In Singapore, accounting standards are known as Singapore Financial Reporting Standards (SFRS), which are based on IFRS. All companies with financial periods starting on or after 1 January 2003 must comply with SFRS. One of the main principles of Singapore’s accounting standards is accrual-based accounting. This method recognizes the effects of transactions and other events when they occur, not when cash is received or paid, and records them in the relevant accounting periods. Accrual-based financial statements inform users about past transactions and future obligations and resources. Singapore’s accounting standards include approximately 41 different standards, each designated as FRS X (e.g., FRS 1), covering topics such as financial statement presentation, revenue recognition, and inventory accounting.
Singapore Accounting Standards for Small Entities
As accounting standards become increasingly complex, small and medium-sized entities (SMEs) may struggle to comply. SMEs, which make up the bulk of companies in Singapore, often find full SFRS requirements burdensome.
To address this, the IASB issued an IFRS specifically for SMEs in 2009. Following this, the Accounting Standards Council (ASC) of Singapore introduced the SFRS for Small Entities in November 2010. This alternative framework aligns closely with IFRS for SMEs and provides an optional standard for small entities for reporting periods beginning on or after 1 January 2011.
The SFRS for Small Entities aims to reduce compliance burdens for small entities while ensuring quality, transparency, and comparability. To qualify, a Singapore-incorporated company or a Singapore branch of a foreign company must meet the following criteria:
- Not publicly accountable.
- Publishes general-purpose financial statements for external users.
Meets at least two of the following three criteria:
- Total annual revenue of not more than S$10 million.
- Total gross assets of not more than S$10 million.
- Total number of employees not exceeding 50.
Entities must meet these criteria for the previous two consecutive years to be eligible for SFRS for SE. A subsidiary of a holding company following the full SFRS can adopt SFRS for SMEs if it meets the prescribed criteria.
Choosing Between SFRS and SFRS for Small Entitles (SE).
Companies qualifying for SFRS for Small Entities must consider several factors before adopting it:
- Transition costs, including training, accounting systems, and software.
- Future plans, such as potential IPOs and business growth.
- Impact on holding companies.
- Financing, as lenders may require full SFRS statements.
Marginal companies close to exceeding the size threshold may benefit from adhering to the full SFRS to avoid transitioning between standards. Companies accustomed to the full SFRS, part of a group, or negatively impacted by simplified accounting elements should also consider sticking with the full SFRS.
In summary, the simplified SFRS for Small Entities is ideal for startups and companies struggling with the full SFRS, especially those not requiring external financial statement usage.
For detailed information, the complete set of Singapore Accounting Standards is available through the Accounting Standards Council of Singapore.
