Accounting Made Simple: Understand Singapore’s Financial Reporting Standards for Startups

Your company is turning a profit, the government requires you to report your financials. As a Singapore business owner, you understand the need of exact accounting for your business activities. Businesses all over the world must declare their financial performance through financial reporting. The format for financial reporting in Singapore is definitely different from other countries due to its low taxation rules. These formats vary from country to country, and each has its own set of regulations, principles, and conventions specific to the country’s political, legal, cultural, and economic surroundings.

Don’t get panic. Singapore’s Financial Reporting Standards for Small Entities, or FRSSE, are designed specifically for small businesses like yours. The standards aim to reduce the reporting burden as well as providing transparency to investors and regulators. It gives you a clear picture of your company’s financial health so you can make informed decisions to fuel future growth. Understanding FRSSE means understanding what really matters to keeping your small business thriving.

Do you want to learn more about the global financial reporting framework? Do you want to learn more about the financial reporting rules that apply to Singapore companies? This article will provide you with a high-level understanding of accounting standards.

 

A Short Picture of Singapore’s Accounting Standards  

As a small business owner in Singapore, it’s important to understand the accounting standards that apply to you. Singapore Financial Reporting Standards (SFRS) for Small Entities is a self-contained set of financial reporting standards cater to small businesses. It is based on the full SFRS but simplified by removing topics and disclosure requirements that are less relevant for small entities.

SFRS for Small Entities applies if your company is a private entity, not publicly accountable. Most small businesses in Singapore will qualify. You are required to prepare only two primary financial statements, a statement of financial position and an income statement. No statement of cash flows or statement of changes in equity are needed. Only disclosures that are relevant for small entities are included. You can choose to apply the full SFRS if you wish, but rules for Small Entities is designed to reduce the burden for small businesses. Financial Reporting in Singapore for Start Ups aims to strike a balance between useful information and reduced costs for small businesses.

 

FRS vs. SFRS for Small Entities: Which Fall on to Your Business?

So, you’ve started a small business in Singapore and it’s time to prepare financial statements. Do the Financial Reporting Standards (FRS) or Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities) apply to you? The answer depends on your company’s public interest score.

Public interest scores are calculated based on factors like number of employees, total assets, and whether you have public shareholders. If your score is less than 10 points, you have to be grateful because SFRS for Small Entities likely applies. This means simple accounting rules and less disclosure requirements. You can focus on running your business rather than complex reporting.

For those whose score exceeds 10 points, full FRS standards apply. You can say more detailed financial statements and disclosures to provide transparency for public shareholders and creditors. FRS aims to give a “true and fair view” of your company’s financial position and performance.

• SFRS for Small Entities allows more flexibility in asset valuation and revenue recognition. FRS has stricter rules.
• FRS requires 5 years. SFRS for Small Start Ups requires only 2 years of comparative financial data
• SFRS for Small Entities has simplified disclosures and fewer notes. FRS has extensive disclosures and notes.

Benchmarks You Look Up to in the SFRS for Small Entities

To understand Singapore’s Financial Reporting Standards for Small Entities, you need to grasp some key concepts. These concepts form the ground basis for how small businesses should prepare and present their financial statements.

• Materiality

Materiality refers to the significance of financial statement information to users. Small entities can omit information that is not material to the overall presentation. This helps reduce the burden of excessive disclosures.

• Substance over form

The substance of a transaction refers to its commercial effect and economic impact. Small entities should apply this concept to achieve fair presentation.

• Accrual basis of accounting

The accrual basis of accounting requires the recognition of financial events and transactions as they occur as it is not as money which is received or paid. Small entities should recognize assets, liabilities, equity, income and expenses when they are trying to satisfy the recognition criteria.

This results in a more accurate picture of a small entity’s financial performance and position compared to the cash basis of accounting.

 

Guidelines By SFRS For Presentation of Financial Statements 

To prepare financial statements which is up to the standards of SFRS for Small Entities, small businesses in Singapore need to catch up certain presentation requirements. If you do so then it helps you to provide a fair and accurate picture of the company’s financial position and performance. You need to work on majorly two statements for making the ends meet for Presentation.

First is Statement of Financial Position. The Statement of Financial Position, we also name it as Balance Sheet, presents the financial position of the company at a specific point in time. It lists the company’s assets, liabilities, and equity. Current assets like cash and inventory are expected to be used or converted into cash within 12 months. Non-current assets include property, plant, and equipment with shelf life of more than a year.

Second focus on Income Statement, which shows the company’s financial performance over a period of time, such as a month, quarter or year. It depicts the picture of Revenue, Expenses and Profit or Loss during the course of time.

Walking behind the basic steps of the presentation requirements of SFRS for Small Entities helps small businesses in Singapore provide clear, transparent and comparable financial statements to stakeholders. The statements give stakeholders an overview of the company’s financial health and performance over time.

