Understanding Singapore Financial Reporting Standards (SFRS) for SMEs

Navigating Singapore’s financial reporting standards is crucial for SMEs. At Counto, we’re committed to simplifying complex concepts like the Singapore Financial Reporting Standards (SFRS) to empower your business.

Evolution of Global Accounting Standards

Globalisation spurred the need for uniform accounting standards. The International Accounting Standards Committee laid the groundwork in 1973, leading to today’s International Financial Reporting Standards (IFRS). While major markets maintain distinct standards, Singapore aligns closely with IFRS through SFRS.

Understanding SFRS

Comprising 41 standards, SFRS ensures consistency and transparency in financial reporting since 2003. Its principles, including accrual accounting and comparability, foster informed decision-making.

Key Principles of SFRS

1. Accrual Accounting: SFRS mandates the use of accrual accounting, recording transactions when they occur rather than when cash is exchanged. This method provides a more accurate representation of a company’s financial health.
2. Comparability: By standardising accounting language and practices, SFRS ensures that financial statements from different companies can be easily compared. This allows stakeholders to better understand and analyse financial data for decision-making.
3. Relevance: SFRS requires financial statements to contain predictive and confirmative information. This means the data should help users anticipate future outcomes or confirm past predictions, facilitating evidence-based decision-making.
4. Verification: Companies must disclose the methods used to compile financial information and any assumptions made. This transparency allows stakeholders to verify the accuracy and reliability of the data presented.
5. Accuracy: SFRS emphasises the importance of accurate, error-free, and neutral financial information. This includes minimising human error in data compilation and ensuring that accounting assumptions and estimates are reasonable.
6. Easy Understanding: SFRS promotes a standard and consistent way of classifying and recording information in financial statements. This enhances readability, comprehension, and comparability for users, facilitating better decision-making.

SFRS for Small Entities (SE)

SFRS for SE, introduced in 2011, simplifies compliance for SMEs. To qualify, businesses must meet criteria related to revenue, assets, and employee count.

Qualifications for SFRS for SE

Eligible businesses must satisfy two out of three quantitative criteria to be classified as a small entity:

• Total annual revenue not exceeding S$10 million
• Total gross assets not exceeding S$10 million
• Total number of employees not exceeding 50
• Not be publicly accountable

Considerations for SFRS for SE

• Growth Plans: Assess future expansion and IPO prospects.
• Nature of Business: Complexity of transactions and business model.
• Cost Considerations: Evaluate transition expenses and long-term implications.
• Lender Requirements: Ensure compatibility with financial institutions’ preferences.
• Operational Efficiency: Balance reporting simplicity with analytical depth.
• Regulatory Compliance: Understand obligations and mitigate legal risks.

Annual Reporting

Companies in Singapore must file their estimated chargeable income within three months following the end of the financial year.

Annual reports are vital and should include:

• Statement of comprehensive income (profit and loss accounting)
• Company details
• Balance sheet
• Shareholder details
• Dates of annual returns and AGM
• Detail of company officers
• Cash flow statement
• Statement of changes in equity

Summary

Understanding SFRS and SFRS for SE are vital for SMEs to ensure compliance with Singapore’s authorities and make informed decisions. At Counto, we’re dedicated to providing tailored financial and accounting expertise to support your business growth.

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