Accounting in Singapore
The accounting procedures and financial reporting rules that apply in Singapore have been influenced by the economic, legal and political situation that has developed in the Asia-Pacific countries, as well as their cultural characteristics. Thus, the financial statements of national enterprises disclose those financial indicators that allow us to judge their real level of activity. In the global economy and in the capital movement market, such reliable and transparent information is considered the most valuable.
- What Is Financial Reporting
- International Accounting Standards Board and International Accounting Standards
- Singapore Accounting Standards
- Singapore Accounting Standards for Small Businesses
- Choosing between FRS and FRS for Small Entities
What Is Financial Reporting
Financial or accounting statements are reporting forms that contain information about the financial situation of an economic entity, how it spends and receives money, whether its activities are profitable or unprofitable.
The financial statements are based on the results of the reporting period as of the reporting date. The reporting period is a calendar year, and the reporting date is December 31. At the same time, it should be remembered that the concept of a financial year in Singapore is not identical to a calendar year. The duration of a financial year for Singapore companies may not be equal to 12 months.
Accountants of organizations must annually submit financial statements to the tax service. But well-prepared reporting also helps to effectively manage the organization.
International Accounting Standards Board and International Accounting Standards
Financial statements contain information about indicators, position and cash flows, which can be used by many when making financial decisions. Individuals who use financial statements include current and future investors, employees, lenders, suppliers and other commercial creditors, customers, governments, government agencies and the general public. They use financial statements to meet various information needs.
The most important role in the development of international accounting standards is played by the International Accounting Standards Board (IASB), an independent organization that works on financial reporting standards, operating under the aegis of the IFRS Foundation. The global goal of the IASB is to further harmonize accounting principles through the formulation of financial reporting standards and their widespread implementation. The International Financial Reporting Standards (IFRS) issued by the IASB are widely used as a reference for determining the financial well-being of companies. The reliability and quality of this system of standards is very high, but it is very complex and unmanageable.
According to IFRS standards, the liabilities of companies are reflected in their accounting in two different lines: long–term (with a maturity date of 12 months or more) and short-term (less than 12 months old).
At the end of each financial year, all Singapore companies must prepare financial statements.
According to IFRS, 4 main reports are compiled:
- About the financial position (shows the financial condition of the company as of a specific date)
- Profit (loss) and other comprehensive income (reflects the financial result obtained at the end of a certain period of activity)
- On changes in the capital (provides data for analyzing the possible receipt or disposal of economic resources, which allows you to monitor and plan further activities)
- Financial resources flow (includes information about financial resources transactions for various items)
To determine the taxable income, Singapore companies use the so-called ECI form. The calculation on this form for the purposes of declaration is made on the basis of income without deducting amounts that are not subject to taxation under partial benefits. This report is submitted before March 31 of the current financial year, in particular, for 2021, it was necessary to submit information before March 31, 2021.
Singapore Accounting Standards
Accounting, which is conducted by Singapore companies, is based on standards, which contain the basic rules and principles of accounting for financial transactions of various types. These standards were designed to systematize a set of requirements for the process of reflecting important events and processes of any company on the company’s balance sheet.
Legal regulation in Singapore is divided into two levels:
- Legislation – at this level, fundamental documents are applied, for example, the law on companies, as well as Regulations for reporting and accounting in companies
- A code of by-laws – this includes such regulatory documents as the FRSS (Financial Reporting Standards for Singapore).
Financial Reporting Standards of Singapore (FRS), were created on the basis of IFRS. All companies whose reporting period began on or after January 1st of 2003 are required to comply with the requirements of the FRS. Accrual accounting is one of the basic principles of the Financial Reporting Standards of Singapore. The financial statements are prepared on an accrual basis. According to this method, transactions and other events be recognized when they occurred and not as financial resources or their equivalent were received or paid. They are recorded in the accounting books and in the financial statements for the periods to which they relate. Financial statements prepared on the accrual basis inform users not only about past transactions with the payment and receipt of funds but also about obligations to pay financial resources in the future and about resources reflecting the funds that will be received later. The general set of accounting standards contains about 40 different standards, each of them has a name of the type FRS X, for example, FRS 1. Each standard relates to a separate topic, for example, the presentation of financial statements, profit accounting, inventory accounting, etc.
