For businesses, accounting is a financial process that is required to track transactions and produce a report card for stakeholders – often to make decisions around. Accounting standards are then formed to ensure that different companies will have an accurate way of evaluation and comparison, while providing accountability and adhering to prevailing regulations.
Just as important, setting accounting standards also facilitates international trade, as it provides a common language for financial reporting across borders to bolster trust. Modern economies rely on cross-border transactions and the free flow of international capital to drive growth. As investors seek diversification and investment opportunities across the world, companies themselves may also plan for international operations and subsidiaries in multiple countries.
With this in mind, the not-for-profit International Financial Reporting Standards (IFRS) was introduced by two standard-setting boards, the International Accounting Standards Board (IASB) and the newly-created International Sustainability Standards Board (ISSB), which aims to provide that model of accountability. According to its website, more than a third of all financial transactions occur across borders, and that number is expected to grow, which is why the World Bank and G20 leaders have supported this development.
So what happens when an organisation chooses to venture into Singapore?
Working with standards in Singapore
Businesses choosing to operate in Singapore will have two accounting standards to choose from: Singapore Financial Reporting Standards and Singapore Financial Reporting Standards (International). They are also known as SFRS (I) and SFRS (for small entities). These are based upon IFRS, and thus can be integrated into the system for organisations with business judiciaries outside of Singapore. Under certain circumstances, the Accounting and Corporate Regulatory Authority (ACRA) of Singapore does allow international businesses to operate with IFRS standards.
Here is an overview of the three:
IFRS
IFRS is a widely-used and recognised set of accounting standards developed and issued by the International Accounting Standards Board (IASB). These standards aim to provide a globally-consistent framework for financial reporting, and ensure financial statements that are reliable to the needs of users from investors to regulators. The standards are complex but thorough, and accords a comprehensive financial statement presentation.
SFRS (I)
Created by the now Accounting Standards Council (ASC) of Singapore, SFRS(I) has been the main accounting standard that businesses have used since 1 January 2003. These standards were adapted from IFRS and have minor adjustments to align with local regulations. There are 41 sections.
One of the main principles of SFRS(I) is accrual-based accounting, which tracks the financial activity of a business when the activity actually happens, rather than when the actual financial transaction occurs. This can paint a more accurate picture by reflecting the actual economic activity that has taken place, but it can also be more complex than cash-based accounting.
The ASC updates SFRS(I) regularly to ensure that it remains relevant, and these will be published on their website.
SFRS Singapore (for small entities)
Accounting standards can be complex and smaller businesses may not have the capabilities or resources to keep up with the terms from SFRS(I). With this in mind, IFRS released its simplified international standards for SMEs, to which Singapore followed suit with SFRS Singapore (for SMEs) in 2010. Some of these include reduced disclosure requirements and simplified accounting treatments to ease the accounting process for these smaller businesses.
Key differences between SFRS Singapore (for small entities), SFRS(I), and IFRS
The size and complexity of your company will determine the accounting standards you can apply for. ACRA requires all Singapore-incorporated companies (both listed and non-listed) to use their prescribed accounting standards as their consolidated and separate financial statements.
SFRS(I) is the default accounting standard to use, but smaller businesses can apply to use the simplified SFRS (for small entities) if they fulfil two of the three following conditions:
- A total annual revenue of not more than S$10 million
- Total gross assets of not more than S$10 million
- Total number of employees of not more than 50
In some cases, international companies wishing to align with global accounting standards from their other jurisdictions can use IFRS if approval is granted by ACRA. Additionally, a Singapore-incorporated company that is listed on both a securities exchange in Singapore and a securities exchange outside of Singapore is permitted to use IFRS if the securities exchange outside of Singapore requires it.
Key considerations when choosing between the three standards
Eligibility aside, businesses looking to apply these accounting standards need to consider the impact on the organisation and their resources.
If your company operates in multiple jurisdictions or plans to access international capital markets, using a globally-recognized accounting standard such as IFRS can make it easier to compare your financial performance with that of other companies. This can increase investor confidence and improve your access to international capital markets. However, because IFRS can only be allowed in specific circumstances, one might wish to consider starting to SFRS(I) and consider IFRS conversions, which some agencies can provide as an external service.
Otherwise, SFRS(I) is the recommended set of standards for businesses, as not only is it aligned with Singapore practices and regulations, but also removes certain complexities from IFRS.
SMEs who fulfil the eligibility requirements can enjoy using the SFRS (for small entities). To encourage start-ups and new business growth, and because they are naturally less complex than their larger counterparts, Singapore provides this standard which further reduces regulatory needs such as certain disclosures to ease reporting. This can also help in lowering compliance costs.
It is worth noting that some industries have specific reporting requirements that are not covered by standard accounting frameworks. These can include real estate companies which follow the Real Estate Investment Trust (REIT) framework, healthcare companies which needs to comply with the Healthcare Services Act, and non-profit organisations which have to follow the SFRS(NPO) guidelines.
Maximising your resources
Following approved accounting standards, whether it be SFRS Singapore (for small entities), SFRS(I), or IFRS, is not only important for compliance, but also to gain confidence from all stakeholders in the financial health and potential of a company. Part of this also involves choosing the right accounting standard to maximise your existing resources, and help your teams be at their most efficient. This can sometimes require future planning when you pick your standards.
For example, if you are eligible to take SFRS (for small entities), while it will be cheaper and easier to operate, it may be more costly to transition if your business plans will outgrow the eligibility in a few years’ time.
With its many elements, smaller organisations navigating their accounting standards may benefit from consultation with experts in this area to optimise their resources and plans. This can include advisory at a business’s inception, or even quality review of the accounts to determine if it may need to be adjusted.
Unsure if your accounting standards are best for your business? Let the seasoned consultants from PLCO guide you and support your business needs.
