Singapore Accounting Standards
Need for International Financial Reporting Standards (IFRS)
Every country follows its own format for financial reporting. Usually a country’s political, economic, and cultural manifestations influence its reporting format. However, these formats fail to get an international acceptance. As a result, financial reporting format of one country is deemed ineffective in other country. To put all such problems to rest and to make international trading easier, comparable, transparent and all prevalent, financial reporting standards came into existence. Such internationally accepted accounting standards help in smooth functioning of the global market.
About Singapore Financial Reporting Standards (SFRS)
In Singapore, the accounting standards based on International Financial Reporting Standards (IFRS) are known as Singapore Financial Reporting Standards (SFRS). The governing bodies like ACRA have made it mandatory that, all the companies that have their financial period starting on or after January 1 2003, have to comply with the SFRS.
SFRS works on the accrual-based accounting system. Accrual based accounting system records events as and when they occur. They are recorded to the statements of the period, to which the transactions belong. This is a very useful way of doing accounts because; it informs the user of the past transactions that involves payment or receipt of cash. In addition, it also intimates the user of the future obligation to pay and receive cash.
Singapore Financial Reporting Standards (SFRS) for Small Entities (SE)
As in any other country, SMEs formed a major chunk of the Singaporean economy. They had limited resources; and eventually, adhering to Singapore accounting standards SFRS started becoming a laborious task for SMEs.
Taking this dilemma of SMEs into consideration, International Accounting Standards Board (IASB) brought forth SFRS for SE. This was a blessing in disguise for the SMEs, as it ensured quality. It was transparent and comparable, and was much easier to imbibe. The SMEs could start using this Singapore accounting standards for reporting periods beginning on or after January 1, 2011.
Eligibility Criteria for Availing SFRS for SE
The companies that qualify for implementing SFRS for SE are those who are –
- Not publicly accountable
- Publish general-purpose financial statements for external users
How do you know whether your enterprise falls into the small entity category? Only if two of the three below given criteria are met, you can qualify for implementing SFRS for SE in your enterprise.
- If the total annual revenue of the entity is not more than S$10 million
- If the total gross assets of the entity is not more than S$10 million
- If the total number of employees in the entity is not more than 50
An entity must meet at least two of the three criteria, for at least previous two consecutive years for qualifying, and if it grows and falls out of the size threshold, it must happen for consecutive two years, before it makes a switch to the full SFRS. According to the Singapore accounting, even a subsidiary company can implement SFRS for SE, provided it fits into the eligibility criteria given above.
SFRS for SE or Full set of SFRS – Which one to Choose?
It is very important for a business entity to contemplate clearly, whether they want to avail the SFRS for SE or the full set of SFRS. Companies should review the below given points before they take the plunge –
1) Growth Plans of the Business – Check whether the company is on the verge of crossing the size threshold. Think of expansions, mergers, plans for IPO etc.
2) Cost of Transition – If a business is already following the full set of SFRS, and doing it successfully, then simply jumping over to SFRS for SE would mean wastage of time, money and other resources.
3) The Circle of Impact – Switching over to a simpler version of the SFRS can negatively influence many accounting elements. In addition, its impact over other holding companies or subsidiary firms should also be taken into consideration.
4) Demands of Lenders or Shareholders – A business entity should make it clear, if the financial lenders, institutions, or shareholders demand the accounts to be presented in the full set of SFRS or not, and only then they should take a decision.
According to the Singapore accounting standards, it can be said that SFRS for SE is mainly applicable for new start-up companies, or companies that are facing problems with a full set of SFRS, or those whose financial statements are not used by external entities.