ChFC04/DPFP04 Investment Planning Free Practice Test Two

Correct: In the Singapore financial advisory framework, particularly under the Financial Advisers Act (FAA) which requires a reasonable basis for recommendations, the best practice for quantifying key person loss is to use a combination of the ‘Contribution to Profit’ method and the ‘Replacement Cost’ method. This involves analyzing the specific portion of net profit attributable to the individual’s expertise and adding the tangible costs of finding, hiring, and training a replacement (including the ‘gestation period’ where the new hire is not yet fully productive).

Incorrect: Using a fixed salary multiplier is a rule of thumb that may not reflect the actual economic impact on a specific business, potentially leading to inadequate coverage. Focusing on credit facilities or loan amounts addresses debt protection rather than the loss of operational profit. Using the value of an equity stake is more relevant for buy-sell agreements and shareholder protection rather than quantifying the loss of the individual’s functional contribution to the company’s earnings.

Takeaway: A robust key person valuation must account for both the direct loss of business income and the specific costs associated with recruiting and developing a replacement to ensure a reasonable basis for the insurance recommendation.

Correct: In Singapore, the distinction between a reimbursement (paying back an actual expense incurred) and an allowance (a fixed sum given regardless of expense) is vital. Under the Central Provident Fund (CPF) Act and Inland Revenue Authority of Singapore (IRAS) regulations, cash allowances are typically considered wages and are subject to CPF contributions and income tax. Proper administration requires SMEs to track these choices accurately to ensure correct statutory filings and avoid penalties for under-contribution or incorrect tax reporting.

Incorrect: The assumption that all flexible benefits are exempt from CPF is incorrect because the CPF Board determines liability based on whether the payment is a wage or a reimbursement, not the total amount. Converting statutory minimum requirements like sick leave into flexible points is a violation of the Employment Act, which mandates these as non-negotiable rights. Simply keeping receipts does not automatically make a benefit non-taxable; the taxability is determined by the nature of the benefit according to IRAS rules, regardless of the record-keeping system.

Takeaway: Effective administration of flexible benefits in Singapore requires precise classification of choices to meet CPF and IRAS compliance requirements regarding wages and reimbursements.

Correct: Under the SGX-ST Listing Rules, all listed issuers in Singapore are required to prepare an annual sustainability report. This report must be issued on a comply or explain basis and must include several primary components: material ESG factors, climate-related disclosures (which are being phased in as mandatory for certain sectors), policies, practices, and performance, targets, a sustainability reporting framework, and a board statement. Additionally, listed companies must disclose their board diversity policy, including targets and timelines.

Incorrect: The requirement for sustainability reporting is not based on a specific 5 percent profit threshold but rather on the materiality of ESG factors to the business and its stakeholders. While the Monetary Authority of Singapore (MAS) and ACRA are key regulators, they do not mandate CSR audits for all private limited companies; the specific sustainability reporting requirements discussed here apply to listed issuers under SGX rules. Sustainability reporting is not voluntary for listed companies; it is a mandatory requirement under the Listing Rules, even if the company has a high corporate governance score.

Takeaway: Singapore-listed companies must comply with SGX-ST Listing Rules by publishing annual sustainability reports that cover material ESG factors and climate disclosures on a comply-or-explain basis.

Correct: In Singapore, using an independent trustee to hold insurance policies for business succession planning provides significant legal advantages. It ensures that the policy proceeds are held in trust for the specific purpose of the buy-sell agreement, thereby ‘ring-fencing’ the money from the personal creditors of the surviving shareholders. Furthermore, because the trustee is the legal owner of the policy, the death benefit can be paid out and utilized immediately according to the trust deed, bypassing the often lengthy probate process required for the deceased’s personal estate.

Incorrect: The suggestion that premiums become tax-deductible simply by using a trustee is incorrect; premiums for succession funding (capital nature) are generally not deductible for the company or individuals. There is no MAS requirement under the Securities and Futures Act that mandates a trustee for buy-sell agreements based on the number of shareholders. Finally, the transfer of shares in a private limited company is generally not subject to GST, and a trustee structure is not used for the purpose of GST exemption in this context.

Takeaway: Utilizing a trustee in business succession funding provides essential creditor protection and ensures immediate liquidity for share buyouts by avoiding the probate process.

