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.
- 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)
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.
|SFRS||SFRS for SE|
|Associates||SFRS 28 requires the equity principle.||As an option, a cost model is available.|
|Investment Properties||The cost model is an option, however fair value disclosure and fair value assessment are required under SFRS 40 and SFRS 113, respectively.||If fair value measurement can’t be acquired without undue cost or effort, a cost model is available as an alternative under property, plant, and equipment. If the cost model is used, there is no need to disclose the fair value.|
|Property plant and equipment||SFRS 1 and SFRS 16 are required.||No reconciliations and closing balances are necessary.|
|Financial risk management||SFRS 107 is required.||Not required.|
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.
What are the key features of SFRS?
- Amendments only after every three years
- Reduced disclosure
- Fewer choices and options in accounting treatment
- Streamlined measurement rules
- Simpler drafting requirements
Does my business qualify to use SFRS for SE?
An entity is eligible to apply for the SFRS for SE if it meets the following requirements.
- Isn’t publicly accountable
- Produces general purpose financial statements for external users
- Meets two of the three criteria:
- Total annual revenue of less than S$10 million
- Total gross assets of less than S$10 million
- Total employees not more than 50
Choosing to use SFRS or SFRS for SE for your business
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.
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.
If you want more time to work on more important tasks, let Sleek manage your accounting and bookkeeping. We take the hassle out of your accounting, so you can focus on growing your business.
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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