A Detailed Overview on Accounting Standards in Singapore

Accounting standards in Singapore stand out from those of other countries due to its unique economic and regulatory landscape. As a global financial hub with diverse industries, Singapore's standards prioritize transparency, investor confidence, and alignment with international practices. Unlike some other countries that may prioritize specific regulatory frameworks or cultural norms, Singapore adopts a principles-based approach that allows for greater flexibility and adaptability to changing business landscapes. Additionally, the Accounting Standards Council (ASC) in Singapore plays a pivotal role in tailoring regulations to suit local needs while ensuring comparability with global standards. This ensures that Singapore's accounting standards strike a delicate balance between regulatory rigidity and adaptability and make them well-suited for the country's dynamic and diverse economic environment.

Understanding Singapore Accounting Standards

The Accounting Standards Committee (AS Committee) under the Accounting and Corporate Regulatory Authority (ACRA) formulates and promulgates accounting standards in Singapore. These accounting standards include the Singapore Financial Reporting Standards (International) (SFRS(I)s), the Financial Reporting Standards (FRS), and the Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities). In addition to prescribing accounting standards for companies, the AS Committee prescribes accounting standards for charities, cooperative societies, and societies. There are around 41 different Singapore financial accounting standards. They are named FRS X. Every accounting standard in this covers a topic, including accounting inventories, revenue recognition, etc. 

Key Accounting Standards in Singapore 

1. Singapore Financial Reporting Standards (SFRS)

SFRS largely converges with IFRS (International Financial Reporting Standards). It ensures alignment with global accounting practices while accommodating local business needs and regulatory requirements. These standards handle preparing and presenting financial statements and ensure consistency and transparency. SFRS aims to provide relevant and reliable information to stakeholders, facilitate informed decision-making, and enhance the credibility of financial statements.

2. SFRS for Small Entities (SFRS for SE)

This subset of SFRS provides simplified accounting requirements tailored for small and medium-sized entities (SMEs) in Singapore. SFRS for SE allows eligible entities to apply reduced disclosure and recognition requirements, making financial reporting more cost-effective and less burdensome for smaller businesses.

3. Singapore Financial Reporting Standards for Charities (SFRS for Charities)

SFRS for Charities is a specialized set of accounting standards designed specifically for non-profit organizations and charities in Singapore. These standards address unique accounting and reporting considerations relevant to the not-for-profit sector while ensuring transparency and accountability in the use of funds and resources.

4. Financial Reporting Standards (FRS) 109 - Financial Instruments

FRS 109 prescribes the accounting treatment for financial instruments, including recognition, measurement, classification, and derecognition. It requires entities to reflect the economic substance of financial transactions and assess the fair value of financial instruments on the basis of their characteristics and market conditions.

5. Financial Reporting Standards (FRS) 115 - Revenue from Contracts with Customers

FRS 115 establishes principles for recognizing revenue from customer contracts, emphasizing the transfer of control over goods or services to customers as the basis for revenue recognition. It provides guidance on contract identification, performance obligations, and revenue measurement.

6. Financial Reporting Standards (FRS) 116 - Leases

FRS 116 outlines the accounting treatment for leases, requiring lessees and lessors to recognize lease assets and liabilities on the balance sheet. It brings in a single lessee accounting model and eliminates the differences between finance and operating leases for lessees.

7. Financial Reporting Standards (FRS) 102 - Inventories

FRS 102 guides the measurement, valuation, and disclosure of inventories. It requires entities to recognize inventories at the lower cost and net realizable value, with the cost determined using appropriate valuation methods such as FIFO (first-in, first-out) or weighted average cost.