Correct: Under the Limited Liability Partnerships Act in Singapore, an LLP is a body corporate and has a legal personality separate from that of its partners. This protects partners from being personally liable for the debts of the LLP. In contrast, a General Partnership governed by the Partnership Act does not have a separate legal personality, and partners face unlimited personal liability for the firm’s debts and obligations incurred while they are partners.

Incorrect: The suggestion that General Partnerships have limited liability based on capital contribution is incorrect as they involve unlimited liability. The claim that an LLP requires an unlimited liability partner is a confusion with a Limited Partnership (LP), which is a different structure from an LLP. Furthermore, partners in an LLP are never immune from personal liability for their own wrongful acts or professional negligence, even if the entity itself provides a shield against the firm’s general commercial debts.

Takeaway: The key distinction is that an LLP is a separate legal entity providing limited liability protection for the firm’s debts, whereas a General Partnership is not a separate entity and carries unlimited personal liability for all partners.

Correct: In the context of Singapore’s financial landscape, the Income Approach is the most appropriate method for valuing intellectual property for commercial purposes such as financing. This method focuses on the future economic benefits the IP is expected to generate, which is what lenders and investors prioritize. Engaging an independent, qualified valuer ensures that the assessment meets the professional standards expected by Singapore financial institutions and aligns with IPOS guidelines for IP management.

Incorrect: The Cost Approach is often considered inadequate for IP valuation because the historical cost of development rarely correlates with the asset’s actual economic value or income-generating potential. The Market Approach is difficult to apply to IP because these assets are unique; using unadjusted prices from other transactions ignores the specific legal protections and market variables unique to the firm’s IP. The net book value under Singapore Financial Reporting Standards (SFRS) is an accounting measure based on historical cost less amortization, which does not reflect the current fair market value or the future earning capacity of the intellectual property.

Takeaway: Professional IP valuation in Singapore should prioritize the Income Approach to accurately reflect the asset’s future earning potential for commercial and financing purposes.

Correct: In Singapore, under the Companies Act, companies (unless exempted) are required to maintain a Register of Registrable Controllers (RORC). When a company has confirmed the particulars of a registrable controller, it must update its internal register within 2 business days. Following the update of the internal register, the company must then lodge the same information with ACRA’s central RORC database within 2 business days. This ensures that the regulatory authorities have timely and accurate data regarding the beneficial ownership and control of corporate entities.

Incorrect: Updating the register only during the Annual Return filing is incorrect as the law requires immediate updates to maintain transparency. The suggestion that lodging with ACRA is only for foreign entities is false; all registrable controllers must be reported regardless of nationality. Furthermore, the RORC is not a public document and should not be made available for public inspection; it is intended for use by ACRA and law enforcement agencies to combat money laundering and financial crimes.

Takeaway: Singapore private companies must update their internal Register of Registrable Controllers within 2 business days of confirmation and lodge that data with ACRA within a further 2 business days.

Correct: Contingent Business Interruption (CBI) coverage, also known as dependency business interruption, is essential for businesses that rely on third-party providers. Standard Business Interruption (BI) policies in Singapore typically require physical damage to the insured’s own property to trigger a claim. CBI extends this protection to include losses resulting from disruptions at the premises of a supplier or service provider, such as a cloud host. Given the Monetary Authority of Singapore (MAS) emphasis on outsourcing risk management, ensuring financial recovery through appropriate insurance extensions is a critical part of a robust risk assessment.

Incorrect: Public Liability insurance is designed to cover legal liability for third-party bodily injury or property damage, not the insured’s own loss of revenue. Fire and Extraneous Perils policies generally require physical damage (like fire or flood) to the insured’s assets and do not cover pure economic loss from cyber events or third-party outages. While a Business Continuity Plan (BCP) is a vital procedural requirement under Singapore’s BCM guidelines, a plan focused only on internal backups fails to provide the necessary financial liquidity to replace lost income during a prolonged external service outage.

Takeaway: Business owners must ensure their Business Interruption insurance includes contingent coverage for third-party service providers to mitigate financial losses from external supply chain or IT disruptions.

Correct: Under the Financial Advisers Act (FAA) and the MAS Guidelines on Business Conduct, financial advisers must disclose any conflict of interest that could reasonably be expected to influence their recommendation. Recommending a vendor that is also a corporate client of the firm without disclosure or a clear, objective selection rationale undermines the requirement to provide objective advice and act in the client’s best interest. This is particularly sensitive when helping clients navigate government-funded schemes like the Productivity Solutions Grant (PSG).

