Overview of the Singapore Accounting Standards
This article offers a comprehensive overview of the accounting landscape in Singapore, focusing on three key accounting frameworks: International Financial Reporting Standards (IFRS), Singapore Financial Reporting Standards (SFRS), and Singapore Financial Reporting Standards for Small Entities (SFRS for SE). The discussion highlights their significance, applicability, and the benefits they bring to financial reporting practices in Singapore.
Overview of the Singapore Accounting Standards
Having accounting standards that are agreed upon across the globe is essential to create compatible principles that companies must follow to fulfill their financial reporting needs. For this reason, there are two main types of accounting standards that exist in the world today, IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles). Different countries derive their own conventions from these so that they are shaped to fit their individual needs, which is why Singapore’s is Singapore Financial Reporting Standards (SFRS), which is based on IFRS.
The International Financial Reporting Standards (IFRS)
Before the creation of today’s modern IFRS, the International Accounting Standards Committee (IASC) established the International Accounting Standards Board (IASB), which consists of the professionals who have the required experience to set accounting standards that incorporate all the necessary aspects.
As a result of the constantly growing global economy and the need to have accounting standards aligned with the majority of countries’ needs, on January 1 of 2001 the IASB developed the International Financial Reporting Standards (IFRS) with the goal of creating and maintaining worldwide practices for financial reporting in companies.
According to the IFRS’s official website, it is estimated that 168 countries follow the official standards put in place by the IFRS. However, countries like the United States have chosen not to adopt IFRS as the primary way of setting these financial principles and have instead resorted to GAAP. Although Singapore doesn’t enforce the exact standards of the IFRS, it enforces a further modified version of it called the SFRS.
Singapore Financial Reporting Standards (SFRS)
The Singapore Financial Reporting Standards (SFRS) are a collection of accounting guidelines that are based on the IFRS but were created as way reinforcing Singapore’s global power status and also implementing unique standards of the country such as that of accrual accounting – which refers to the process of financial transactions being reported at the time they are incurred rather than at the time expenses are paid or revenue is collected. All Singapore companies with a financial period beginning on or after January 1st of 2003 are required to comply with SFRS.
Because SFRS is largely aligned with the International Financial Reporting Standards (IFRS), it is worth noting the main principles of SFRS, which are as follows:
- Fair Presentation: Financial statements prepared under SFRS should present a true and fair view of the company’s financial position, financial performance, and cash flows.
- Going Concern: The assumption is made that the entity will continue its operations in the foreseeable future. Financial statements are prepared on a going concern basis, unless there is evidence to the contrary.
- Accrual Basis of Accounting: Transactions and events are recognized in the financial statements when they occur, rather than when the cash is received or paid. Accrual accounting matches revenues and expenses to the period in which they are incurred, providing a more accurate representation of the financial performance and position.
- Substance over Form: SFRS focuses on the economic substance of transactions rather than their legal form. The financial statements should reflect the underlying economic reality of transactions and events.
- Prudence: Prudence involves the exercise of caution when making judgments and estimates. It requires the consideration of uncertainties and the exercise of professional judgment to avoid overstating assets or income and understating liabilities or expenses.
- Materiality: Information is material if omitting, misstating, or obscuring it could influence the decisions of users of financial statements. Materiality is considered in both the presentation and disclosure of information.
- Consistency: The presentation and classification of items in the financial statements should be consistent from one period to another. If a change in presentation or classification is necessary, appropriate disclosures should be provided.
- Comparability: Financial statements should be prepared in a manner that enables users to compare the financial information of an entity over time and with other entities. Consistent accounting policies and informative disclosures facilitate comparability.
It is important to note that accounting standards may be subject to updates and changes. For the most up-to-date information on SFRS, you can refer to the Accounting Standards Council (ASC) of Singapore or consulting a qualified accounting professional.
There are currently 41 official standards present in the SFRS, each relating to a different requirement or principle of financial reporting for companies. Each title name is represented by the acronym FRS and a number. For example, FRS 12 contains everything about income taxes and FRS 33 everything about earnings per share. If you would like to learn more about each of these specific guidelines you can visit ACRA’s official Financial Reporting Standards.
SFRS for Small Entities (SFRS for SE)
With a continuously expanding world economy, there comes a growth in the complexity of financial reporting standards for all types of Singaporean companies. Thus, small and medium sized companies (SMEs) – which, in fact, make up 99% of all of Singapore’s companies – can often face challenges when fulfilling their legal compliance requirements. SFRS for SE applies for companies with accounting periods beginning on or after January 1st of 2017.
SFRS for Small Entities (SFRS for SE) provides a way out of these intricacies so that SMEs can find success in their accounting needs. It is comprised of a total of 35 standards, which means that it has 6 less than the regular SRFS since it excludes ones like FRS 33 Earnings per Share, FRS 107 Financial Instruments: Disclosures, and FRS 108 Operating Segments. Additionally, SFRS or SE is applicable to accounting periods on or after January 1st of 2011.
If you are wondering whether your SME is required to take on the conventions of SFRS for SE, be informed that it is not the case. It is a company’s choice to be considered part of this category.
Who Can Apply for SFRS for Small Entities (SFRS for SE)
For your company to be considered eligible for SFRS for SE, it must meet two of the three below criteria and be considered non-publicly accountable for the two years prior to the application.
- Maximum of $10 million in annual revenue
- Maximum of $10 million in gross assets
- Maximum of 50 employees
If you are located in Singapore, you can visit ACRA’s official documentation for SFRS for SE to learn about all the details.
What’s Better: SFRS or SFRS for SE?
If your company satisfies the SFRS for SE requirements, in most scenarios it’s beneficial to not instantly jump at the idea. Instead, consider the pros and cons of taking such a step for your company.
You must first access what the expected path for your company is. If your company currently qualifies for SFRS for SE, but it is on the threshold of not meeting the required criteria because it might gain exceeding revenue, assets, or employees, then remaining compliant to the SFRS standards is most likely the best option.
Another factor to consider is if you have enough resources to stay compliant with all the standards of regular SFRS. Since there are a greater number of principles to follow, there is a greater amount of time, effort, and potentially expenses that you must account for.
For your ease of use, we have compiled a concise expert list of suggestions you should consider before taking such an important decision.
- Transition Cost – employees, software, time
- Future Plans – Initial Public Offering (IPO) intentions, the possibility of the company surpassing the size limit
- Group Considerations – consequences for holding subsidiaries firms
- Financing – financial institutions and lenders are looking for seeking SFRS statements
Get Expert Help Today
At Intracorp we strive to help our clients fulfill their business goals with professionalism and efficiency. We provide expert advice and all the accounting services required for your company to comply with Singapore’s accounting standards no matter the type or size of your company. So, what are you waiting for? Contact us today for a free consultation!
