Whether or not accounting is your cup of tea, as the Director of your company, the onus is on you to ensure that your books are properly maintained and that the financial statements are prepared according to the Singapore Financial Reporting Standards. Even though you may have someone doing the actual job for you, you want to know that things are done right when it comes to important matters like filing of Annual Returns and corporate income tax returns.
What Are The Singapore Financial Reporting Standards (SFRS)?
Every country has its own accounting standards and format for financial reporting. In Singapore, all Private Limited Companies, Subsidiary Companies and Singapore Branches of foreign companies must adopt the SFRS when preparing and presenting their financial statements, as stipulated by the Companies Act (Cap.50). The SFRS, on the other hand, is largely based on the International Financial Reporting Standards (IFRS).
Essentially, the SFRS are based on the following principles:
- Financial statements are prepared with the assumption that the company is a going concern. Going concern means the company will continue to operate in the foreseeable future without any intention to cease or liquidate.
- The accounting system of SFRS is accrual-based. This means that it accounts for transactions as and when they occurred rather than as and when they are paid.
- Financial statements should faithfully represent the financial position, financial performance and cash flows of the entity.
- Financial statements should reflect the economic substance of transactions, events and conditions, and not merely the legal form.
- Financial statements should be neutral.
- Financial statements should be based on the accounting policies of prudence.
- Financial statements should be complete in all material respects.
Why Are Financial Statements Important?
Financial statements are important as they reflect the company’s performance and financial status. It is the primary source of information about the company’s financial position for investors (existing and potential), creditors and other stakeholders.
What Do Financial Statements Comprise?
A complete set of financial statements includes:
- Statement of Financial Position (Balance Sheet)
- Statement of Comprehensive Income (Income Statement or Profit & Loss Statement)
- Statement of Change in Equity
- Statement of Cash Flows
- A list of accounting policies
- Notes to the Financial Statements
Does My Company Need To Comply With The SFRS?
The answer depends on the type of company you are running. As the Singapore economy comprises mainly small and medium enterprises (SMEs), the Accounting Standards Council (ASC) of Singapore has introduced the issuance of the SFRS for Small Entities in 2010.
What Is SFRS For Small Entities?
SFRS for Small Entities is a simplified version of the full SFRS designed for smaller companies in Singapore. The aim of SFRS for Small Entities is to help simplify the accounting requirements for these companies for easy compliance. Some of the benefits of using the SFRS for Small Entities include:
- A simplified process of preparing the company’s financial statements;
- Fewer disclosure requirements; and
- Able to omit disclosures that are not relevant to the business owners.
What Constitutes Small Entities?
A Singapore-incorporated company (including a Subsidiary Company) is a Small Entity if it is not publicly accountable and publishes general-purpose financial statements for external users, and meets any two of the following criteria for at least two previous consecutive years:
- Its total annual revenue does not exceed SGD10 million;
- Its total gross assets do not exceed SGD10 million; or
- It does not employ more than 50 employees.
If the company outgrows the criteria for two consecutive reporting periods, it will need to comply with the full SFRS.
What Are The Differences Between SFRS And SFRS For Small Entities?
The key differences lie in the followings:
1. Financial Statements
SFRS: Full financial statements
SFRS for Small Entities: Statement of Income and Retained Earnings to replace Statements of Comprehensive Income and Equity Changes
2. Investment in Associates & Joint Ventures
SFRS – Equity method
SFRS for Small Entities – Equity method, cost model or fair value model
3. Investment Properties
SFRS – Fair value and fair value measurement. Cost model is also available.
SFRS for Small Entities – Fair value is not needed if cost model is adopted. If fair value measurement is not available, cost model is an available option under property, plant and equipment.
4. Non-financial Assets & Goodwill
SFRS – Cost model or revaluation model
SFRS for Small Entities – Cost model
5. Disclosure on Financial Risk Management
SFRS – Required
SFRS for Small Entities – Not required
5. Property, Plant & Equipment
SFRS – Required
SFRS for Small Entities – Opening and closing balance of the prior year is not required.
Final Note on SFRS for Small Entities: Companies eligible to adopt SFRS for Small Entities can opt for either the full or simplified one. While it is tempting to go for the SFRS for Small Entities, a word of caution here: do you anticipate your company’s revenue to grow beyond SGD10 million in the foreseeable future? Are you aspiring to list your company publicly in the next few years? Switching between accounting standards means additional costs, such as upgrading or even changing accounting systems and training costs. So look at not just your current needs but your future growth plan before deciding.
The Accounting Standards Council Singapore (ASC)
Before we end this article, let us introduce to you the ASC, the Council that formulates and promulgates accounting standards as well as develops, reviews, amends and approves accounting standards for entities. The list of reporting standards published on their website include:
|FRS 1||Presentation of Financial Statements|
|FRS 7||Statement of Cash Flows|
|FRS 8||Accounting Policies, Changes in Accounting Estimates and Errors|
|FRS 10||Events After the Reporting Period|
|FRS 11||Construction Contracts|
|FRS 12||Income Taxes|
|FRS 16||Property, Plant and Equipment|
|FRS 19||Employee Benefits|
|FRS 20||Accounting for Government Grants and Disclosure of Government Assistance|
|FRS 21||The Effects of Changes in Foreign Exchange Rates|
|FRS 23||Borrowing Costs|
|FRS 24||Related Party Disclosures|
|FRS 26||Accounting and Reporting by Retirement Benefit Plans|
|FRS 27||Separate Financial Statements|
|FRS 28||Investments in Associates and Joint Ventures|
|FRS 29||Financial Reporting in Hyperinflationary Economies|
|FRS 32||Financial Instruments: Presentation|
|FRS 33||Earnings per Share|
|FRS 34||Interim Financial Reporting|
|FRS 36||Impairment of Assets|
|FRS 37||Provisions, Contingent Liabilities and Contingent Assets|
|FRS 38||Intangible Assets|
|FRS 39||Financial Instruments: Recognition and Measurement|
|FRS 40||Investment Property|
|FRS 101||First-time Adoption of Financial Reporting Standards|
|FRS 102||Share-Based Payment|
|FRS 103||Business Combinations|
|FRS 104||Insurance Contracts|
|FRS 105||Non-Current Assets held for sale and discontinued Operations|
|FRS 106||Exploration for and Evaluation of Mineral Resources|
|FRS 107||Financial Instruments: Disclosures|
|FRS 108||Operating Segments|
|FRS 110||Consolidated Financial Statements|
|FRS 111||Joint Arrangements|
|FRS 112||Disclosure of Interests in Other Entities|
|FRS 113||Fair Value Measurement|
For details, please visit the ASC website.