singapore financial reporting standards sfrs

For employers in Singapore, a major accounting concern when running a business is complying with the Singapore financial reporting standards (SFRS).

Financial reporting is used by business entities worldwide to report their financial performance. The structure of financial reporting differs from one nation to another.

Each country’s financial methods of reporting, including the Singapore financial reporting standards, follow specific guidelines according to the respective nation’s legal, political, economic, and cultural contexts. As a result, financial reporting lacks global comprehension and acceptance.

To ensure the efficient operation of the international capital markets in today’s increasingly globalized world, it is highly essential for financial information to be transparent, trustworthy and comparable internationally.

Due to the increase in the size, number, and scope of multinational corporations, cross-border securities purchases, foreign direct investments, sales, and the number of foreign securities on stock exchanges, the need for standards of financial reporting has become critical.

Accounting standards represent a set of guiding procedures and principles for handling financial transactions.

The main objective of the accounting standards is to effectively define the recognition rules, presentation, measurement, and disclosure of events and transactions that impact general-purpose financial statements.

These statements comprise of position, performance, and cash flow information that assists users in making financial decisions.

The general public, agencies, governments, lenders, employees, suppliers, and other trade creditors happen to be among the groups who utilize these financial statements. They make use of financial information to meet a variety of informational requirements.

The International Accounting Standards Board (IASB), an accounting standard-setting organization of the IFRS Foundation, has proven to be the most crucial factor behind the development of accounting standards globally.

The IASB’s overarching goal encourages the adoption of international accounting standards while harmonizing accounting practices. Read on to find out the essential details about the 3 types of Singapore financial reporting standards all employers must know about.

What Are The 3 Types of Singapore Financial Reporting Standards (SFRS)?

The Singapore Financial Reporting Standards (SFRS), based on the International Financial Reporting Standards (IFRS), are the accounting guidelines used in Singapore.

All businesses having fiscal years starting on or after 1st Jan 2003 must adhere to the Singapore Financial Reporting Standards regulations.

A tenet of Singapore’s accounting standards is the accrual-based accounting. The accrual-based accounting is utilized in the preparation of different financial accounts. On this basis, transactions as well as other events are well recorded in accounting records.

Their consequences are reported in the financial statements for the period they pertain to rather than when cash or its equivalent is received or paid.

In addition to previous transactions involving the payment and receipt of money, users of financial statements prepared on an accrual basis are informed of future cash payment obligations and resources that reflect future cash receipts.

Financial reporting practices are established and governed in Singapore by the Accounting Standards Council (ASC) consisting of the following:

  1. Financial Reporting Standards (FRS)
  2. Singapore Financial Reporting Standards
  3. International Singapore Financial Reporting Standard, Small Entities (SFRS)

Financial Reporting Standards (FRS): What Does It Entail?

Each nation developed and accepted a distinctive method of financial accounting back then, resulting from the distinctions in their cultural, political, and economic environments.

Changing the reporting methods to suit their circumstances is a realistic strategy to adapt and grow against a turbulent and immature market.

The reporting format has no international uniformity or comparability, which is a key problem in this strategy. It turns out that continuing this lack is equivalent to moving backward, given the speed at which the global economy is becoming more globalized.

In 1973, the IASB – International Accounting Standards Board, introduced the International Financial Reporting Standard (IFRS), the first accounting standard.

This organization is the main facilitator of international commerce and investments to increase openness, accountability, and efficiency by setting a common standard in financial reporting between and among countries.

Singapore Financial Reporting Standards: What Does It Entail?

The Singapore Financial Reporting Standards (SFRS) has been formed and, ever since, has been acknowledged as the official accounting standard of Singapore. The fundamental IFRS concepts support it.

The Singapore Financial Reporting Standards not only inherits the universality and caution of its IFRS foundation but also offers a high degree of flexibility appropriate for Singapore’s particular ecology.

ACRA, the organization overseeing company legislation in Singapore, also makes it clear that applying the Singapore Financial Reporting Standards must be followed by businesses starting their annual financial periods on or after January 1, 2003.

The regulatory authority in charge of developing and enforcing the Singapore Financial Reporting Standards is the Accounting Standard Council (ASC).

Singapore Financial Reporting Standards, Small Entities (SFRS for SE): What Does It Entail?

Undoubtedly, the standards set forth by the Singapore Financial Reporting Standards are of the highest integrity and soundness. They can, however, appear to be excessive.

A large portion of the island of Singapore is covered by SMEs, which also provide most of the country’s jobs. Due to their limited resources, these tiny enterprises would find it redundant and expensive to comply with the entire set of the Singapore Financial Reporting Standards.

As a result, to accommodate SMEs, the ASC launched a simpler version of the Singapore Financial Reporting Standards in 2010. Its official name is Singapore Financial Reporting Standards for Small Entities (henceforth SFRS for SE).

This simpler set of standards have helped majority of the SMEs greatly reduced the number of pointless and troublesome procedures, while leaving enough to guarantee the accuracy and integrity of the accounting standards.

