Singapore Accounting Standards - Know Everything About SFRS
Businesses worldwide must report how well they're doing financially through financial reporting. Format for financial reporting is different from one country to another, and each format carries with it a unique set of rules, principles, and conventions adapted to the country's political, legal, cultural, and economic environments.
But financial reports don't carry with them international acceptance or comprehensibility. From a global perspective, financial information needs to be comparable, reliable, and, most of all, transparent. The need for a standardized form of financial reporting is greater now because of corporations' global reach, foreign investments, sales of securities and cross-border purchases, and more.
To ensure that financial transactions are recorded accordingly, accounting standards must be followed. These are sets of governing practices and principles that encompass the treatment of financial reporting. The main goal of accounting standards is to recognize, measure, present, and disclose the requirements necessary for reporting financial transactions by creating general purpose financial statements. Financial statements then present the necessary information about a company's performance, cash flow, and other details for its users to make important financial decisions.
What Is International Financial Reporting Standard?
Countries back then had different approaches to accounting, which is unique as their approach was based on political, cultural, and economic climates. When times were volatile, it was only fitting to adjust accounting reporting practices to fit the situation they were in.
But with this adaptation came a flaw: uniformity and acceptance of reporting formats were almost non-existent. And the rapid pace of globalisation of the world economy continues to highlight the absence of such uniformity.
And out of this need came the International Financial Reporting Standard (IFRS), the first accounting standard created by the International Accounting Standards Board (IASB) in 1973. The purpose of the IFRS was to define a set universal standard for financial reporting between and among countries while augmenting efficiency, accountability, and transparency.
What Accounting Standards Are Followed in Singapore?
In Singapore, accountants follow the Singapore Financial Reporting Standards (SFRS), which are based on the International Financial Reporting Standards mentioned above. Companies within a financial period starting on or after January 2003 will need to comply with the SFRS.
One of the main principles of the Singapore Financial Reporting Standards is accrual-based accounting. Financial statements are prepared on an accrual basis. This roughly means that the effects of transactions are recognized when they occur (not as they are received or paid out), and they are recorded and reported based on the periods they relate to. Financial statements prepared this way would inform its users of both past transactions (payment and receiving of cash) and future obligations to pay cash, as well as references to resources that represent cash.
There are about 41 different Singapore Financial Accounting Standards, named using the format FRS X (example FRS 1). Each accounting standard covers a specific topic, such as accounting inventories, how to present financial statements, how to recognize revenue, etc.
What Are Singapore Accounting Standards for Small Entities?
Accounting standards are complicated, and they grow in complexity as the need arises. This makes it difficult for small businesses to feel that they comply with such standards. Back then, it was challenging for small businesses to adhere to the complete Singapore Financial Reporting Standards. And similar to other countries, SMEs comprise the majority of companies that are currently operating in Singapore.
To accommodate SMEs and their willingness to comply, the International Accounting Standards Board issued the Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities) in November 2010. The main objective of the SFRS for Small Entities is to provide relief for small entities from compliance with the full SFRS while maintaining accountability, quality, and transparency of financial reporting.
The Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities) is based on the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs). This accounting standard is intended for startups, companies that have difficulties in complying with the full SFRS and companies whose financial statements are not used by external parties. You can read up on the complete Singapore Accounting Standards over at the Accounting Standards Council Singapore (ASC).
How Does a Company Qualify For SFRS for Small Entities?
A Singapore incorporate company, or a Singapore branch of a foreign company is eligible for SFRS for Small Entities as long as:
The company is not publicly accountable
The company publishes general purpose financial statements for external users
The company is classified as a small entity
A company qualifies as a small entity as long as it meets two of the three criteria:
A total annual income of no more than S$10 million
Total gross assets of no more than $10 million
The total number of employees is no more than 50
SFRS for Small Entities took effect in January 2011, so for companies to be eligible for the SFRS for Small Entities, they must have met at least two of the three criteria mentioned for the previous two consecutive years.
The company will continue to adhere to those standards once its qualifies up until it falls out of the size threshold for two consecutive reporting periods. If this happens, the company needs to comply with the full SFRS.
A subsidiary of a holding company that already complied with the full SFRS may qualify for the SFRS for Small Entities so as long as they meet the mentioned criteria.
What Do You Need to Consider in Choosing Between SFRS or SFRS for Small Entities?
Supposing your company has been following the full Singapore Financial Reporting Standards (SFRS) and found out recently that you qualify for SFRS for Small Entities, would it make sense to switch to the latter?