Incorrect: While IRAS and Enterprise Singapore (ESG) have strict rules for grants, an existing corporate relationship between a vendor and a consultant does not automatically invalidate a grant, provided the vendor is pre-approved and the transaction is at arm’s length. Market misconduct under the SFA typically refers to activities like wash sales or insider trading, which are not the primary issues here. PDPA concerns arise during the actual transfer of data, but the core regulatory failure in this scenario is the conflict of interest and lack of transparency in the advisory process.

Takeaway: Financial advisers must identify and disclose all potential conflicts of interest when recommending third-party vendors for government-funded digitalization grants to ensure the integrity of the advice.

Correct: Under the Representative Notification Framework (RNF) in Singapore, a principal (such as a bank) must notify the Monetary Authority of Singapore (MAS) of its intention to appoint a representative to conduct regulated activities under the Financial Advisers Act (FAA). The individual can only commence these activities once their name and representative number are reflected on the public Register of Representatives maintained by MAS. The principal bears the primary responsibility for ensuring the individual meets the Fit and Proper criteria before submission.

Incorrect: Allowing a representative to provide advice before their name appears on the public register is a breach of the FAA, as notification must precede the commencement of regulated activities. The RNF is an electronic notification system, and MAS no longer issues physical licenses to individual representatives. The RNF is managed by MAS, not the SGX, and it applies to all individuals providing financial advisory services under the FAA, regardless of whether the clients are retail or business owners.

Takeaway: A representative must be formally notified to MAS and appear on the public Register of Representatives before they can legally perform regulated financial advisory services in Singapore.

Correct: Under Section 7, Rule 2 of the Intestate Succession Act of Singapore, if a person dies intestate leaving a spouse and children, the surviving spouse is entitled to half of the estate, and the children are entitled to the other half in equal shares. In a business context, this fragments the majority stake. Furthermore, because the children are minors, they cannot hold legal title to the shares directly; their interest must be held in trust. This creates significant risk because the trustees (usually the surviving spouse and another administrator) must act in the best interests of the minors, which may not align with the commercial needs of the business, potentially leading to deadlocks in shareholder resolutions.

Incorrect: The claim that the spouse inherits 100% is incorrect because under the ISA, the spouse only receives the entire estate if there are no children or descendants. The idea that shares automatically convert to non-voting shares is not a provision of the Singapore Companies Act; share rights are determined by the Company’s Constitution and any existing Shareholders’ Agreement. There is no legal requirement in Singapore law that mandates the automatic liquidation of private company shares within 6 months for intestate estates; the administrator has the power to manage the assets, but liquidation is not a statutory requirement unless necessary to pay debts or if specified in the company’s own articles.

Takeaway: In Singapore, the Intestate Succession Act distributes assets between a spouse and children in a 50/50 split, which can cause business paralysis and unintended governance challenges when minor children are involved.

Correct: In Singapore, judicial precedent (following cases like Tjong Very Sumito v Antig Investments Pte Ltd) establishes that the corporate veil may be lifted if the corporate form is used as a ‘facade’ or ‘sham’. This occurs when the company is interposed to avoid a pre-existing legal obligation or to deliberately evade the law. In the scenario described, using a new company to bypass a non-compete injunction is a classic example of using the corporate form to frustrate legal obligations, justifying the court’s intervention to look behind the veil.

Incorrect: Exercising absolute control or being a sole shareholder is insufficient on its own to lift the veil, as the principle of separate legal personality from Salomon v Salomon remains the baseline in Singapore law. Failure to meet ACRA’s administrative or capital requirements is a regulatory compliance issue but does not constitute a judicial ground for lifting the veil. The ‘Single Economic Unit’ theory is generally rejected in Singapore as a standalone ground for lifting the veil, as courts respect the separate legal identity of each company within a group unless a facade or agency relationship is proven.

Takeaway: Singapore courts will only lift the corporate veil in limited circumstances, primarily when the corporate structure is used as a facade to evade existing legal duties or perpetrate fraud.

