Most registered companies in the world are operating on International Financial Reporting Standards (IFRS) however, every country has added some clauses according to their business requirements. In Singapore, the IFRS is re-named as Singapore Financial Reporting Standards (SFRS) according to which, every company registered after January 1, 2003 has to comply with the SFRS.
According to the SFRS, accrual-based accounting is used to prepare financial statements and the transactions are recorded when they are occurred (whether the cash is received or not) and they will be mentioned in the financial statements during the same accounting period (Also see Cash vs Accrual Accounting Methods). The reason to use accrual-based accounting is that the financial statements show a big picture of the business i.e. their financial health- when and how much they have to pay or receive.
The SFRS consists of 41 individual standards that are called FRS X (where X is the number of standard- FRS 1). Every standard talks about a different topic like preparation, representation and reporting of financial statements, accounting for inventories, revenue recognition etc.
SFRS for Small Entities
Since the business world keeps on changing with the passage of time, it is quite difficult for small and medium-sized entities to comply with every SFRS during bookkeeping process. Considering the issues, Singapore’s Accounting Standards Council (ASC) made some amendments in the SFRS and introduced new accounting standards for small entities (SFRS for SE).
The purpose to make changes is to enable small entities to operate in Singapore with some relief from the full SFRS, keeping the same standard of comparability, quality and transparency so that the users of financial statements can derive the useful information and make conclusions accordingly.
SFRS or SFRS for SE- Which One?
Before the introduction of accounting standards for small entities, every company used to follow the full SFRS however, in order to implement SFRS for small entities, companies (that are eligible) have to consider a few points. The entities are required to consider their nature of business and growth plans along with the impact of changes in accounting standards. Others to be considered are:
- Expense to transit- accounting software and system, employee training cost
- Future goals: Goals for expansion, IPO etc
- Impact of related, holding companies
- Possible response from lenders, creditors and financial institutions, who may want full SFRS complied financial statements
Companies that are expected to increase in size in the future or subsidiary companies should follow full SFRS in order to avoid problems that may harm their business after some time. Get assistance from an accounting firm in Singapore like ours today to understand the other consideration required when determining these options.