Accounting Standards in Singapore

In Singapore, the accounting standards are known as Singapore Financial Reporting Standards (SFRS) and are based on IFRS. All companies with financial years beginning on or after 01 January 01 are required to comply with and implement SFRS.

Accrual accounting is one of the key principles of Singapore accounting standards. Financial statements are prepared on the accrual basis of accounting.

Under this basis, the effects of transactions and other events are recognized when they occur (rather than when cash or its equivalent is received or paid). These transactions are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Financial statements prepared on the accrual basis inform users not only of past transactions involving the payment and receipt of cash, but also of future obligations to pay and sources of cash to be received.

Each standard in Singapore accounting standards is named after FRS X, for example, FRS 1. Each standard covers a specific topic such as presentation of financial statements, revenue recognition, inventory control, etc. 

As the world continues to change, accounting standards are becoming more complex. This makes it more difficult for small businesses to feel confident that they are complying. Implementing the SFRS (in full) will be difficult for SMEs, who may find the requirements beyond their capabilities and resources. As in many other countries, SMEs make up the majority of companies operating in Singapore.

As a measure to address the specific needs of international SMEs, the IASB issued a special IFRS for SMEs in 2009. Accordingly, the Accounting Standards Council (ASC) of Singapore also announced the issuance of Singapore Financial Reporting Standards (SFRS) for SMEs in November 11.

The SFRS for Small Entities is an alternative framework to the (full) SFRS for eligible entities in Singapore. The SFRS is closely aligned with the IFRS for Small Entities, and was issued after consultation with stakeholders. It provides a mandatory financial reporting standard for small entities with reporting periods beginning on or after 01 January 01.

The objective of SFRS for Small Entities is to provide some support to small enterprises in fully complying with SFRS while ensuring quality, transparency and comparability, which not only benefits the investment community but also other users of financial statements.

Business & Investment Singapore company registration or a branch of a foreign company in Singapore is eligible to apply the "SFRS for Small Entities" subject to the following conditions:

•  No public accountability
•  Issue general purpose financial statements for use by users outside the enterprise.
•  Must be a small business. A business will be considered a small business if it meets at least two of the following three criteria:
  •  Total annual turnover not more than SGD 10.000.000.
  •  Total assets not more than SGD 10.000.000.
  •  Total number of employees not more than 50 people.

It should be noted that the SFRS for Small Entities came into effect on 01 January 01 and to qualify for this simplified SFRS, an entity must have met the criteria for each of the previous two consecutive years. An entity that qualifies for the above criteria can apply the simplified SFRS standards until it exceeds the size threshold for two consecutive reporting periods and in that case the entity is required to follow the SFRS in full.

A subsidiary of a holding company that is using SFRS (full) can still apply SFRS for SMEs, but it must meet the regulatory standards listed above.

In recent years, most companies/entities registered in Singapore, regardless of size, have adopted the SFRS (full). Currently, the simplified version of the SFRS is suitable for small businesses. However, companies that qualify for the new standard SFRS should consider a few important points before adopting the SFRS for their business.

Companies should also review their growth plans and the nature of their business before adopting these standards. Some issues to consider include:

• Shipping costs - training costs, accounting systems and software
• Future Plans - IPO Plans, Probability of Firms Exceeding Size Threshold
• Group review – implications for holding companies
• Finance - financial institutions and lenders are always looking for priority reporting in full SFRS format.

Marginal companies – those that are about to scale up – are better off adopting SFRS (full), without any hesitation about the standards. Likewise, companies that are already familiar with SFRS (full), those that are part of a group or are set up by a parent that has adopted SFRS (full), those that would be negatively impacted by simplified SFRS, should refrain from adopting SFRS for small businesses.

In summary, “SFRS for Small Businesses” would be ideal for start-ups and companies that have difficulty with SFRS (full) or companies whose financial statements are not used by users outside the business.

Singapore adopts Singapore Financial Reporting Standards (SFRS), which are based on IFRS, and apply to all companies with financial years from 01 January 01 onwards.

SFRS is essentially similar to IFRS but with some minor adjustments to suit Singapore's legal and economic environment.

A simpler version of SFRS for small and medium-sized businesses, reducing complex accounting requirements.

Enterprises are not responsible for publicly explaining and meeting at least 2/3 of the following criteria:

• Revenue ≤ 10 million SGD
• Total assets ≤ 10 million SGD
• Number of employees ≤ 50 people