Introduction to Singapore Accounting Standards

This article provides general guidance to Singapore accounting standards. The spate of accounting and corporate governance scandals in the U.S. and elsewhere continues to unfold. Due to the global nature of business in the twenty-first century, worldwide efforts are underway to establish standardized sets of accounting rules.

What are Accounting Standards?

Accounting standards consist of a set of principles and governing practices for treatment of various financial transactions. The key objective of the accounting standards is to set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements. These statements give information about performance, position and cash flow that is useful to a range of users in making financial decisions. 

The users of financial statements include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the general public. They use financial statements in order to satisfy some of their different needs for information. 

Singapore Accounting Standards

Singapore accounting standards are closely modelled after the International Accounting Standards and International Financial Reporting Standards issued by the International Accounting Standards Board. Accounting standards in Singapore are now prescribed in the Companies Act and are known as Financial Reporting Standards (FRS). All companies with financial period starting on or after 1 January 2003 have to comply with Financial Reporting Standards (FRS). 

Accrual-based accounting is one of the main principals of Singapore accounting standards. Financial statements are prepared on the accrual basis of accounting. Under this basis, the effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Financial statements prepared on the accrual basis inform users not only of past transactions involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future. 

The overall set of accounting standards in Singapore contain about 39 different standards with each standard named as FRS X e.g. FRS 1. Each standard covers a specific topic such as presentation of financial statements, recognition of revenue, accounting for inventories, and so on.

Examples of Singapore Accounting Standards 

FRS 1 - Financial Statements

FRS 1 deals with presentation of financial statements. It sets out requirements for presentations of financial statements, guidelines for their structure, and minimum requirements for their content. 

A complete set of financial statements consists of: 

• Statement of Financial Position (aka Balance Sheet)
• Statement of Comprehensive Income (aka Profit and Loss Statement) 
• Statement of Cash flow
• Statement of Changes in Equity
• Notes, comprising a summary of accounting policies and other explanatory information

Examples of FRS 1 accounting standards: 

1. An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting
2. When preparing financial statements, management make an assessment of an entity's ability to continue as a going concern. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is no longer regarded as a going concern. 

FRS 2 - Inventories 

FRS 2 accounting standard provides requirements and guidelines for accounting of inventories. This standard offers guidance on the determination of cost and its subsequent recognition as an expense, including any write down to net realizable value. It also provides guidance on cost formulas that are used to assign costs to inventories.

Examples of FRS 2 accounting standards: 

1. When inventories are sold, the carrying amount of those inventories shall be recognized as an expense in the period in which the related revenue is recognized.
2. The cost of inventories shall be assigned by using the first-in, first-our (FIFO) or weighted average cost formula.
3. Inventories shall be measured at the lower of cost and net realizable value.

FRS 18 - Revenue

The objective of FRS 18 accounting standard is to prescribe the accounting treatment of revenue generated during the course of business. The primary issue in accounting for revenue is determining when to recognize revenue. 

Examples of FRS 18 accounting standards: 

1. Revenue from the sale of goods should be recognized when it's probable that the economic benefits associated with the transaction will flow to the entity. 
2. The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method. 
3. Revenue should be measured at the fair market value of the consideration received or receivable.

The complete set of Singapore Accounting Standards is available at the website of Accounting Standards Council of Singapore.