Financial reporting standards are an essential part of doing business in any market. With Singapore being a global financial hub and the world’s most open economy, multinational companies must know the accounting standards they must adhere to. This article will explain what Singapore Financial Reporting Standards are and how they can help global companies run their businesses in Singapore.
Background About Accounting Standards
Formats for financial reporting have historically varied from one country to another. This resulted in the lack of international comprehensibility and acceptance of financial reports. Fortunately, globalization brought about the necessity for equivalent standards of financial reporting across the globe. This need became even more clear with the rise of many different businesses worldwide.
Accounting standards are a common body of principles and procedures that serve as the foundation for financial accounting rules and practices. These guidelines and standards regulate how companies should handle different financial transactions used by significant actors, including investors, lenders, and governments.
The International Financial Reporting Standards (IFRS) serve as the guideline for international companies reporting financial statements. It was published in 2001 by the International Accounting Standards Board (IASB), which creates and interprets accounting rules in preparing financial statements for international communities.
What are the Singapore Financial Reporting Standards?
The Singapore Financial Reporting Standards (SFRS) are the accounting standards followed in Singapore. These standards are identical to the IFRS, save for a few differences.
SFRS adheres to accrual-based accounting, which acknowledges transaction effects as they are incurred rather than when they are paid. Accrual-based accounting offers a more accurate estimation of a company’s cash flow, insights into the effectiveness of its operations, and knowledge of how the market affects the entity’s success.
Singapore companies must compile and present financial statements that adhere to the SFRS if their fiscal year begins on or after the 1st of January 2003. The SFRS currently contains 41 different standards developed by the Singapore Accounting Standards Council (ASC).
Singapore Financial Standards for Small Entities
The Singapore Financial Reporting Standards for Small Entities (SFRS for SE) serves as a simplified, alternative set of standards for qualifying companies in Singapore. It aims to help SMEs who had difficulties complying with the requirements of the full SFRS, especially those with limited resources. The Singapore Accounting Standards Council (ASC) issued the SFRS for SE in 2010.
Your company may be qualified to apply the SFRS for SE if it is not publicly accountable and produces financial statements released to a broad group of users. Additionally, your company must also be considered a “small entity.” To fir this definition, your company must meet at least two of the three requirements:
- The company’s total revenue is less than S$10 million per year
- The company’s total gross assets must be less than S$10 million
- There are no more than 50 employees total in the company
The SFRS for SE is consistent with IFRS for Small Entities which was developed in 2009. The SFRS for SE takes effect for financial reporting annual periods that begin on or after the 1st of January, 2011.
Deciding Between “SFRS” and “SFRS for SE” For Your Business
Even if your multinational company is eligible for the alternative set of Singapore Financial Standards, there are a few things you should think about before implementing the SFRS for SE. For instance, you need to assess the nature of your business and the growth objectives for your organization. Here are a few things to consider when deciding between SFRS and SFRS for SE.
- The cost of transition – These costs include expenses for training, accounting systems, and software
- Company’s plans – These plans can include those of IPO. Companies must also consider the likelihood of exceeding the size threshold.
- Consideration of the company group – When choosing between SFRS and SFRS for SE, a business must also consider the impact on holding companies
- Considerations for financing – Consider the financial institutions and lenders seeking complete SFRS statements.
If your business is close to exceeding the size restriction, following the full SFRS is preferable to following SFRS for SE. On the other hand, companies that are accustomed to using the full SFRS and those that are members of a group or held by parent companies that use the full SFRS must forgo using the SFRS for SE.
Overall, SFRS for SE is ideal for small start-up companies, companies that have trouble following the full SFRS, and companies whose statements are not used by external parties.
How Can We Help?
Managing the accounting for your business is a complex procedure, even more so when you’re new to it. Analyzing all the different accounting standards, determining whether the Singapore Financial Reporting Standards for Small Entities (SFRS for SE) applies to your business, deciding which accounting methods to adopt, and implementing them can be time-consuming.
With Premia TNC managing your accounting and financial reporting, you can focus on running your core business activities. We make the accounting process less complex with customized solutions that take the hassle out of your accounting and bookkeeping tasks. Whether you’re just starting or looking for professional help to manage your financial reporting requirements, Premia TNC offers customized accounting services that will fit your needs.
What is SFRS?
The Singapore Financial Reporting Standards (SFRS) is a set of accounting standards followed by Singapore companies. These standards are comparable to the International Financial Reporting Standards (IFRS). The creation and adoption of accounting standards in Singapore are under the purview of the Accounting Standards Council (ASC).
How many standards does SFRS have?
The Singapore Financial Reporting Standards (SFRS) has 41 standards developed by the ASC. Each standard deals with a specific topic. You can check the complete set of SFRS on ASC's website.
What basis of accounting does SFRS use?
The Singapore Financial Reporting Standards (SFRS) follow the accrual principle of accounting, which recognizes the effects of transactions as and when incurred rather than as and when paid. This accounting method can forecast a company's cash flow, gain awareness of how effectively it operates, and determine how the market affects its performance.
