Business Guide to the Singapore Financial Reporting Standards (SFRS) for Small Entities
6 minute read
For any business, accurate financial reporting is an important element of managing, organizing, and comprehending your company’s finances.
While financial reporting formats differ between countries, each country’s financial reporting procedure generally follows a typical set of laws, principles, or conventions that are based on that country’s legal, political, economic, and cultural surroundings.
In Singapore, the accounting standards are known as Singapore Financial Reporting Standards (SFRS) set by the International Financial Reporting Standards (IFRS).
In this article, we will explain the Singapore Financial Reporting Standards (FRS), the features behind this framework and what it means for Singapore businesses.
Overview:
- The International Financial Reporting Standards (IFRS)
- Singapore Financial Reporting Standards (SFRS)
- SFRS for Small Entities (SFRS for SE)
- Choosing which to use for your business
The International Financial Reporting Standards (IFRS)
Previously, different regions had their own set of generally accepted accounting principles that were tailored to the economy of that region. In today’s increasingly globalized world, worldwide economies have converged in favor of comparable accounting standards.
Under the aegis of the International Accounting Standards Committee (IASC) Foundation, the International Accounting Standards Board (IASB) was established to develop a uniform global framework for financial reporting.
With that in mind, the International Financial Reporting Standards (IFRS) was published by the IASB in 2001 to better align accounting practices by establishing and promoting global acceptance of accounting standards.
Singapore Financial Report Standards (SFRS)
The Singapore Financial Reporting Standards (SFRS) are a set of accounting principles derived from the IFRS. One of the most fundamental principles of SFRS is accrual-based accounting.
Under the accrual basis of accounting, transactions are recorded and reported in financial statements when they occur, rather than when cash or its equivalent is received or paid. Since they are the most important source of information about a company’s financial status, general-purpose financial reports from SFRS are especially beneficial to potential investors, lenders, and other creditors.
The SFRS contains 41 different standards with each standard covering a specific topic or requirement. Starting from 2003, all Singapore businesses with a financial period starting on or after 1 January 2003 must comply with the SFRS.
SFRS for Small Entities (SE)
Small Entities (SE) Definition
An entity that meets certain criteria, such as having annual revenue of not more than SGD 500,000, and is not publicly accountable.
In Singapore, “SE” stands for “small and medium-sized entity,” which is a type of business entity that meets certain criteria related to its size and financial reporting requirements.
The Accounting Standards for Small Entities (ASSE) provide specific guidelines for financial reporting by SEs in Singapore. According to the ASSE, a small entity is defined as an entity that meets at least two of the following criteria in the current and preceding financial year:
- Total annual revenue of not more than SGD 10 million
- Total gross assets of not more than SGD 10 million
- Total number of employees of not more than 50
In December 2010, the Singapore Accounting Standards Council (ASC) released the Singapore Financial Reporting Standard for Small Entities (SFRS for SE). This was to help SMEs who were finding the full SFRS too time-consuming to adhere to.
As such, the SFRS for SE can be seen as an alternative structure for the preparation and presentation of financial statements to relieve small companies of the burden of having to comply with the full SFRS while still maintaining quality, transparency, and comparability.
Here are some key differences between the SFRS and SFRS for SE.
Category | SFRS | SFRS for SE |
Applicability | Applicable to all entities | Applicable to small and medium-sized entities |
Disclosure requirements | Generally more extensive and complex | More simplified and streamlined |
Measurement principles | Generally follows fair value or cost model | Follows cost model as a default, with fair value measurement available as an option |
Specific standards | SFRS 28, SFRS 40, SFRS 113, SFRS 1, SFRS 16, SFRS 107 | Same as SFRS, but with some specific exemptions and simplifications for SEs |
Reconciliation and closing balances | Required for some standards | Generally not required |
Financial risk management | Required | Not required |
Preparation and presentation of financial statements | SFRS financial statements must be prepared and presented in accordance with the Singapore Companies Act and other relevant laws and regulations | SFRS for SE financial statements must be prepared and presented in accordance with the Accounting Standards for Small Entities and other relevant laws and regulations |
Audit requirements | All companies in Singapore, including those preparing SFRS financial statements, must have their financial statements audited | SEs preparing SFRS for SE financial statements are exempted from audit requirements if they meet certain criteria, such as having total assets of not more than SGD 10 million and fewer than 50 employees |
Availability of guidance | Extensive guidance and interpretive materials are available for SFRS | Less guidance and interpretive materials are available for SFRS for SE, although the Accounting Standards for Small Entities provide some guidance |
The SFRS for SE takes effect for financial reporting annual periods beginning on or after January 1, 2011. The SFRS for SE is closely related to the International Financial Reporting Standards (IFRS) for Small Entities which was developed in 2009.
