fund is established under Section 6(1) of the Monetary Authority of Singapore Act (Chapter 186, 1999 Revised Edition).
   
12 CURRENCY FUND RESERVES
  12.1 The Currency Fund, established under Section 21 of the Currency Act (Chapter 69, 2002 Revised Edition), is maintained and managed by the Authority in the manner prescribed by the Act.
  12.2 The assets and liabilities of the Currency Fund as at 31 March are as follows:
 
   
13 GOLD AND FOREIGN ASSETS
  13.1 These comprise the following:
 
   
  13.2 International Monetary Fund (IMF) Assets

The Reserve Tranche represents the amount of the paid-up portion of the Singapore quota. Special Drawing Rights are interest-yielding balances with IMF that can be exchanged for convertible currencies. Singapore participates in the Poverty Reduction and Growth Facility-Heavily Indebted Poor Countries (PRGF-HIPC). The outstanding balance as at 31 March 2007 is SDR44,045,647 [$100.9 million] (31 March 2006: $102.7 million), including a balance of SDR4,045,647 in the Post-Special Contingent Account-2 with IMF which was transferred to the PRGF-HIPC on 24 April 2001 as an interest-free deposit maturing at the end of 2018.

   
14 OTHER ASSETS
  14.1 These comprise the following:
 
   
  14.2 The Authority’s shareholding in the BIS comprises the 25% paid-up value of 4,285 (2006: 4,285) shares with a nominal value of SDR5,000 each.
     
  14.3 Staff loans include housing, conveyance, renovation and personal computer loans. The period ranges from 3 years for personal computer loans to 30 years for housing loans. The interest rates vary, ranging from 0% for personal computer loans to 1% below a bank’s prevailing housing loan rate (subject to a floor of 5% per annum) for the portion of housing loans exceeding $750,000.
     
15 PROPERTY AND OTHER FIXED ASSETS
 
16 DEPOSITS OF FINANCIAL INSTITUTIONS
 
   
  Deposits from banks and finance companies in Singapore include the minimum cash balances maintained by banks and finance companies with the Authority as required under the Banking Act (Chapter 19, 2003 Revised Edition) and the Finance Companies Act (Chapter 108, 2000 Revised Edition) respectively. Deposits from securities companies represent statutory deposits from holders of capital market services licences required under the Securities and Futures (Licensing and Conduct of Business) Regulations.
   
17 PROVISIONS AND OTHER LIABILITIEs
   
  17.1 Provisions have been made for contingencies under Section 6(2) of the Monetary Authority of Singapore Act (Chapter 186, 1999 Revised Edition). Other liabilities include borrowings from banks, borrowings under reverse repurchase agreements, the Authority’s allocations of Special Drawing Rights in IMF, creditors, accounts payable and accruals.
     
  17.2 The Authority’s allocation of Special Drawing Rights in IMF amounting to $37.7 million as at 31 March 2007 (31 March 2006: $38.4 million) is included in “Provisions and Other Liabilities”.
   
18 AMOUNTS DUE TO SINGAPORE GOVERNMENT
 
   
  The contribution to be made to the Consolidated Fund is in accordance with the Statutory Corporations (Contributions to Consolidated Fund) Act (Chapter 319A, 2004 Revised Edition). The contribution is based on 20% (2006: 20%) of the profit for the year.
   
19 FINANCIAL SECTOR DEVELOPMENT FUND
   
  19.1 The Financial Sector Development Fund (hereinafter called the Fund) is established under Section 30A of the Monetary Authority of Singapore Act (Chapter 186, 1999 Revised Edition). It is controlled and administered by the Authority. The Authority provides administrative and accounting support to the Fund. The Fund shall be used for the objects and purposes set out in Section 30B of the Act.
     
  19.2 The financial statements have been prepared in accordance with the provisions of the Monetary Authority of Singapore Act (Chapter 186, 1999 Revised Edition) and the Singapore Financial Reporting Standards. The assets and liabilities of the Fund as at 31 March are as follows:
   
 
   
  19.3 The financial results of the Fund are as follows:
 
   
  19.4 The notes to the assets and liabilities and financial results of the Fund are available on the Authority’s website at http://www.mas.gov.sg.
   
20 STATUTORY DEPOSITS OF INSURANCE COMPANIES, REMITTANCE LICENSEES AND CAPITAL MARKET SERVICES LICENSEES

The following statutory bank deposits, guarantees and Singapore Government Bonds of insurance companies, remittance licensees and capital market services licensees, are retained by the Authority under the Insurance Act (Chapter 142, 2002 Revised Edition), the Money-Changing and Remittance Businesses Act (Chapter 187, 1996 Revised Edition) and the Securities and Futures Act (Chapter 289, 2002 Revised Edition) respectively, and in the events specified, dealt with accordingly under the respective Acts.

