Singapore Accounting Standards
Accounting standards are developed in the public interest to support a country’s corporate governance and financial reporting framework. This extends to most parts of the world in order to help a country maintain financial order.
The International Accounting Standards Board (IASB) is an independent, accounting standard-setting body of the International Financial Reporting Standards (IFRS) Foundation that sets a standard between the different accounting practices in the world. This applies to Singapore as well.
Accounting Standards in Singapore.
In Singapore, accounting standards are known as Singapore Financial Reporting Standards (SFRS) and are based on the IFRS. Companies with financial periods starting on or after 1st January 2003 have to comply with the SFRS. Accrual-based accounting, the accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received), is one of the main principals of the Singapore accounting standards. Financial statements are prepared on the accrual basis of accounting.
Additionally, the overall set of accounting standards in Singapore contains about 41 different standards with each standard named for example, as FRS 1. Each standard covers a specific topic such as the presentation of financial statements, recognition of revenue, accounting for inventories, and so on.
Singapore Accounting Standards for Small Entities.
Given today’s volatile market conditions, accounting standards are becoming increasingly complex. Hence, it is more difficult for small businesses to be in compliance with the accounting standards in Singapore. Complying with the full SFRS may be difficult for small and medium size entities (SMEs), as the requirements may be a burden on their limited resources.
Therefore, as a measure to address the specific needs of the international SMEs, IASB issued an IFRS specifically for SMEs in 2009. Soon after, the Accounting Standards Council (ASC) of Singapore also announced the issuance of the Singapore Financial Reporting Standard (SFRS) for Small Entities (SEs)in November 2010.
The SFRS for SEs is an alternative framework to the full SFRS for eligible entities in Singapore. SFRS for SEs is closely aligned to IFRS for SEs, and it was issued after elaborate consultation with the stakeholders. It provides an optional financial reporting standard for SEs for reporting periods beginning on or after 1st January 2011.
The objective of the SFRS for SEs is to provide some relief from compliance with full SFRS while ensuring quality, transparency and comparability, which can benefit the investment community and other users of financial statements.
Bearing in mind the SFRS which became effective on 1st January 2011, it ensures that an entity meets the criteria for each of the previous two consecutive years in order to be eligible for the simplified SFRS.
A subsidiary of a holding company that follows the full SFRS can still adopt the SFRS for SMEs, provided it meets the prescribed criteria.
Choosing Between “SFRS” or “SFRS for SEs”.
Until recently, all Singapore registered entities regardless of size were required to follow the full SFRS. However, with the introduction and implementation of SFRS specific to SEs, companies that qualify for the new standards have to consider a few important points before adopting the SFRS for SEs.
Companies should also review their growth plans and the nature of their business before adopting these standards. Some of the issues that need to be scrutinised are the transition costs including training, accounting system and software, future plans, and plans for IPO including the probability of the business exceeding the size threshold, group consideration and the impact on holding companies, as well as financing financial institutions and lenders seeking full SFRS statements.
Marginal companies on the verge of breaching the size threshold will be better off adhering to the full SFRS rather than straddling between the standards. Also, companies that are accustomed to the full SFRS, for example, those belonging to a group or held by parent companies that follow the full SFRS, will be negatively affected by treatment of some accounting elements under the simplified version and must refrain from adopting the SFRS for SEs.
Simply put, the simplified SFRS for SEs is ideal for start-up companies and companies experiencing problems complying with the full SFRS, as well as companies whose statements are not used by external parties.
All materials have been prepared for general information purposes only. The information presented in this document is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice. Professional advisory should be sought before taking or refraining from any action as a result of the contents of this document.