Key Principles of SFRS

The Singapore Financial Reporting Standards (SFRS) outline key principles that govern financial reporting practices in Singapore. Here are the key principles of SFRS:

• Fair Presentation: Financial statements must fairly present an entity's financial position, performance, and cash flows. This involves providing information faithful to the underlying economic substance of transactions instead of their legal form only.
• Going Concern: Businesses in Singapore should prepare financial reports on a going concern basis and assume they will continue their operations for the foreseeable future. This principle requires businesses to assess their ability to continue in the future. 
• Accrual Basis of Accounting: Businesses should record transactions at the time of occurring. This ensures that revenue and expenses are recognized in the accounting period to which they relate and reflect the economic reality of the transactions.
• Consistency: Business entities in Singapore should apply accounting policies consistently from one period to the next, ensuring comparability of financial information over time. Changes in accounting policies are only permitted if they result in a more reliable and relevant representation of their financial position and performance.
• Prudence: Businesses should exercise caution while preparing financial statements and ensure that the assets, income, liabilities, and expenses are not overstated or understated. This principle helps prevent the overoptimistic portrayal of financial performance.
• Completeness: Financial statements should provide a complete picture of the entity's financial position, performance, and cash flows. All material transactions and events should be appropriately recorded, classified, and disclosed in accordance with the applicable accounting standards.
• Comparability: Businesses in Singapore should prepare financial statements to allow meaningful comparisons with the entity's financial statements from previous periods and those of other entities. Consistent application of accounting standards enhances comparability across different reporting entities.
• Understandability: Financial statements should be clear, concise, and understandable to users with reasonable financial knowledge. Also, complex transactions and technical accounting terminology should be explained adequately to facilitate comprehension.

Compliance and Regulatory Framework in Accounting Standards in Singapore

Businesses operating in Singapore are subject to various compliance requirements and reporting obligations to ensure accountability and legal compliance. These requirements are enforced by regulatory bodies such as the Accounting and Corporate Regulatory Authority (ACRA), the Inland Revenue Authority of Singapore (IRAS), and other industry-specific regulators. Here are some of the key compliance requirements and reporting obligations for businesses in Singapore:

• Financial Reporting: Companies incorporated in Singapore should prepare and submit financial statements annually, using the International Financial Reporting Standards (IFRS). These financial statements must also provide a true and fair view of the company's financial position, performance, and cash flows.
• Annual General Meeting (AGM): Companies in Singapore should hold an AGM within six months from the end of their financial year. At the AGM, directors present the company's financial statements to shareholders for approval. They should also discuss the appointment of auditors, declaration of dividends, etc. 
• Annual Returns Filing: Companies are required to file annual returns with ACRA within one month of their AGM. The returns offer updated information about the company's registered office address, directors, shareholders, and company secretary.
• Tax Compliance: Companies should comply with various tax obligations administered by IRAS. This includes corporate income tax, goods and services tax (GST), withholding tax, etc. They must also file tax returns annually and pay taxes on time to overcome penalties and interest charges.
• Corporate Governance: Businesses listed on the Singapore Exchange (SGX) are subject to additional corporate governance requirements. These include adopting the Code of Corporate Governance and appointing independent directors. Meeting such requirements and guidelines promotes transparency, integrity, and accountability in corporate management.
• Regulatory Reporting: Certain industries, such as banking, insurance, and capital markets, are subject to regulatory reporting requirements imposed by industry regulators such as the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA). These requirements may include regular financial reporting, risk disclosures, and compliance with prudential regulations.
• Statutory Records Maintenance: Companies are required to maintain statutory records at their registered office address in Singapore. It includes minutes of meetings, registers of directors and shareholders, and accounting records. Also, these records must be kept up-to-date and made available for inspection by regulatory authorities when required.

Conclusion 

As Singapore progresses towards becoming a global financial hub, its accounting standards are poised for further refinement and adaptation to evolving business landscapes. In future there might be greater convergence with international standards like IFRS to enhance transparency and comparability. Additionally, advancements in technology may drive automation and digitization, revolutionizing financial reporting and compliance. However, businesses may face initial challenges in adjusting to new standards and technologies, requiring investment in training and systems upgrades. This is where trusted third-party partners will step in to help businesses meet these requirements and ensure them improved efficiency and reliability in financial reporting.

At Invensis, we help businesses in Singapore comply with regulatory requirements and reduce the risk of errors or inaccuracies in their financial reporting. Our experts have end-to-end knowledge of SFRS for small entities, SFRS for charity, Financial Reporting Standards (FRS) 116, Financial Reporting Standards (FRS) 115 and more. . Contact us to simplify your finance and accounting services.