Financial Reporting Standards (FRSs) are the rules and regulations of financial reporting and the explanations on the Financial Reporting Standards published by the Accounting Standards Council Singapore (ASC). FRSs comply with the International Financial Reporting Standards (IFRS Standards) set by the International Accounting Standards Board.
The purpose of the FRS is to give information about the financial practices to the existing and future businesspersons, managers, auditors and other people involved in a business.
There are many FRSs set by the ASC to cater to different kinds of businesses, sectors and various scales of a company. The following are the basic terms used by accounting firms in Singapore:
1. Tax Year
A whole year – 1st January to 31st December – is considered the Year of Assessment (YA) or simply the tax year. Tax is calculated on the basis of the revenue generated in the previous year. IRAS facilitates the businesses with a non-calendar taxation year completion to use the accounting year as the previous year for tax calculation. Like in any other country, Singapore also provides tax incentives under certain conditions, which vary from business to business.
2. Accounting Standards
Singapore Financial Reporting Standards (SRFS) are regulated by the Accounting Standards Council of Singapore (ASC), and it is made sure that they are in alignment with the international laws and regulations set by International Accounting Standards Board. Accounting standards are often formulated, reviewed, modified and approved by concerned authorities.
All the organizations, small-scale and large-scale businesses, charities and industries have to comply with these standards. Some of the accounting firms in Singapore opt to adopt IFRS instead of SRFS. For this purpose, permission must be taken from the taxation authorities.
Foreign businesses are usually asked to adopt US GAAP, SFRS, or IFRS.
3. Publication Requirements
Every business must produce a financial balance sheet annually. Moreover, a profit and loss account is also to be generated. ACRA is responsible for auditing the accounts periodically. The financial records of a company are usually kept up to five years after the YA.
An organization should thoroughly organize their records. Along with the financial records, they must have records of investors, shareholders, management’s shareholdings, controllers and any nominated managers.
Foreign business is asked to submit financial statements along with the audited accounting records. These documents must be as new as possible because the authorities do not accept documents that are two months or sometimes seven months old.
4. Certification and Auditing
The companies should hire a legal and experienced auditor for annual auditing of the financial condition of their business. Small-scale businesses and companies that made no significant transactions during the business year are exempted from this rule. Generally, it is considered a good business practice to hire an external auditor, and there are many outsource accounting services in Singapore, which can be helpful in this situation.
5. SFRS of Small-Scale Companies
Small-scale businesses are provided tax incentives to make sure they can flourish among the competition. Small companies benefit greatly from following the SFRS because these standards reduce the disclosure requirements by small businesses. The model is relevantly simple to follow, and financial statements can be prepared easily by following the SFRS. Moreover, business owners are not necessarily required to disclose their every single detail like in other businesses.
A company is considered a small-scale company when it meets the following requirements:
- The company has less than 50 employees
- It is not a public organization
- The revenue of the business is less than SGD$10 million
- Assets of the company are less than SGD$10
SFRS is specially designated for companies that meet the above requirements. Though it still has to pay the compliance charges and some amount of tax. Small companies also need financial statements.
One of the major differences between a large business and a small company in terms of SFRS is that large companies have to follow the equity methods. In contrast, small companies have the option of adopting the cost model. Cost model refers to the accounting concept in which an asset is set at its early cost. It is also available under the FRS related to property, plant and equipment.
Moreover, according to Financial Standards, a small company is not required to disclose the fair value if it is following the cost model. Similarly, a small organization is not needed to reveal a risk management report or the comprehensive balance sheet of the previous year.
Therefore SFRS is extremely important to maintain a good quality of business practices in every organization and support the smooth flow of the working environment. For more information, feel free to get in touch with us.