Arguably, the Singapore Accounting Standards have been internationally acclaimed as an exemplar of accounting best practices.

These standards are custom-made exactly for Singapore businesses to help them leverage their unique advantages and, at the same time, remedy their particular deficiencies; and their principles are firmly aligned with the international accounting standards to boot.

This brief article will first give you a general idea of the International Financial Reporting Standard (IFRS) and how it gave rise to the Singapore Financial Reporting Standard (SFRS), which as of late bred the Singapore Financial Reporting Standard for Small Entities – a simplified variation that fits certain categories of businesses.

Overview of the International Financial Reporting Standard

Back in the day, each country devised and adopted a different approach to financial accounting, which, needless to say, stemmed from the uniqueness of their cultural, political, and economic climates.

Against the backdrop of a volatile and immature market at the time, it is straightforward that adjusting the reporting practices this way to fit their situations is a viable way to adapt and thrive.

Yet there is a fundamental flaw in this approach: international uniformity and comparability in the reporting format are non-existent. And sure enough, given the increasing pace of globalization of the world economy, perpetuating this lack is tantamount to taking steps backward.

This is when the International Financial Reporting Standard (IFRS) – the first accounting standard established by the International Accounting Standards Board (IASB), came on the scene in 1973.

With the stated purpose to augment transparency, accountability, and efficiency by defining a universal standard in financial reporting between and among countries, this body is the key facilitator of international trade and investments.

Overview of the Singapore Financial Reporting Standard and its guideline

Underpinned by the fundamental principles of IFRS, the Singapore Financial Report Standard (SFRS) is established and, ever since, has been recognized as the official accounting standard of Singapore. Not only does SFRS allow for great flexibility that befits Singapore’s unique ecosystem, but it also inherits the universality and prudence of its groundwork – the IFRS.

Furthermore, ACRA – the governing body responsible for the regulation of companies in Singapore, sets it straight that companies commencing their financial periods on or after 1 January 2003 are obliged to abide by SFRS.

The Accounting Standard Council (ASC) is the regulatory body responsible for the formulation and promulgation of SFRS.

Overview of Singapore Accounting Standards for Small Entities

The requirements laid out by SFRS, without a doubt, are of great integrity and soundness. Yet they can seem like a bureautic red tape.

Meanwhile, SMEs are ubiquitous in Singapore; they dot much of the island and also account for the lion’s share of employment here. These small businesses have limited resources and therefore would find conforming with the full set of SFRS a considerable yet unnecessary expense.

This pressing need for new practice and procedure was crystal-clear and the ASC was quick to fulfill it.

In 2010, they introduced a simplified variation of SFRS to befit SMEs. It is dubbed Singapore Financial Reporting Standards for Small Entities (henceforth SFRS for SE) and its initial goal was to reduce the burden of the full SFRS that SMEs were shouldering back then.

At first glance, ASC eliminated or simplified a great deal of unnecessary and hassle-laden requirements, whilst leaving enough to ensure the reliability and integrity of the accounting standards.

What’s more? This alternative is not mandatory and, under certain conditions, SMEs are allowed to opt for it as deemed necessary.

We venture to say that SFRS for SE is an optimal choice for most SMEs as it is rather hassle-free and at the same time reflects prudence and transparency of the international standard.

What are the eligibility criteria for SFRS?

Your business entity, whether one that is locally incorporated or a branch of a foreign company located in Singapore, could be eligible to switch to SFRS for SE as long as:

  • It does not have public accountability.
  • It publishes general-purpose financial statements for external users.
  • It is a small entity.

There are 2 points that deserve thorough explanations: public accountability and small entity.

What does it mean to have public accountability? According to SFRS for SE, a business entity has public accountability if it falls into one of the below cases:

  • Its debt or equity instruments are traded in a public market or it is in the process of issuing for public trading;
  • It is a deposit-taking entity and/or holds assets in a fiduciary capacity for a broad group of outsiders as one of its main businesses i.e. banks, insurance companies, securities brokers/dealers, mutual funds, investment banks…
  • It is a public company or a charity as defined under the Singapore Companies Act or the Charities Act, respectively.

How about a small entity? Under the Companies Act, a business entity is deemed a “small entity” or a “small business” if it fulfills 2 out of the following 3 criteria:

  • Its total annual revenue evaluated at the end of the preceding fiscal year must not exceed S$10 million.
  • Its total assets evaluated at the end of the preceding fiscal year must not exceed S$10 million.
  • Its total number of full-time employers on the payroll at the end of the preceding fiscal year must not exceed 50.

It should be well-noted that in order to qualify for the SFRS for SE, your company must continuously meet the criteria for at least 2 years in a row. Should its scope be expanded outside of the size threshold, it is still required to adhere to the modified SFRS for at least 2 more consecutive years until it is eligible to switch back to the full SFRS.

The application of a company that has one or more subsidiaries will be evaluated on a consolidated basis. Moreover, a newly incorporated company can opt to elect for SFRS for Small Entities in the first two years after incorporation if it meets 2 conditions regarding public accountability and publishing financial statements for external users.

As we mentioned above, a subsidiary of a foreign company is within the sphere of eligible entities, so you are allowed to apply for SFRS for SE provided that it meets all the criteria.

BBCIncorp is a premier accounting service in Singapore, trusted to deliver the best results in a timely manner, get in touch with us for practical support!

Key considerations when choosing between SFRS for SE and the Full set of SFRS

Whether SFRS for SE would help or hinder your business should be put on the table and studied carefully.

It is easy to take it at face value and blindly switch to SFRS for SE as a way to cut costs and optimize resources. Because in some ways, it is. Yet this scheme could influence, for better or for worse, your reporting practices and your system as a whole.

Here are some key considerations that you need to take into account before switching to SFRS:

  • Retraining costs: Switching to the new standards would amount to the cost of retraining current staff and, inevitably, the costs of employing and onboarding new hires.
  • System reform costs: You should seriously consider the cost of overhauling the accounting software and accounting system.
  • Effect on long-term plan: Will your company ever grow out of the size threshold? Or better yet: How long will it take to cross the threshold?
  • The influence on the stakeholders: You should get buy-ins from the inside out. First, seek approval from shareholders and then from the financial lenders and institutions to see if these key individuals are all on the same page.
  • The influence on the group company: If your company is a subsidiary, switching to SFRS for SE would likely cause disturbance to other subsidiaries, and the holding company when converting to full SFRS is needed for preparing consolidated financial statements.

Some authorities have stated that, with which we entirely concur, SFRS for SE is best suited for start-ups and small to medium-sized companies who find the full set of SFRS a financial burden and who do not distribute their statements to the public.

Nevertheless, if your company is doing great adhering to the full set of SFRS, then you should keep things as they are.

Should you have any questions regarding Singapore Accounting Standards, drop us a chat message or send an email via

Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.

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