Singapore Accounting Standards for Small Businesses
In an ever-changing and demanding world, accounting standards are becoming increasingly unmanageable. Therefore, it is becoming more and more difficult for small businesses to feel confident that they are not violating anything. It was not easy for small and medium-sized enterprises to fulfill all the requirements of the FRS, as they turned into an unbearable burden against the background of the small number of valuable resources available to such companies. As in many other countries, small and medium-sized enterprises represent the bulk of companies operating in Singapore. In an attempt to meet the specific needs of small and medium-sized enterprises in different countries, in 2009 the IASB issued special IFRS only for small and medium-sized enterprises. Following this, the Singapore Accounting Standards Board also announced the release of the Financial Reporting Standards of Singapore for Small businesses in November 2010.
Financial Reporting Standards of Singapore for small enterprises is an alternative to the full set of FRS, available for enterprises that meet the necessary requirements in Singapore. The FRS for Small Entities echoes the IFRS for Small Entities, these standards were developed in close cooperation with stakeholders. This is a variant of the financial reporting standard that small businesses can adhere to in the reporting periods beginning on or after January 1, 2011. The purpose of the FRS for Small Entities is to ease the burden of small enterprises to ensure compliance with the full set of FRS, while at the same time guaranteeing the quality, transparency and international acceptability of their reporting, which undoubtedly serves the benefit of the investment industry and other persons using financial reporting.
A company registered in Singapore or a Singapore branch of a foreign company can adhere to the FRS for SE under the following conditions:
- Company is not publically accountable
- Company publishes general-purpose financial statements for third parties.
- Company is a small business. An enterprise can be considered small if it meets at least two of the following criteria:
- Total annual profit does not exceed 10 million Singapore dollars
- Total amount of assets does not exceed 10 million Singapore dollars
- Total number of employees does not exceed 50
It should be noted that the FRS for SE entered into force on January 1, 2011, and in order for an enterprise to use simplified FRS, it must meet the necessary criteria for the previous two consecutive years.
An enterprise that meets the necessary criteria can adhere to these standards until its indicators exceed the maximum limits for two consecutive reporting periods, in which case the company will be obliged to comply with the full version of the FRS. A subsidiary of a holding company that complies with the full version of the FRS can adhere to the FRS for SE, provided that it meets the necessary criteria.
Choosing between FRS and FRS for Small Entities
Until recently, all enterprises registered in Singapore, regardless of their size, used the full version of the FRS. Now that there are separate FRS for SE, companies that meet the criteria for the new standards should take into account several important factors before starting using FRS for SE. In addition, before adopting these standards, companies should carefully study their growth plans and the nature of their activities.
The following are some of the factors that should be taken into account
- Expenses for the transition to new standards – expenses for employee training, accounting system and software
- Future plans – plans for the initial public offering, the probability that the company’s performance will exceed the threshold values
- The interests of the group – the consequences for the holding companies
- Financing – financial organizations and lenders that require reporting compiled according to the requirements of the full version of the FRS, whose indicators are approaching the threshold values will be better off adhering to the full version of the FRS, rather than fluctuating between standards.
In addition, it is better to abandon the FRS for SE for companies that are used to the full version of the FRS, are part of a group of companies or are managed by the parent company, where the full FRS is used since the transition to the simplified version will negatively affect the accounting of certain items. In short, simplified FRSS for SE are ideal for startups and companies experiencing difficulties with the full version of the FRS, as well as for those companies whose financial statements are not used by third parties. A complete set of Financial Reporting Standards of Singapore can be obtained from the Singapore Accounting Standards Board.
Companies in Singapore must maintain accounting records and submit annual financial statements.
To prepare the report, you must provide:
The following are some of the factors that should be taken into account
- Statement of Comprehensive Income (i.e., Profit and Loss Account)
- Statement of Financial Position (i.e., Balance Sheet)
- Cash Flow Statement
- Statement of Changes in Equity
- Invoices and other documents confirming the economic activity of the company
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