Updates on SFRS for SE
There have been updates to SFRS for SE since its initial release in 2010
Here is a table of updates to SFRS for SE from 2010:
Year | Update |
2010 | Release of SFRS for SE |
2011 | Amendments to SFRS for SE related to consolidation and disclosures |
2012 | Amendments to SFRS for SE related to income tax and government grants |
2013 | Amendments to SFRS for SE related to fair value measurement and disclosure |
2014 | Amendments to SFRS for SE related to disclosure of interests in other entities |
2015 | Amendments to SFRS for SE related to financial instruments and consolidation |
2016 | Amendments to SFRS for SE related to the application of the equity method and classification of liabilities |
2017 | Amendments to SFRS for SE related to lease accounting |
2018 | Amendments to SFRS for SE related to the treatment of prepayment features with negative compensation |
2019 | Amendments to SFRS for SE related to the classification of liabilities and the presentation of performance measures |
2020 | Amendments to SFRS for SE related to the accounting treatment of lease modifications due to COVID-19 |
2021 | Amendments to SFRS for SE related to the accounting treatment of COVID-19-related rent concessions and the classification of liabilities |
What are the key features of SFRS?
Feature | Description |
Applicability | SFRS applies to all entities in Singapore, including companies, partnerships, and sole proprietorships. Entities that are publicly accountable may also be subject to additional reporting requirements. |
Measurement principles | SFRS generally follows the principles of fair value or cost model for recognition and measurement of assets and liabilities, depending on the specific standard. |
Specific standards | SFRS consists of a series of individual standards covering topics such as revenue recognition, financial instruments, leases, and employee benefits. Some of the key standards include SFRS 15 (Revenue from Contracts with Customers), SFRS 109 (Financial Instruments), and SFRS 16 (Leases). |
Disclosure requirements | SFRS includes detailed disclosure requirements for financial statements, including information about significant accounting policies, estimates and judgments, and key assumptions underlying the financial statements. Entities must also disclose information about related parties, contingencies, and other significant events or transactions that could impact their financial position or performance. |
Reconciliation and closing balances | Entities may be required to provide reconciliations and closing balances for certain items, such as financial instruments, investments in subsidiaries, and property, plant, and equipment. |
Financial risk management | SFRS includes a specific standard, SFRS 107 (Financial Instruments: Disclosures), that provides guidance on disclosure requirements related to financial risk management, including credit risk, market risk, and liquidity risk. |
Availability of guidance | Extensive guidance and interpretive materials are available to help entities apply SFRS, including practice statements, interpretations, and other guidance issued by the Singapore Accounting Standards Council. |
Choosing to use SFRS or SFRS for SE for your business
Choosing whether to use SFRS or SFRS for SE for your business will depend on a number of factors, including the size and complexity of your business, your reporting requirements, and the resources available to you.
If your business is relatively small and does not have complex financial reporting requirements, you may find that SFRS for SE is a more appropriate choice. This standard is designed specifically for small and medium-sized entities, and provides simplified accounting and reporting requirements that may be easier to implement and maintain.
On the other hand, if your business is larger or has more complex reporting requirements, you may find that SFRS is a better choice. SFRS provides more detailed guidance and requirements for financial reporting, which may be necessary for larger entities or those with more complex financial transactions.
It’s also important to consider the resources available to your business when making this decision. Implementing SFRS may require more time, effort, and resources than implementing SFRS for SE, so it’s important to assess whether your business has the necessary resources to comply with the chosen standard.
Before adopting the SFRS for SE, businesses must examine a few key considerations.
SMEs should assess their growth objectives and the nature of their business including:
- Cost of transition (training, accounting system, and software)
- Future plans (IPO intentions, the likelihood of the company achieving the size threshold)
- Consideration of a group (the implications for holding firms)
- Financing (lenders and financial institutions are looking for detailed SFRS statements)
Businesses on the brink of exceeding the size criterion would be better off sticking to the entire SFRS rather than going through individual requirements.
Ultimately, the decision of whether to use SFRS or SFRS for SE will depend on a range of factors specific to your business, and it may be helpful to consult with an accounting professional or other advisor to determine the best approach for your situation.
The comprehensive set of Singapore FRS (SFRS) is available on the Accounting Standards Council website.
How Sleek can help
While the SFRS and SFRS for SE are frameworks and guides to help businesses with their financial reporting, the entire accounting process in itself may still be a complex procedure for SME owners, especially if you’re new.
Managing your accounting and bookkeeping can be a hassle. At Sleek, we step in and simplify the complicated process of accounting, tax filing and financial reporting. We run your books and keep it in order so you can fully focus on growing your business while we serve as your dedicated accountant.
Don’t hesitate to contact us today for a free consultation. Our experts will be happy to advise you on how to be SFRS compliant for your accounting needs.
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FAQ
SFRS for SE is a set of accounting standards specifically designed for small and medium-sized entities in Singapore.
Entities that meet certain size and reporting criteria can choose to use SFRS for SE instead of full SFRS.
SFRS for SE provides simplified accounting and reporting requirements, making it easier for small and medium-sized entities to comply with financial reporting standards.
SFRS for SE has simplified measurement principles and disclosure requirements compared to full SFRS.
No, entities that meet the criteria can choose to use either SFRS for SE or full SFRS, depending on their reporting needs and resources.
SFRS for SE is based on the International Financial Reporting Standards for SMEs, while FRS 102 is based on the full IFRS.
SFRS for SE requires disclosure of key accounting policies, significant accounting estimates, and certain financial information.
SFRS for SE includes certain exemptions for entities that meet certain criteria related to size and financial reporting requirements.
Entities can choose to transition to SFRS for SE by applying the standards retrospectively or through a cumulative catch-up adjustment.
Yes, entities that choose to use SFRS for SE can use it for both statutory and management reporting purposes.