Correct: According to the ChFC Code of Ethics and the standards expected by the Singapore College of Insurance (SCI), a ChFC holder must act with Integrity, Professionalism, and Objectivity at all times. Even during a business continuity event or system failure, the duty to provide competent advice and full disclosure of material risks remains. Manually documenting the suitability and ensuring the client is fully informed before execution fulfills the ethical obligation to place the client’s interest first while maintaining professional standards.

Incorrect: Postponing disclosures or suitability assessments (as in the second option) is a violation of the principle of Fairness and the duty to inform the client of risks before they commit to a transaction. Seeking an exemption from ethical codes (as in the third option) is not possible as ethical principles are fundamental and not subject to system-related waivers. Simply avoiding the trade to protect oneself from liability (as in the fourth option) may fail the principle of Diligence and the duty to act in the client’s best interest if the delay causes foreseeable harm that could have been mitigated through proper manual procedures.

Takeaway: Ethical obligations, including risk disclosure and suitability, remain mandatory for ChFC holders in Singapore even during technical disruptions or business continuity scenarios.

Correct: In a cross-purchase arrangement, the surviving shareholders personally purchase the shares of the deceased shareholder using the insurance proceeds. This results in a ‘step-up’ in the cost basis of their total shares, which is the price paid for the new shares. This is a distinct advantage over an entity-purchase (redemption) arrangement where the company buys back the shares and the surviving shareholders’ basis remains unchanged despite their increased percentage of ownership.

Incorrect: Option b is incorrect because premiums paid for personal life insurance in a cross-purchase setup are generally not tax-deductible for the individuals or the business. Option c is incorrect because cross-purchase arrangements actually increase in complexity as the number of shareholders grows, requiring n(n-1) policies (e.g., 3 shareholders require 6 policies). Option d is incorrect because life insurance proceeds received by individuals in Singapore are generally treated as capital receipts and are not subject to income tax.

Takeaway: A cross-purchase funding method allows surviving shareholders to increase their cost basis in the company, which is a key structural benefit compared to entity-redemption methods.

Correct: In Singapore, the Constitution of a private company (formerly the Memorandum and Articles of Association) constitutes a binding contract between the company and its members. If the Constitution contains restrictions on the transfer of shares, such as a requirement for Board approval or rights of first refusal for existing shareholders, these provisions are generally enforceable even against a beneficiary named in a Will. While the Will effectively transfers the ‘beneficial interest’ in the shares, the ‘legal title’ and the right to be registered in the Electronic Register of Members (ERM) maintained by ACRA are subject to the company’s internal governance rules.

Incorrect: The suggestion that a Will overrides the Constitution is incorrect because the Companies Act respects the contractual nature of a company’s internal regulations regarding share transfers. The claim that an executor has an absolute right to be registered as a member is false; while an executor has the right to deal with the shares (transmission), they do not automatically become a member with voting rights unless the Constitution permits it or the Board approves the registration. The idea that the Wills Act voids company restrictions is a misconception, as the Wills Act governs the formal validity of the Will itself, not the underlying property rights or corporate restrictions affecting the assets being bequeathed.

Takeaway: A bequest of shares in a Singapore private company is subject to the transfer restrictions and board discretion stipulated in the company’s Constitution.

Correct: In Singapore, Section 19A of the Income Tax Act allows for accelerated capital allowances. Specifically, Section 19A(2) permits a 100% write-off for computers and prescribed automation equipment in one year. For other plant and machinery, such as the conveyor system, Section 19A(1) allows the company to elect for a three-year accelerated write-off (33.33% per year) instead of the standard working life method under Section 19. This approach optimizes the company’s tax position and cash flow.

Incorrect: Accounting depreciation is a non-deductible expense for tax purposes in Singapore and must be added back in the tax computation; capital allowances are calculated based on statutory rates instead. The ‘setting’ test is used to distinguish between the apparatus used for the business (plant) and the place where the business is conducted (setting); if an item is deemed ‘setting’, it generally fails to qualify as plant and machinery. The low-value asset provision allows a 100% write-off for assets costing up to $5,000 each, but the total claim for all such assets is capped at $30,000 per Year of Assessment, not $5,000.

Takeaway: Singapore tax law provides accelerated capital allowance options under Section 19A, including immediate write-offs for computers and three-year write-offs for general plant and machinery to encourage business investment.