You'd think that switching to SFRS for Small Entities would be reasonable because it'd allow you to cut costs, and you're right to think so. But choosing between one or the other might affect your financial reporting practices.
If you're planning to switch from one to the other, you might need to consider the following:
Costs for system reform - One of the biggest things to consider is the cost of overhauling your entire accounting system, which covers your software too.
Retraining costs - Switching to SFRS would mean retraining your staff to help meet the new standards. This would also mean that your onboarding costs for new hires is going to increase as well.
Long-term effect - Is your company looking like it will grow out of its size threshold? How fast do you think your company will grow out of it?
Stakeholder effects- If you're thinking about switching from SFRS for SE to SFRS, then you might want to hear out your stakeholders first. Other stakeholders might mean financial institutions and lenders who're working with you.
Effects on the group company - If your company is a subsidiary, switching to SFRS for Small Entities might affect the other subsidiaries as the parent or holding company would need to follow the full SFRS for consolidated financial statements.
The bottom line is this: SFRS for Small Entities is best for startups and small to medium-sized businesses that have difficulty complying with the full SFRS or find it to be more of a burden. If you have a small business that's been adhering to the full SFRS, but actually qualifies for SFRS for Small Entities, then transitioning to the latter might be a good idea to some extent.
However, if your small business has been adhering to the full SFRS and has been able to comply without difficulty, then there's no need to transition to the SFRS for Small Entities.
Frequently Asked Questions
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Absolutely! While it's possible to find cheap accounting services in Singapore, it's crucial to ensure that the service provider is reputable and adheres to the Singapore Financial Reporting Standards (SFRS).
At Piloto Asia, we offer affordable yet reliable accounting services that comply with the SFRS, ensuring that your financial records are accurate and up-to-date.
Our team of experienced accountants is dedicated to providing quality services that meet your business needs without breaking the bank.
Feel free to explore our accounting services and get in touch for a personalized quote.
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While many accounting firms in Singapore are familiar with the Singapore Financial Reporting Standards (SFRS), small accounting firms often offer a more personalized and tailored approach. They can work closely with businesses, especially SMEs, to navigate the intricacies of SFRS.
By partnering with a small accounting firm in Singapore, such as Piloto Asia, businesses can benefit from dedicated attention, ensuring accurate financial reporting and compliance with both the full SFRS and the SFRS for Small Entities. This hands-on approach helps businesses optimize their financial processes and remain compliant.
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The Singapore Financial Accounting Standards (SFRS) are a set of accounting principles that businesses registered in Singapore must adhere to. They provide comprehensive guidance on financial reporting processes and ensure consistency, accuracy, transparency, and credibility in accounting practices.
In the context of investment holding companies, which primarily own investments such as property and shares for long term appreciation and dividend income, the SFRS comes into play in important aspects like recognising, measuring, and disclosing the nature and extent of financial risks. These companies must comply with SFRS to provide stakeholders and potential investors with a clear depiction of the company's financial standing.
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The company tax rate in Singapore is 17%. This is a flat tax rate, meaning that all businesses pay the same rate regardless of their size or profits. A few exceptions exist to this rule, such as for businesses in the financial services sector.
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A Notice of Assessment Singapore (NOA) is a document issued by the Inland Revenue Authority of Singapore (IRAS) to inform taxpayers of their tax assessment for a particular year. The NOA will list the taxpayer's income tax and the amount of tax payable.
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The ASC, now a part of the Accounting and Corporate Regulatory Authority (ACRA) in Singapore, is the body tasked with developing accounting standards for various entities including companies, charities, and co-operative societies.
Formed in April 2023, the ASC emerged from a merger that integrated the functions of the Accounting Standards Council and other bodies into ACRA. Its mandate is to continue the legacy of setting robust accounting standards that had been previously managed by the Accounting Standards Council.
These standards are critical for ensuring accurate and consistent financial reporting in Singapore, aligned with both national guidelines and international practices.
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The Singapore Financial Reporting Standards (International), or SFRS(I), are a set of accounting standards used in Singapore. They are based on the International Financial Reporting Standards (IFRS) and have been adopted by the Accounting Standards Council (ASC) for use in Singapore.
The SFRS(I)s are designed to be applied to the general-purpose financial statements and other financial reporting by profit-oriented entities, i.e., those engaged in commercial, industrial, financial, and similar activities, regardless of their legal form. Companies not required to comply with SFRS(I) continue to apply the Singapore Financial Reporting Standards (SFRS).
