Singapore Financial Reporting Standards: What You Need to KnowDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
Every business requires accurate financial reports that meet set standards to help with the smooth management and organisation of the company. Financial reports, like balance sheets and income statements, make it easier for a company to evaluate its performance, cash flow, and financial position. They also enable stakeholders like suppliers, lenders, and investors to make critical investment choices with the company.
A good financial statement must be transparent, reliable, and meet the Financial Reporting Standards (FRS). FRS helps during the preparation, auditing, and analysis of financial statements, and it determines the kind of information your company’s financial records can contain.
But then, despite having the International Financial Reporting Standards (IFRS), most countries have their own financial reporting standards to which a business operating there must adhere.
So, do you know what the Singapore financial report standards entail? This guide elaborates on all the details regarding the Singapore financial reporting standards you need to know.
How It Began
Initially, every country had its own set of financial reporting standards that depended on its legal, economic, cultural, and political beliefs. However, things changed over time, and the world became a united global community because of technological advancements and international trade.
Various countries have adopted global accounting standards that are uniform and comparable. The International Accounting Standards Committee was responsible for this and developed the International Accounting Standards, the first global accounting principles.
However, as time went by and things changed, there was a need to review the principles, which happened in 2001. The International Accounting Standards Board replaced the International Accounting Standards Committee and developed IFRS.
The globally accepted accounting standards are now effective in most countries except for some, like China and the USA. But most countries, including Singapore, base their accounting principles on IFRS.
Why Is It Important for You?
As a business owner, following the financial reporting standards is important, as they are beneficial in many ways. The main benefits of the financial reporting standards for a business include:
Saves Time and Costs
Your business won’t have to spend time researching and analysing various accounting standards to facilitate international trade. This saves money and time, as most countries use IFRS for their financial statements. Furthermore, the number of errors that can arise due to a lack of understanding decreases.
Promote Accountability and Transparency
Since IFRS is uniform, it promotes accountability and transparency in financial records. A transparent and accountable business has a high chance of working with reputable stakeholders, which can make it grow. Accountability also prevents your firm from being on the wrong side of the law, which can attract penalties and charges.
The IFRS also enhances accounting language, standards, and practice uniformity. When all companies, regardless of their size, use the same standards to produce their financial statements, it becomes easier for anyone to understand the financial statement.
It also gives auditors and other stakeholders manageable time to note the differences and similarities in how it is done and avoid errors. Uniformity also reduces the complexity of the financial reports, which can give business owners a hard time managing the organisation.
Additionally, the set standards help businesses and their stakeholders be more effective. Remember, if your financial statements are transparent and reliable, your stakeholders will believe in you more.
Potential stakeholders will also want to partner with you as they see your capabilities. This will improve your efficiency at work and encourage you to work harder. You will also be able to identify risks and opportunities as the financial regulations hint at what is right and what is not.
Key Principles of Singapore FRS
Singapore Financial Reporting Standards (SFRS) contain 41 financial principles that the country’s accounting standards board makes. They cover major financial records and transactions like leases, income tax, employee benefits, and inventories. Some are about how to do financial statement presentations and prepare different financial records, while others are industry specific.
According to the Singapore Financial Reporting Standards formulated in 2003, all companies in Singapore and those with foreign branches must have financial statements adhering to the SFRS.
However, in 2017, after incorporating IFRS, the country expects all companies in the Singapore Exchange (SGX) list to prepare SFRS(I) compliant financial statements.
The SFRS is in line with the following key principles:
The Singapore Financial Reporting Standards dictate that the accounting language and practices remain standard in all financial statements. This is regardless of the size or type of the organisation to make it easy to compare the records. SFRS has quality guidance and interpretative materials that make the financial records comparable.
If the financial statement is comparable for all firms, anyone reading it can understand the data better and note the differences and similarities it contains. Comparability helps business owners and stakeholders make better decisions.
The SFRS applies to all Singapore companies, sole proprietorships, and partnerships. Public entities might also be accountable for additional financial reporting requirements.
Singapore's financial statements must also be accurate, neutral, and free of human errors. Businesses operating in Singapore must provide accurate reconciliations and closing balances for specific items like subsidiary investments, plant, equipment, and financial instruments.
Be careful while compiling and recording huge amounts of data to reduce errors. Also, the accounting estimates and assumptions used in the financial records must be reasonable and accurate.
Accrual Accounting System
Singapore FRS has an accrual system of accounting that requires companies to record transactions when they occur and not when they're paid. The accrual accounting system works differently from cash accounting, where cash paid or received gets priority. Accrual accounting reduces the complexity of financial statements as it gives an easy-to-understand cash flow of a company, which results in enhanced operations.
Another notable principle of the SFRS that aligns with the disclosure requirements is verification. It makes data verification easier and faster. It ensures the financial records have disclosure details of the accounting policies, judgments, estimates, and key assumptions. It enables readers to verify an organisation's financial statements without any challenges.
Relevant financial statements must be both confirmative and predictive. So anyone using the data can predict the results or confirm a past occurrence. Through this, anyone can easily predict the future and past predicaments of the business situation in the country.
What's SFRS for Small Entity
After the introduction of SFRS in Singapore, a country with many small entities, it became difficult for businesses to comply with the policies. Most of the small businesses complained of a lack of resources to meet the requirements. This forced the accounting standards council to introduce SFRS for SMEs in 2010.
The council named the policy SFRS for SE, which became operational in 2011. According to the law, a small entity in Singapore must have an annual revenue of less than SGD 10 million. Additionally, its total assets must be less than SGD 10 million and it must have at most 50 employees.
The Singapore Financial Reporting Standards for small entities help upcoming businesses remain transparent but with quality and comparable financial statements. The policy is also easier to maintain and implement, unlike SFRS. Small entity businesses don't have to meet the many disclosure requirements in the SFRS.
Eligibility to SFRS for SE
To be eligible for SFRS for small entities in Singapore, your business fulfill certain criterias:
- Total annual revenue of not more than S$10million
- Total gross assets of not more than S$10million
- Total number of employees of not more than 50
Note that the small entity must comply with the above requirements for 2 past years and the coming years. But if it's a new entity, it must use the requirements in its first and second accounting statements.
What Makes a Small Entity Publicly Accountable in Singapore
For your small entity to be considered publicly accountable, it must meet the following criteria:
- Be a public company according to the Singapore Companies Act.
- Trades or planning to trade debt or equity instruments like loans or stocks in the public market.
- It is a charity organisation according to the Charities Act.
- Holds deposits or assets for various foreigners in the baking or insurance companies.
Tips for Preparing Financial Reports
Your business should have the best financial reports that meet the Singapore Financial Reporting Standards. You can achieve this using the following tips:
- Work with accounting and bookkeeping experts to have updated financial records and have time to focus on other important roles in your business.
- Cut operational costs by introducing the right tools. You can use collaborative tools to help manage, store, and share your financial reports and remain organised.
- Plan to avoid last-minute rush that can make you have errors. Consider delegating work and setting daily goals to prevent getting overwhelmed while preparing financial reports.
Sprout With Us
As a small business with limited accounting and bookkeeping resources, it can be challenging to meet your goals and grow. Such a situation can make it difficult to comply with the Singapore Financial Reporting Standards, which can derail you.
Failure to comply with IFRS means your financial statements have a problem, which can affect the relationship with your stakeholders. No one wants to invest their time and money in a business with financial reports that are not transparent or reliable.
To avoid this, consider working with us to help you manage your financial statements. Contact us and make the right business decisions using organised financial records.