Correct: In Singapore, the Code of Ethics and the MAS Fair Dealing Guidelines require financial advisers to place the interests of their clients as their first priority. When a conflict arises between a firm’s commercial interests (such as sales targets or commissions) and the client’s specific needs (such as a buy-sell agreement structure), the adviser must provide objective advice and disclose the conflict to ensure the client can make an informed decision. This aligns with the principle of integrity and the duty to act in the best interest of the client.

Incorrect: Recommending a hybrid approach primarily to satisfy sales targets compromises the duty of care and objectivity. Providing no recommendation fails the professional duty to provide advice that is in the best interest of the client as required under the FAA. Adhering only to internal guidelines or the bare legal minimum ignores the higher professional standards of the Code of Ethics, which demand prioritizing the client’s welfare over firm incentives.

Takeaway: The core of Singapore’s financial ethics is the ‘Client First’ principle, necessitating the prioritization of client needs over personal or institutional financial gain.

Correct: Under the PDPA’s Protection Obligation, organizations in Singapore must make reasonable security arrangements to protect personal data in their possession or under their control to prevent unauthorized access, collection, use, or disclosure. Implementing role-based access controls is a fundamental security measure to ensure that sensitive data, such as financial assessments and medical records, is only accessible to employees who require it for their specific job functions. A DPIA is a recommended practice by the Personal Data Protection Commission (PDPC) to systematically identify and mitigate data protection risks.

Incorrect: Obtaining retrospective consent does not exempt an organization from the Protection Obligation; even with consent, the firm must still secure the data. Purging records after 24 months may lead to a violation of other Singapore regulations, such as the Financial Advisers Act (FAA), which typically requires records to be kept for at least five or six years. Transferring data to an overseas cloud provider does not absolve the Singapore organization of its liability; under the Transfer Limitation Obligation, the firm must ensure the overseas recipient provides a standard of protection comparable to the PDPA.

Takeaway: The PDPA Protection Obligation requires Singapore businesses to implement reasonable security measures, such as restricted access controls, to prevent unauthorized internal and external access to personal data.

Correct: Under the Singapore Workplace Safety and Health Act (WSHA), every employer has the duty to take reasonably practicable measures to ensure the safety and health of employees. This includes conducting risk assessments to identify hazards (including ergonomic and psychosocial risks) and implementing control measures. The WSHA applies to all workplaces in Singapore, including office-based fund administrators, and does not exempt low-risk environments from the requirement to manage risks.

Incorrect: The claim that risk assessments are only mandatory for high-risk industries is incorrect because the WSHA covers all workplaces in Singapore. The suggestion that employers are only liable for physical injuries is false, as the definition of health under the WSHA includes both physical and mental well-being. The idea that senior management is absolved of liability by appointing a coordinator is incorrect; under Section 48 of the WSHA, directors and officers can be held personally liable if an offense is committed with their neglect, consent, or connivance.

Takeaway: The Workplace Safety and Health Act (WSHA) requires all Singapore employers, including those in low-risk office environments, to conduct risk assessments and ensure the safety and health of their employees.

Correct: In Singapore, the corporate tax rate is a flat 17%. The Partial Tax Exemption (PTE) scheme is available to all companies (including companies limited by guarantee) unless they are already claiming the Tax Exemption Scheme for New Start-Ups. Under the PTE, 75% of the first $10,000 of normal chargeable income is exempt, and 50% of the next $190,000 is exempt. This results in a maximum exemption of $102,500 per Year of Assessment.

Incorrect: The assertion that the corporate tax rate is progressive up to 22% is incorrect, as Singapore maintains a flat 17% corporate rate regardless of company size. The claim that the PTE allows for 100% exemption on the first $100,000 is a confusion with the Tax Exemption Scheme for New Start-Ups (which itself only offers 75% on the first $100,000, not 100%). The suggestion that the tax rate is 15% or 20% is factually incorrect under current Inland Revenue Authority of Singapore (IRAS) regulations. Furthermore, the single-tier system refers to the fact that dividends are not taxed in the hands of shareholders once the company has paid tax on its profits, rather than how the PTE is applied.

Takeaway: Singapore’s corporate tax system features a flat 17% rate with a partial tax exemption scheme that reduces the effective tax rate on the first $200,000 of chargeable income for eligible companies.