   
 
21 COMMITMENTS
     
  21.1 International Monetary Fund (IMF)
       
    a) The Authority has an obligation to pay $1,053 million as at 31 March 2007 (31 March 2006: $1,053 million) which represents the unpaid portion of the Singapore quota due to IMF under Section 4 of Article III of the Articles of Agreement.
    ;    
    b) As a participant in the IMF’s ‘New Arrangements to Borrow’ (NAB), the Authority undertakes to provide a credit line of up to SDR340 million [$779 million] as at 31 March 2007 (31 March 2006: $793 million) in the event of a financial emergency as specified by the NAB. For the financial year ended 31 March 2007, the Authority did not grant any loan under the NAB.
   
  21.2 Bank for International Settlements (BIS)

The Authority has a commitment, amounting to SDR16.1 million ($36.8 million) as at 31 March 2007 (31 March 2006: $37.5 million), in respect of the uncalled portion of its shareholding in the BIS.

     
  21.3

Repurchase Agreements with Other Central Banks

The Authority has entered into bilateral repurchase agreements with various Asian central banks to provide liquidity assistance in times of emergency. For the financial year ended 31 March 2007, there was no request for liquidity assistance from any counterpart.

     
  21.4

ASEAN Swap Arrangement (ASA)

The Authority has participated in the multilateral ASEAN Swap Arrangement (ASA) together with other ASEAN central banks and monetary authorities to provide short-term foreign exchange liquidity support for member countries that may experience balance of payments difficulties. For the financial year ended 31 March 2007, there was no request for liquidity support from any member country. The ASA was renewed for an additional two years up to 16 November 2007. The Authority’s appointment as agent bank for the ASA ended on 16 November 2006.

     
  21.5 Bilateral Swap Agreement

The Authority and the Bank of Japan, acting as the agent for the Minister of Finance of Japan, renewed their bilateral swap agreement (BSA) under the Chiang Mai Initiative on 8 November 2005. The revised agreement will enable the two central banks to swap their currencies (i.e., Singapore dollars and Japanese yen) for US dollars. Under the agreement, Singapore can swap up to US$3,000 million ($4,550 million) while Japan can swap up to US$1,000 million ($1,517 million). For the financial year ended 31 March 2007, there was no request to activate the BSA.

     
  21.6

Capital Commitments

Capital expenditure not provided for in the financial statements is as follows:

 
   
  21.7 Leases

a) Future minimum lease payments under non-cancellable operating leases are as follows:

 
22 FINANCIAL RISK MANAGEMENT
   
  22.1 The Risk Committee, chaired by an independent Board member, assists the Board of Directors in providing oversight and guidance over the management of risks assumed by the Authority. This encompasses the management of financial risks inherent in the Authority’s investment portfolios, amongst other organisational risks faced by the Authority.
     
  22.2 An independent risk management unit provides senior management and the Risk Committee with regular reports of the risk profiles of the Authority’s investments. These reports cover risk measurement and analysis of the Authority’s investment portfolios. The unit also formulates risk policies and controls, and performs independent compliance monitoring of the portfolios in accordance with the stipulated investment guidelines.
   
  22.3 Market Risk
    a) Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes currency, interest rate and other price ris ks.

i) Currency risk is the risk of loss on foreign assets and liabilities arising from changes in foreign exchange rates.

ii) Interest rate risk is the risk of loss arising from changes in market interest rates. The Authority manages interest rate risks by setting duration limits on its investments.

iii) Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

       
    b) Market risks are managed through regular monitoring of the market risk exposure of the Authority’s investments, the diversification of the Authority’s investments across different markets and currencies, and the establishment of investment risk tolerance and controls at both the aggregate and individual portfolio levels.
       
  22.4 Credit Risk
    a) Credit risk is the risk of loss arising from a party’s failure to discharge an obligation under a financial contract and includes counterparty, custodian and issuer credit risks.
       
    b) The Authority’s credit risks are managed by transacting with well-rated entities within assigned limits. Credit risks are also mitigated by diversifying credit exposures across counterparties, custodians and issuers and through netting and collateral arrangements with major counterparties.
       
    c) The Authority manages issuer credit risk by imposing minimum credit rating requirements on the investment of fixed income securities. Single issuer limits are placed to control the credit exposure to any one issuer and to mitigate the extent of loss resulting from a default.
   
  22.5 Country Risk

The Authority is exposed t o the country credit risk of the Authority’s foreign assets arising from political, economic and financial events in the country of investment. Country limits are established to control the Authority’s credit risk exposure to individual countries.

 

  22.6

Liquidity Risk

Liquidity risk is the risk that there will be difficulty in selling a financial asset at close to its fair value at short notice to meet liabilities falling due. The Authority manages liquidity risk through cash flow projections by investing mostly in liquid financial instruments and markets, and imposing limits on investments to ensure diversification of cash flow sources.

   
23 AUTHORISATION OF FINANCIAL STATEMENTS

The financial statements for the year ended 31 March 2007 were authorised by the Board of Directors for issuance and signed by Chairman and Managing Director on 28 June 2007.