Understanding the SFRS for SE Eligibility Requirements

If the following conditions are met, your company entity, whether locally established or a branch of a foreign company with offices in Singapore, may be qualified to switch to SFRS for SE:

  • It is a small organization. There is absolutely no public accountability for the organization.
  • It releases all-purpose financial statements for users outside the company.

Public accountability and small entity are two topics that require in-depth discussion. What does being accountable to the public mean? A corporate entity has public accountability, per SFRS for SE, if it fits one of the following categories:

  • It is a deposit-taking entity and holds assets in a fiduciary capacity for a wide range of outsiders as one of its main businesses, such as banks, insurance companies, securities brokers/dealers, mutual funds, investment banks, etc.
  • Its equity or debt instruments are traded in a public market or in the process of issuing for public trading.
  • It is a charity as defined in the Charities Act and Singapore Companies Act.

According to the Companies Act, a company is classified as a “small entity” or a “small business” if it meets 2 of the following 3 requirements:

  • As determined at the conclusion of the prior fiscal year, its total yearly income cannot be greater than S$10 million.
  • As defined by the end of the last fiscal year, its total assets cannot be greater than S$10 million.
  • At the end of the preceding fiscal year, it could not have more than 50 full-time employees.

It should be highlighted that your company must consistently meet the requirements for at least two years to be eligible for the SFRS for SE.

Should its scope grow beyond the size requirement, it would still need to follow the reduced SFRS for at least another two years before being allowed to return to the full Singapore Financial Reporting Standards. An organization’s application will be assessed using the consolidated basic if it has one or more subsidiaries.

Additionally, a newly incorporated business has two years to decide whether to elect the Singapore Financial Reporting Standards for Small Entities if it satisfies two requirements: disclosing financial statements for external users and being accountable to the public.

A subsidiary of a foreign firm falls under the category of eligible entities, as we already indicated; therefore, as long as it satisfies all the requirements, you may apply for SFRS for SE.

Which Singapore Financial Reporting Standards To Choose For Your Business?

The pros and cons of SFRS for SE for your company should be discussed and thoroughly considered. It is simple to take it at its value and blithely convert it to SFRS for SE to reduce expenses and make the best use of resources.

However, this plan may impact your reporting procedures and system as a whole, for better or worse. The following are some important factors to think about before migrating to Singapore Financial Reporting Standards:

1. Costs of retraining

The expense of retraining current employees and, unavoidably, the cost of hiring and onboarding new employees would result from switching to the new standards.

2. Costs of system reform

The price of updating the accounting system and software should be carefully considered.
Will your business ever grow to a scale that exceeds the size threshold? Or much better: When will we pass the threshold?

3. The effect on the participants

You need to win people over from within. Check whether these important persons are all on the same page by requesting clearance from the shareholders before moving on to the financial lenders and institutions.

4. Having an impact on the group company

If your company is a subsidiary, changing to full SFRS would be required to prepare consolidated financial statements, which would disrupt other subsidiaries and the controlling company.

According to some authorities, SFRS for SE is best suited for start-ups and small to medium-sized businesses who do not release their financial statements to the public and find the full extent of the Singapore Financial Reporting Standards to be a financial burden.

However, if your business is succeeding by following the entire set of the Singapore Financial Reporting Standards, you should leave things as they are.

How We Can Help – Our Accounting Services

At Premia TNC, we offer flexible accounting solutions to meet your business needs and deliver quality service with no hidden costs while compliance to the relevant financial reporting standards.

Our team of highly skilled professionals will help to minimize your burdens, so you can focus on what matters most – your business goals.

Are you seeking outsourced accounting services for your business in Singapore? Contact our consultants for a FREE consultation on our accounting and bookkeeping services today!

Singapore Financial Reporting Standards SFRS – Frequently Asked Questions

1. What is financial reporting?

Financial reporting techniques are utilized globally to comprehend a company, an entity, or a person’s financial actions and situation.

This is carried out by the nation’s strict laws (the Singapore Financial Reporting Standards (SFRS) by the Accounting Standards Council is the supreme legislation in Singapore), which specify how financial and tax information should be stored and presented.

2. What are the accounting standards for financial reporting?

Financial reporting in accounting typically refers to records utilized or required to demonstrate the financial standing of a business to third parties, such as investors, creditors, or banks.

These usually include documents discussing stocks and other securities or materials, including income statements, balance sheets, quarterly earnings, and yearly reports to stockholders.

3. What is a company's accounting report in Singapore?

A company’s financial reports comprise of its accounting reports. These can be pre-made regulatory reports mandated by law or unique documents designed to show data for a particular purpose, like the profitability of a certain product line.

In Singapore, most firms must create accounting reports such as balance sheets, profit and loss financial statements, and cash flow statements.

4. What are the main categories of financial reporting in companies in Singapore?

There are four primary categories of documents in financial reports:

  1. The balance sheet reveals the assets and liabilities of a business.
  2. An income statement reveals how much money a business makes during a certain period.
  3. Cash inflows and outflows are displayed in cash flow statements.
  4. The interests of the company’s shareholders are disclosed in the statement of shareholders’ equity.