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The Singapore Accounting Standards Council (ASC) has issued a Statement of Intent on the likelihood of adopting a simplified version of accounting standards for SMEs in Singapore.

The Singapore Accounting Standards Council (ASC) has proposed that Singapore adopts the International Accounting Standards Board’s (IASB’s) final standard on International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) as the Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities). It has issued a statement to this effect and is seeking feedback from stakeholders and the public. If adopted, the differential reporting standard could benefit Singapore incorporated small to medium sized companies in a big way.

At present, all Singapore companies are required to prepare their financial statements in accordance with the Financial Reporting Standards (FRS) framework that is in line with standards issued by International Accounting Standards Board (IASB). There is no distinct framework for SMEs. However, in reality, small to medium sized companies do not require such high levels of accounting standards. The users of financial statements of SMEs are not really interested in long-term forecast of cash flows. What they are really looking for is information on current liquidity and short-term cash flows. Often, financial statements are a means to assess corporate performance. However, this may not be the case with SMEs as most of them are managed by the company owners themselves. According to a statement issued by the Singapore Accounting Standards Council (ASC),

“The ASC has received feedback that the application of SFRS on all companies imposes a reporting burden on many small private companies, given that the users of those financial statements often do not require the level and extent of disclosure that comes with the SFRS. The ASC also received feedback that most banks tend to place greater reliance on the personal guarantees/collateral provided by the directors and/or shareholders of these companies, rather than the financial statements when considering whether to extend loans to them. The ASC also observed that many jurisdictions which adopt IFRS limit their application to listed companies only.”

Jurisdictions such as Hong Kong, Malaysia, Australia, UK, and Japan have distinct reporting standards for SMEs that consist of simplified accounting principles. The benefits of a simplified financial reporting standard are obvious. For starters, it will reduce the costs of regulatory compliance on Singapore SMEs. Secondly, SMEs will have more time, money, and resources to focus on their business operations, which will in turn enhance their productivity. The IFRS for SMEs has omitted certain topics such as earnings per share and segment reporting since they are not relevant to SMEs; has introduced simplified accounting policy options as well as other recognition and measurement principles; and has reduced the disclosure requirements, among other amendments.

A Singapore company is eligible to adopt the SFRS for Small Entities provided it is not publicly accountable and that it satisfies any two of the following three criteria:

• Its total annual revenue must not exceed S$10million;
• Its total gross assets must not exceed S$10million; or
• Its number of employees must not exceed 50.

Singapore has been ranked as the World’s easiest place to do business. Factors such as ease of Singapore company registration, low corporate income tax rate for Singapore companies, simplified compliance requirements for Singapore companies, etc. contribute to its success as a preferred business destination.

By introducing simplified financial reporting standards, Singapore enhances its appeal as a business hub. While the adoption of the IFRS for SMEs may lead to some initial financial and  resource costs, it will ultimately result in long-term benefits for Singapore’s SMEs.

Looking to start a business in Singapore? Find out more about company formation in Singapore.