Letters to Editor
Published Date: 12 October 2004

Response to "Firms Not Keen to Put Profit Estimates in IPO Prospectus" (Straits Times, 12 October 2004)

Dear Sir,

I refer to "Firms not keen to put profit estimates in IPO prospectus" (ST, 2 October 2004).

2   While MAS agrees that a responsibly prepared profit forecast can provide useful information to investors about the issuer's future financial performance, a forecast that is not based on reasonable grounds can be misleading. Without some constraints, issuers have strong incentives to inflate forecast figures in their prospectuses to boost subscriptions.  This is why some jurisdictions, such as the US, do not encourage profit forecasts in IPO prospectuses.

3   In Singapore, MAS adopts a calibrated approach to opinions on profit forecasts where the requirements vary according to the profit forecast's time horizon.

4   An issuer may include a profit estimate without an independent review if the estimate is for the period from the end of the financial period for the financial statements in the prospectus until the date the prospectus is lodged with MAS.  In this instance, the underlying assumptions are relatively straightforward and less subjective.

5   Profit forecasts for the current financial year only need to be accompanied by an independent opinion that the profit forecast has been stated by the directors after due and careful enquiry and consideration ("due and careful enquiry opinion"). Most profit forecasts in Singapore tend to be for 12 months or less, and would fall in this category.  The independent party providing the opinion may be the issue manager or any other person whose profession or reputation gives authority to the statement made.  As issue managers and other professionals are actively involved in working with the company and its directors in preparing for the IPO, they should be well positioned to give a "due and careful enquiry opinion". Similar opinions are required for profit forecasts in prospectuses in Hong Kong. 

6   Alternatively, an auditor could examine the evidence supporting the underlying assumptions for the current year forecast in accordance with the Singapore Standards on Auditing, and provide a negative assurance opinion that no matter has given him reason to believe that the assumptions do not provide reasonable grounds for the forecast.

7   Profit forecasts for periods exceeding 12 months are not common in Singapore. These forecasts depend very much on the underlying assumptions about future events. In view of the greater uncertainty, an independent party is required to review and express an opinion on the reasonableness of the underlying assumptions.  

8   These requirements for third party review of forecasts help ensure that investors receive sound and good quality information on which to base their investment decisions.

Yours sincerely,

Angelina Fernandez
Director (Communications)