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This article is prepared by Hawksford to provide general guidance on accounting standards in Singapore. Please note that this is neither a comprehensive compilation of standards nor a professional advice but only a broad overview of the subject matter.
In an ever changing and demanding world, the accounting standards are increasingly becoming more complex. This make it more and more difficult for small businesses to feel confident that they are in compliance. Adhering to the full SFRS was difficult for small and medium size entities (SME), as they found the requirements to be a burden on their precious little resources. As in many other countries, SMEs constitute the bulk of the companies operating in Singapore.
As a measure to address the specific need of the international SMEs IASB issued an IFRS specifically for SMEs in 2009. Following this, Accounting Standards Council (ASC) of Singapore also announced the issuance of Singapore Financial Reporting Standard (SFRS) for Small Entities in November 2010.
The SFRS for Small Entities is an alternative framework to the full SFRS for eligible entities in Singapore. SFRS for SE is closely aligned to IFRS for Small Entities, and it was issued after elaborate consultation with the stakeholders. It provides an optional financial reporting standard for small entities for reporting periods beginning on or after 1 January 2011.
The objective of the SFRS for SE is to provide some relief to small entities from compliance with full SFRS while ensuring quality, transparency and comparability, which can benefit the investment community and other users of financial statements.
A Singapore incorporated company or a Singapore branch of a foreign company is eligible to apply the SFRS for SE provided
It must be noted that the SFRS for SE is effective from 1 January 2011 and in order to be eligible for the simplified SFRS, an entity must have met the criteria for each of the previous two consecutive years. An entity that qualifies under the criteria may adhere to the standards until it falls out of the size threshold for two consecutive reporting period and in such cases the company must follow the full SFRS.
A subsidiary of a holding company that follows the full SFRS can still adopt the SFRS for SMEs, provided, it meets the prescribed criteria.
Until recently all Singapore registered entities regardless of size were following the full SFRS. Now that there is a SFRS especially for the small entities, companies that qualify for the new standards have to consider few points of significance before adopting the SFRS for SE. Companies should also review their growth plans and the nature of their business before adopting these standards. Some of the issues that needs to be scrutinised are
Marginal companies that are on the verge of breaching the size threshold will be better off adhering to the full SFRS rather than vacillating between the standards. Likewise, companies that are accustomed to the full SFRS, those belonging to a group or held by parent companies that follow the full SFRS and companies, which will be negatively affected by treatment of some accounting elements under the simplified version, must refrain from adopting the SFRS for SE.
In a nutshell the simplified SFRS for small entities will be ideal for startup companies and companies that find problems with full SFRS and those companies whose statements are not used by external parties.
The complete set of Singapore Accounting Standards is available at Accounting Standards Council of Singapore.
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