Financial reporting plays a pivotal role in the transparency and credibility of businesses. Format for financial reporting used to be different from one country to another, as each format carries a unique set of rules adapted to the country's political and economic environments. However, due to the increased global business activities, the need for a standardized form of financial reporting drove the establishment of more globally standardized financial reporting.
In Singapore, all companies incorporated in the country must follow the Singapore Financial Reporting Standards (SFRS), which are based on the International Financial Reporting Standards. More than that, as a response to the growing numbers of startups and SMEs in Singapore, SFRS for Small Enterprises (SE) was established in January 2011.
What are SFRS for Small Entities?
SFRS for SE is purposely developed to make financial reporting for SMEs much easier, but at the same time - still maintains high quality, transparency, and comparability in financial reporting.
One significant difference in SFRS for SE compared to regular SFRS is that it only needs fewer specific details to be shared. This makes it easier for small businesses to adjust to what they need and report according to their size and resources.
These standards touch on different parts of financial reporting, like how statements are shown, what gets recognized, how things are measured, and what needs to be disclosed. Understanding the SFRS for SE is crucial in ensuring compliance and maintaining financial transparency.
What are the Benefits of SFRS for SE?
For businesses, complying with SFRS for SE can offer numerous benefits. Here are some of the ultimate benefits of SFRS for SE:
- Enhances Credibility
SFRS for SE is designed to improve the credibility of financial statements. By adhering to these standards, companies will be able to demonstrate their commitment to transparency and accuracy in reporting financial information. In response, this can help enhance trust among investors, creditors, and stakeholders, as they have a standardized framework to assess the company's financial performance.
- Ensures Regulatory Compliance
SFRS for SE ensures that companies comply with the established financial reporting requirements set by the authorities in Singapore. Compliance is crucial for avoiding penalties, maintaining legality, and aligning with the country's financial reporting regulations. Adherence to these standards helps companies stay updated with any changes in reporting requirements, ensuring ongoing compliance.
- Provides a Clearer Picture of Financial Health
Following SFRS for SE enables companies to present financial statements that are consistent, comparable, and transparent. This clarity can help to assess the company's financial health, performance, and position accurately, facilitating better decision-making by various stakeholders.
How Does a Company Qualify For SFRS for Small Entities?
Companies can use the simplified version aka SFRS for SE when filing for their financial report if they fall under these two categories:
The company should fall within the definition of a "small entity" based on its size, which could include factors like revenue, total assets, or the number of employees. A company can be classified as a small entity if they fulfill two of the three following conditions:
- The company's total annual revenue is not more than S$10 million
- The company's total gross assets of not more than S$10 million
- Total number of employees of not more than 50
Public Accountability Company
The company should not have public accountability. This means it's not publicly traded or part of a larger group that is publicly accountable.
Why Should You Consider SFRS for SE for Your Company?
If you are unsure which financial standard you should adopt for your company, you can carefully consider these crucial aspects we've curated below!
- Current Accounting System
If your company is already utilizing SFRS and doing well with it, you might want to consider whether changing to SFRS for SE is worth the hassle. You should think about the costs associated with potentially overhauling the entire accounting system. This includes expenses related to software, training, and human resources required for the transition to SFRS for SE.
- Future Growth Plans
Assess the future plan of your company. Is there a likelihood that the company will outgrow the size threshold designated for SFRS for SE in the near future? If future expansion is on the horizon, sticking to the regular SFRS might be better to accommodate future growth without necessitating frequent changes in reporting standards.
- Subsidiary Considerations
For companies operating as subsidiaries within a larger group, switching to SFRS for SE might affect other subsidiaries or the consolidated financial statements. Evaluate the impact this change might have on the overall financial reporting of the group.
To conclude, SFRS for SE serves as an ideal choice for startups and small to medium-sized businesses that do not foresee significant growth soon. It offers a simplified reporting framework tailored to their scale and resources, promoting ease of compliance and streamlined financial reporting processes.
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Save a great deal of time by hiring Wealthbridge accounting teams to prepare for your financial reporting. Whether your company needs fill-in for SFRS or SFRS for SE, our team will be able to handle all your needs carefully.
Contact us today and start your journey toward accurate and reliable financial reporting in Singapore!