 

Declaring Assets Under the SFRS for Small Entities

When accounting for assets under the SFRS for Small Entities, there are a few key things to keep in mind. Stick like glue to these guidelines will give you confidence about your financial statements for an accurate and clear big picture of your company’s assets and financial position.

When it is high probability that the future economic benefits are connected with the asset will flow to the company, the asset should be recognised in the financial statements. Assets are documented at cost when they are first recognised. This covers the purchase price as well as any expenditures directly related to bringing the asset to the location and condition required for it to operate.

Most assets lose value over time through wear and tear, natural disaster or the passage of time. This reduction in value is recognized by charging depreciation expense in the income statement.

 

Liabilities and Equity: What You Need to Know

As a small business owner in Singapore, you need to understand how liabilities and equity work according to the Financial Reporting Standards (FRS). Liabilities refer to the amounts your business owes, while equity refers to the amounts invested in your business.

Liabilities is the debts you owe. Liabilities include things like loans, accounts payable to suppliers, taxes owed, and deferred revenue from customers. These are legally enforceable obligations your business must repay. Liabilities are listed on your balance sheet and reduce your net worth. To manage liabilities well, pay them on time to avoid late fees and damage to your credit. Also, don’t take on more debt than you can repay.

Equity is the funds invested in your business. It refers to the amounts invested in your business by you, investors, or shareholders. It includes amounts invested by shareholders in exchange for shares or profits reinvested in the business over time. Equity increases your net worth and is listed on the balance sheet. The more equity you have, the less dependent you are on debt to fund operations and vice versa.

Maintaining the right balance of line between liabilities and equity is key to financial health. Too much debt can be risky or too less can hinder growth. A good rule of thumb is to keep liabilities under 50-60% of total assets.

 

Recognition of Revenues and Expenses

When determining how and when to recognize revenues and expenses for your small business under FRS 105 in Singapore, there are a few key points to keep in mind and memorize them.

• The matching principle states that revenues and expenses should be recognized in the same accounting period. This means if you sell a product or service in one period, the associated costs to produce that product or service should also be recognized in the same period. For example, if you sell consulting services in December 2022, the fees of the consultants for those services should also be mentioned at the ongoing rate in December 2022 not in current month or year.
• You should recognize revenue when it is earned, not when cash is received. For the sale of goods, this is usually when the customer takes ownership and for services, this is when the service has been provided.
• Expenses should be recognized when it happened, not when cash is paid out. For example, rent expense should be note down when you get occupation, not when you pay the rent.

By sticking your mind and work to these principles, you can definitely reflect revenues, expenses, and financial performance during each accounting period properly.

 

Disclosure Notes to the Financial Statements

Disclosure notes are like short memo notes which provide important details about the numbers in your financial statements. These notes give context around the figures, explaining the accounting policies used and any uncertainties or judgements that were carried out during a course of time. For small businesses in Singapore, some disclosure notes are required to comply with FRSs. You have to explain things like:

• When do you count sales as revenue?
• How did you determine the value of your inventory?
• What formula did you use to calculate depreciation expenses?
• How did you convert foreign transactions in other currencies to SGD?
• How you estimated the portion of receivables that are not collected yet?

Providing transparent and meaningful information in these notes will give readers a crystal-clear understanding of your company’s financial position and performance.

 

Special Leniency for Small Enterprises

The Accounting Standards Council (ASC) has issued Financial Reporting Standards for Small Entities (FRSSE) to simplify reporting for small companies. If you own a small enterprise or just a startup you can enjoy the leniency offered by ASC.

• No need to prepare combine financial statements. Small entities can prepare separate financial statements for the parent company and its subsidiaries.
• They don’t have to apply the equity method to account for investments in associates and joint ventures. Small entities can account for such investments at cost.
• No need to declare fair value accounting for certain assets and liabilities.
• Exemption from certain disclosure requirements.

To win the qualifying round as a small entity under FRSSE, a company must meet at least two of the following criteria for the current and preceding financial year:

• Total annual revenue of not more than $10 million
• Total assets of not more than $10 million
• Number of employees not more than 50

 

Takeaway

Accurate and transparent financial reporting builds credibility with investors and lenders. And it gives you peace of mind that you’re operating legally and ethically. Financial reporting may not be the most exciting part of running a business, but it is one of the most important. Do it right, and it will reward you and your business in the long run.

As a small business with limited accounting and bookkeeping tools, it can be hassle to accomplish your goals. Shane Goh & Associates Company Incorporation Service steps in to simplify the difficult accounting, tax filing, and financial reporting processes. With the support of us, your small business can thrive and reach new heights. Take it step by step, learn about our accounting services in Singapore, and don’t hesitate to ask questions.