In order to remain accurate in its audit, the Singapore Accounting Standards Council implemented a new Singapore Financial Reporting Standard for Small Entities (SFRS), along with key elements of this system’s applicability.
What is SFRS for Small Entities
Tailored after the International Accounting Standards Board’s own International Financial Reporting Standards (IFRS) for both small and medium-scale businesses, Singapore’s SFRS shall be executed on or after January 01, 2011. The SFRS is a backup structure to full SFRS designed for eligible businesses in Singapore. The enterprises are free to choose to follow either the full SFRS or the SFRS for small entities. The SFRS for small entities are customized to address the issues and abilities of smaller businesses. Before small businesses can apply for SFRS for small entities however, they should comply with the following conditions:
- The small business does not have public accountability
- The small business shall publish its general purpose and financial statements
- The small business shall meet the size test
The size test is based on three criteria. In order to qualify, the small business must meet two of its three criteria. If the small enterprise fails to meet the size test in the last two years of its business existence, it shall be deemed disqualified.
- Total number of employees not exceeding 50
- Total gross assets not exceeding S$10 million
- Total annual revenue not exceeding S$10 million
Key Features of SFRS for Small Entities
Singapore’s Accounting Standards Council emphasized the following features of SFRS for small entities:
- Reduced disclosures
- Simplified recognition and measurement rules
- Drafted in simplified style for understandability and conciseness
- Fewer options and choices allowed in accounting treatment
- Undue cost or effort principle in various places
- Aspects of full FRS not relevant to most Small Entities excluded
- Amendments to the standards done every three years only
Considerations for Small Entities Before Applying for SFRS for Small Entities
In addition to the criteria set out by the Accounting Standards Council of Singapore, small entities should consider a few factors before they decide to apply for SFRS for small entities. These factors include:
- Costs of transition – This includes implementing changes in the business’ accounting system, training for the staff, and restatement and reconciliation of initial financial statement.
- Plans for the future – Included in this factor are the IPO and the possibility that the size limits shall be breached in the future Groups. This refers to consolidation procedures and the size eligibility
Loan covenants. These are the ratios on whether to apply or be deemed required to apply the full FRS
Dividends and bonus calculations.
Should Your Business Adopt the SFRS for Small Entities
The SFRS for small entities are best applied by:
- Start-up companies – Since the company is about to begin its business, there shall be no transition costs from the previous accounting standards to the new SFRS for small entities. Therefore, the business is able to reach time as well as cost savings than when it is using the full FRS
- Companies that do not consider having listing or expansion plans
- Companies that are having difficulties in complying with the full FRS