Although you may not have to deal with financial reporting by yourself, it is still important to learn about what the Singapore Financial Reporting Standard (SFRS) framework is like. Throughout this guide, we will help you understand the key principles and features of the SFRS framework and how it applies to your company.
What is Financial Reporting for?
For many stakeholders, the company’s financial position is something of interest. Your company is legally required to issue financial reports if it is publicly accountable (listed on a public stock exchange).
Generally, financial reports contain information about the company’s performance, position, and cash flow – in other words, all important facts relating to financial decisions affecting the business in question.
A financial report should present facts to the stakeholders that help them make decisions. Simply put, financial reports must be as clear as possible so that all parties know what to do with the company.
Singapore Financial Reporting Standards
First of all, you need to know what financial reporting standards are about. Financial reporting standards prescribe the methods of recognition, measurement, presentation, and disclosure requirements for transactions and events reported in financial statements. There are industry-specific financial reporting standards for several industries. In addition to harmonizing accounting reports, financial reporting standards also provide a basis for judgments in case of disputes.
Since 2003, all Singapore-incorporated companies and foreign companies with Singapore branches are required by the Companies Act to prepare and present financial reports following Singapore Financial Reporting Standards (SFRS). This set of accounting standards contains more than 40 sections. Each covers a separate topic – for example, presenting financial statements, or accounting for inventory, or recognizing revenue.
The Main Principles
Here are some of the SFRS principles that you may need to know.
Accrual-based accounting is one of the main principles of Singapore accounting standards. It helps improve your books by better demonstrating the profitability of the company. It also provides you with a better understanding of the assets and liabilities of the business at the end of the accounting period.
The accrual method keeps track of the revenue earned and expenses incurred when they actually occur, not just when the transactions are completed. On the contrary, in the so-called cash basis, revenue does not enter the income statement until it is received at the bank or expenses appear on the bank.
The accrual method determines the revenue shown in the income statement when it is earned. Expenses will appear on the income statement if they match the revenue. Therefore, you will know what expenses generate revenue. If some of your expenses aren’t directly generating income, you’ll see that too.
Financial reports are normally prepared with the assumption that the company is a going concern and will continue to operate in the future. Therefore, it is assumed that the company does not intend or need not liquidate or limit the scale of its operations. If there is a change in the “going concern” assumption, the reporting company shall make appropriate disclosures about the purpose or likelihood of the event.
Financial reports must present relevant information in the sense that they can influence a decision or assist in making decisions. For this reason, information must have predictive and confirmatory value. The information presented in financial reports should help users predict results and confirm past predictions. For example, the financial report of a company helps forecast its sales and confirm past sales forecasts.
Financial reports must provide complete, neutral, and error-free information to be an accurate representation. Although this is a difficult goal to achieve, companies must take all steps to maximize the characteristics of this information. To increase the accuracy of your company’s financial reports, consider getting help from a reliable accounting service provider.
The information in financial reports should be used to compare with similar information about other companies and with similar information about the same company for other periods or dates. This is important so that users of the financial reports understand the similarities or differences in the reported items and measure them to make the right decisions.
Information in financial statements must be verifiable. Accordingly, the reporting company must disclose the underlying assumptions, methods of collecting the information, and other factors and circumstances that support the information.
The information must be made available to users promptly so that they can use it to make timely decisions. Older information may be useful outside of their reporting period to predict trends or confirm predictions.
The information must be organized and reported consistently to understand it easily.
SFRS for Small Entities
To ease the pressure on small companies, the IFRS Foundation developed a simplified version of the international standard for SMEs. In 2010, Singapore introduced the Financial Reporting Standards for Small Entities (SFRS for SE). It is a Singapore FRS alternative for preparing and presenting financial reports. The requirements are less complex compared to SFRS.
The benefits of SFRS for Small Entities
- Reduced Disclosures
- Simplified introduction and measurement rules
- Fewer choices and options are allowed in the accounting treatment
- Preparation requirements are simple to understand and concise
- Amendments only every three years
- The “undue cost or effort principle” removes the requirements for certain elements such as assets held for sale, interim reporting, insurance contracts, etc.
Singapore legal companies and foreign subsidiary companies in Singapore can apply the SFRS for SE. Subsidiaries of parent companies can adopt it too. To be eligible to use the framework, a company must have the following features:
- not responsible publicly
- publish financial reports for general purposes
- a small-sized one
To qualify as a small-sized company, you must meet at least two out of three criteria:
- Total annual revenue is not more than S$10 million
- Total gross assets are not more than S$10 million
- The total number of employees is not more than 50 people
SFRS for SE is the best choice for startups and business entities that do not present their financial reports to external parties.
Singapore Financial Reporting Standards make it easy and convenient for business owners to share their financial information with investors from all over the world. Not only does it help business owners gather information to pay taxes at the end of the financial year, but it also serves many other business needs.
Preparing financial statements yourself is a pain in the neck. You can always rely on Biz Atom to prepare these reports for you, as neat, comprehensive, and timely as you expect them to be.