Correct: In the Singapore financial landscape, banks and financial institutions regulated by the Monetary Authority of Singapore (MAS) utilize a holistic credit assessment framework. When a debt-to-equity ratio is high, the best next step is to conduct a comparative analysis. This involves looking at the debt service coverage ratio (DSCR) and industry benchmarks to determine if the leverage is a result of strategic growth or financial instability. This helps the advisor understand how a lender will perceive the risk and the subsequent impact on the business’s valuation for collateral or loan-to-value purposes.

Incorrect: Reclassifying loans without proper legal standing or intent is a breach of financial reporting integrity and could be seen as misleading a financial institution. While future cash flow is important, Singapore banks do not ignore leverage ratios; they are a fundamental part of the risk-rating process. Liquidating core assets is an extreme measure that could impair the business’s ability to generate income and is not a standard first response to a high leverage ratio, nor is there an ‘automatic’ rejection based solely on a single ratio without context.

Takeaway: Effective business planning for financing requires a comparative analysis of leverage ratios against industry norms and debt-servicing capacity to accurately gauge a firm’s creditworthiness in the Singapore market.

Correct: In Singapore, a trustee is bound by strict fiduciary duties under the Trustees Act and common law to act in the best interests of the beneficiaries. When a business partner serves as a trustee for insurance policies meant to fund a buyout of their own shares or those of their partners, a significant conflict of interest arises. This dual role can lead to disputes over share valuation or the timing of payouts, potentially jeopardizing the impartial execution of the buy-sell agreement during a critical succession event.

Incorrect: The suggestion that MAS would reclassify a private succession trust as a Collective Investment Scheme is incorrect as these trusts do not meet the definition of a CIS under the Securities and Futures Act. There is no specific provision in the SFA that mandates a licensed trust company based solely on a 100,000 Singapore Dollar premium threshold for private business arrangements. The Singapore Exchange (SGX) regulates listed companies, and its rules regarding public filings do not typically apply to the private trust deeds of a private limited company’s directors.

Takeaway: To ensure the integrity of a succession plan in Singapore, business owners should address potential conflicts of interest by considering the appointment of an independent or professional trustee to manage insurance-funded buy-sell agreements.

Correct: In the context of Singapore’s professional landscape, a double-trigger acceleration clause is considered a best-practice mechanism for executive retention during mergers. It protects the professional by ensuring they receive their benefits if their role is eliminated by the new entity, while also protecting the business owner by preventing a ‘windfall’ exit where the employee leaves voluntarily immediately after the merger simply because their benefits fully vested.

Incorrect: Immediate full vesting upon a merger announcement often leads to ‘walk-away’ risk, where key talent leaves at the most critical time because they no longer have a financial incentive to stay. Suspending vesting progress is likely to be viewed as a breach of the original employment agreement and could lead to constructive dismissal claims or a mass exodus of talent. Converting the plan to a discretionary cash bonus removes the long-term security and potential tax-deferred growth associated with insurance-linked plans, which were the primary reasons for choosing such a structure initially.

Takeaway: A double-trigger provision in insurance-linked retention plans effectively aligns executive and shareholder interests during corporate transitions by requiring both a change in control and a loss of employment for accelerated vesting.

Correct: Under Singapore’s Insolvency, Restructuring and Dissolution Act (IRDA), transactions at an undervalue can be set aside by a court if they occurred within specific look-back periods (generally 3 years for undervalue transactions) prior to the commencement of bankruptcy. For an asset protection strategy to be robust, the transfer must be made while the individual is solvent and not in anticipation of immediate litigation, ensuring the transfer is not deemed a voidable preference or a transaction intended to defraud creditors.

Incorrect: Transferring assets after receiving a demand letter is highly likely to be classified as a voidable preference or a transaction at an undervalue intended to defraud creditors, which a trustee in bankruptcy can easily reverse. Revocable trusts do not provide effective asset protection in Singapore because the settlor retains control and a beneficial interest, meaning creditors can often reach those assets. Commingling personal and business funds is a poor control as it may lead to ‘piercing the corporate veil’ and does not protect the owner from personal liabilities or guarantees already signed.

Takeaway: Effective asset protection in Singapore must be implemented proactively while solvent to avoid the clawback provisions of the Insolvency, Restructuring and Dissolution Act.

