Accounting

Singapore Accounting Standards

Every country has its own accounting standards and format for financial reporting that may not be acceptable in other countries. It is, therefore, imperative that you have at least a basic understanding of the country's accounting standards if you plan to start a business in that country.

The Singapore Financial Reporting Standards (SFRS)

Under the Companies Act (Cap.50), it is mandatory for all companies incorporated in Singapore and all Singapore branches of foreign companies to prepare and present financial statements that comply with the Singapore Financial Reporting Standards (SFRS). The SFRS, on the other hand, is based closely on the International Financial Reporting Standards (IFRS) that are issued by the International Accounting Standards Board (IASB).

The main principles of the SFRS are:

• Financial statements are prepared on the assumption that the company is a going concern, meaning that it will continue to operate in the foreseeable future without any intention to cease or liquidate.
• SFRS's accounting system is essentially accrual-based, which means that the system records transactions as and when they occurred rather than as and when paid.
• Financial statements should faithfully represent the financial position, financial performance and cash flows of the entity.
• Financial statements should reflect the economic substance of transactions, events and conditions, and not merely the legal form.
• Financial statements should be neutral.
• Financial statements should be based on the accounting policies of prudence.
• Financial statements should be complete in all material respects.

Financial reports are important as they are the primary source of information about the company's financial status for investors (existing and potential), creditors and other stakeholders. A complete set of financial statements includes:

• Statement of Financial Position (Balance Sheet)
• Statement of Comprehensive Income (Income Statement or Profit & Loss Statement)
• Statement of Change in Equity
• Statement of Cash Flows
• A list of accounting policies
• Notes to the Financial Statements

SFRS for Small Entities

Since the Singapore economy mainly consists of small and medium enterprises (SMEs), the Accounting Standards Council (ASC) of Singapore has announced the issuance of the SFRS for Small Entities (SE) in 2010. An alternative accounting framework to the full SFRS, the aim of the SFRS for SE is to reduce the burden on small entities in ensuring compliance with the full SFTS. This option of financial reporting standard commenced on 1 January 2011.

What constitutes an SE?

A Singapore incorporated company (including a subsidiary company) is an SE if it is not publicly accountable and publishes general-purpose financial statements for external users, and meets any two of the following criteria for at least previous two consecutive years:

• Its total annual revenue does not exceed SGD10 million
• Its total gross assets do not exceed SGD10 million
• It does not employ more than 50 employees