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Yes, there is a specific accounting standard for charities in Singapore known as the Charities Accounting Standard (CAS).
Established initially by the Singapore Accounting Standards Council, the CAS is now overseen by the Accounting Standards Committee under ACRA, following recent organizational changes.
The CAS is a tailored version of the Financial Reporting Standards, adapted to meet the specific needs of charities. Charities in Singapore can choose to adopt either the Financial Reporting Standards (FRS) or the CAS for their financial reporting, depending on their operational needs.
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The ACRA website has a section dedicated to consultations, where you can find information on current-year consultations and submissions.
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Accounting standards are updated regularly, reflecting new economic realities, business practices, and stakeholder demands.
These updates, issued by bodies like the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), typically occur throughout the year.
FASB's updates, known as Accounting Standards Updates (ASUs), often take effect in future fiscal years, such as after 15 December 2024. The IASB schedules updates following their monthly meetings, with some amendments effective from specific dates like 1 January 2023.
The exact effective dates of these updates can vary, so it's essential to stay updated with the latest information from these boards.
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The ACRA website provides sections for both local and international news related to accounting standards.
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Singapore Accounting Standards consist of four main frameworks: the Singapore Financial Reporting Standards (International) (SFRS(I)s), Financial Reporting Standards (SFRS), Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities), and Charities Accounting Standard (CAS).
The SFRS(I) aligns with the International Financial Reporting Standards (IFRS) for broader international applicability. The FRS are the original set of standards for financial reporting in Singapore.
The SFRS for Small Entities offers simplified reporting for smaller companies, while the CAS is specifically designed for charities. Managed by the Accounting Standards Committee under ACRA, these standards ensure consistent, transparent, and credible financial reporting for various entities in Singapore."
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These standards ensure consistency, transparency, and comparability in financial reporting, making it easier for investors, regulators, and other stakeholders to understand and evaluate financial statements.
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Aligning with IFRS ensures that Singapore's financial statements are internationally comparable, transparent, and reliable, facilitating smoother functioning of global markets and attracting foreign investments.
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Singapore Financial Reporting Standards (SFRS) are based on the International Financial Reporting Standards (IFRS). These standards provide a comprehensive framework for financial reporting, ensuring that businesses, from small enterprises to large corporations and investment holding companies, adhere to high standards of financial transparency and accuracy.
However, while the foundation is the same, SFRS has been tailored to fit the Singaporean context. This means that there might be specific guidelines, exceptions, or modifications in SFRS that cater to the unique business environment, regulatory framework, and economic conditions of Singapore.
The primary goal of these adaptations is to ensure that the standards are relevant and applicable to the Singaporean business landscape while maintaining consistency with international practices.
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At Piloto Asia, we specialize in providing premier accounting services in Singapore to help businesses of all size to stay compliant with the Singapore Financial Accounting Standards. Our top-notch team of experts provides comprehensive support, from navigating the complexities of these regulations to implementing best practices tailored to your industry.
We're dedicated to ensuring your business not only meets but exceeds the standards set forth, leveraging our expertise to foster your company's financial health and regulatory compliance.
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At Piloto Asia, recognized as Singapore's leading corporate service provider and business information resource, we can confirm that all Singapore accounting firms, including ours, are required to follow the Singapore Financial Accounting Standards (SFRS). These standards are the cornerstone of financial reporting, ensuring that all generated financial statements are clear, reliable, and accurately reflect the true and fair view of the financial position of a company. This adherence to SFRS makes it easier for both local and international stakeholders to make well-informed decisions regarding their investments. For more insights into finding the right accounting partner, explore our comprehensive guide on the accounting firms in Singapore.
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As Singapore's #1 corporate service provider and business information resource, Piloto Asia is well equipped to guide you through the intricacies of Singapore Financial Accounting Standards (SFAS) and their impact on corporate taxes. SFAS is a comprehensive set of standards that dictates how financial transactions should be recorded and reported.
A company's financial statements, prepared according to these standards, not only establish its financial health but also determine its corporate tax Singapore obligations. The net profit or loss recorded in these financial statements forms the basis for the calculation of the corporate tax. The higher the net profit of a company, the higher its corporate tax liability will be.
As corporate tax Singapore is directly based on the financial statements, it is vital for companies to accurately adhere to SFAS to avoid legal complications and to maintain a clear, transparent record of their financial dealings for shareholders and tax authorities alike.