Correct: In the context of Singapore’s insurance market and risk management practices, the Indemnity Period in a Business Interruption policy is the duration during which the insurer will compensate the business for lost income and increased costs. A common pitfall is choosing a period that only covers the time to rebuild or repair physical assets. For a wealth manager, the ‘tail’ of the loss—the time it takes to regain client trust, restore assets under management, and return to pre-loss turnover levels—often extends far beyond the physical repair of an office. Therefore, the period must reflect the time needed for full financial recovery.

Incorrect: Limiting the indemnity period to a specific technical Recovery Time Objective (RTO) like four hours is a misunderstanding of insurance; RTO is a target for system availability, whereas BI insurance covers financial loss which persists much longer. Setting the period to end exactly when a recovery site is operational ignores the ongoing loss of revenue and market share that occurs while the business is stabilizing. A fixed-sum payout triggered by regulatory notification is not a standard feature of Business Interruption insurance, which is an indemnity-based product requiring proof of actual financial loss resulting from a covered peril.

Takeaway: The indemnity period in Business Interruption insurance must account for the total time required for a business to return to its pre-disaster financial position, not just the duration of physical repairs.

Correct: In Singapore, Chartered Accountants performing valuations are guided by the International Valuation Standards (IVS) as adopted by the Institute of Valuers and Appraisers, Singapore (IVAS). These standards require the valuer to consider the Market, Income, and Cost approaches. The selection of the most appropriate method involves professional judgment, taking into account the nature of the business, the purpose of the valuation, and the reliability of available data, rather than following a rigid hierarchy or a single mandated method.

Incorrect: The suggestion that the Monetary Authority of Singapore (MAS) mandates the Cost Approach for all private entities is incorrect, as valuation methodology is governed by professional standards (IVAS/ISCA) rather than a specific MAS mandate for all SMEs. Exclusively applying the Market Approach is inappropriate because it may not be the most relevant method if comparable data is scarce or if the Income Approach better reflects the company’s future earning potential. Relying strictly on historical audited statements without adjustments is incorrect in a valuation context, as ‘normalization’ adjustments are often necessary to reflect the true economic capacity of the business, which differs from purely historical accounting under SFRS.

Takeaway: A Singapore CA must evaluate the Market, Income, and Cost approaches and use professional judgment to select the most relevant valuation methodology for a specific business context.

Correct: In Singapore, the tax treatment of keyman insurance is governed by the ‘Anderson Rules’ (derived from case law and adopted by IRAS). For premiums to be tax-deductible, the policy must meet specific criteria: it must be a term policy (no cash value or capital element), the purpose must be to replace lost profits arising from the death or disability of the key person, and the company must be the sole beneficiary and owner of the policy. If these conditions are met, the premiums are deductible, and any subsequent payout is treated as taxable income.

Incorrect: Approach 2 and the related options are incorrect because policies with a savings or capital element, such as whole life or endowment policies, do not qualify for tax deduction under the Anderson Rules as they are viewed as capital in nature. Assigning a policy to an employee or their family changes the nature of the contract from business protection to an employee benefit, which disqualifies the premium deduction. There is no specific ‘five times salary’ rule that serves as the primary criteria for deductibility; the structural nature of the policy (term vs. permanent) and the profit-replacement purpose are the governing factors.

Takeaway: To qualify for tax deductibility in Singapore under the Anderson Rules, a keyman policy must be a term insurance plan with no cash value, intended solely to replace business profits, with the employer as the beneficiary.

Correct: Under the Work Injury Compensation Act (WICA) administered by the Ministry of Manpower (MOM), Singapore employers are strictly required to purchase insurance for two categories of employees: all employees doing manual work (regardless of salary) and all non-manual employees earning 2,600 dollars or less a month. While employers remain liable for WICA claims from non-manual employees earning more than 2,600 dollars, they are not legally mandated to buy insurance for them, though it is highly recommended.

Incorrect: The suggestion that coverage depends on residency or citizenship is incorrect because WICA applies to all employees under a contract of service regardless of nationality. The claim that insurance is only required for those earning above 2,600 dollars is the reverse of the actual law, which protects lower-wage non-manual workers. The idea that professional staff are exempt based on a company’s paid-up capital is not a provision under the Act; the mandatory insurance requirement is based on job nature and salary thresholds.

Takeaway: Singapore employers must maintain WICA insurance for all manual workers and any non-manual workers earning 2,600 dollars or less per month.