Essential Accounting Practices for Corporate Compliance in Singapore
Accounting is no longer just a tool for tracking financial transactions. In today’s corporate world earmarked by transparency and the rule of law, it has evolved into a vital practice that ensures a firm’s survival, growth, and regulatory compliance.
This article looks at the essential aspects of accounting practices for corporate compliance in Singapore. We also discuss the accounting practices you must follow to comply with the law while conducting your business.
What is Accounting Compliance?
Accounting compliance refers to the regulations, standards, and practices businesses must adhere to during accounting. These regulations stand as legal requirements rather than just some recommendations. In other words, your firm may be prosecuted if you don’t follow the compliance requirements.
The global standards for accounting compliance are given by the International Accounting Standards Board (IASB), an independent, accounting standard-setting body of the IFRS Foundation. Every country creates its standards based on these guidelines from the IASB. In Singapore, the accounting standards are called the Singapore Financial Reporting Standards (SFRS). Any company registered after January 2003 has to follow them.
Accrual Accounting: The Center of Singapore’s Financial Reporting Standards
Singapore’s accounting standards are primarily based on accrual accounting, which refers to recording transactions when they happen rather than when the cash changes hands. For example, someone buys a product from you and promises to pay you tomorrow. In accrual accounting, you’d record the transaction today when it happened rather than tomorrow when you get the money.
The accrual method provides a more comprehensive view of a company’s financial health, showing not only past cash flows but also future financial obligations and expected income. It provides the actual financial situation of your company rather than just how much money it has in its bank accounts.
For the full standards, we recommend you go through IRAS’s official website.
Singapore Financial Reporting Standard (SFRS) for Small Entities (SE)
The Accounting Standards Council (ASC) in Singapore introduced a distinct set of accounting standards designed for smaller entities, known as the “Singapore Financial Reporting Standard for Small Entities” (SFRS for SE). This set of standards simplifies accounting for smaller companies and applies to accounting periods starting on or after January 1, 2011.
To qualify, an entity must fulfil at least two of the following quantitative criteria for the previous two consecutive years:
- Total annual revenue of not more than S$10 million.
- Total gross assets of not more than S$10 million.
- Total number of employees not exceeding 50.
Note: Publicly accountable companies aren’t eligible.
For tax purposes, the Inland Revenue Authority of Singapore (IRAS) accepts accounts prepared by SFRS for SE, but tax adjustments based on current tax rules and principles may still apply.
Under SFRS for SE, financial instruments can be measured either at amortised cost or fair value through profit or loss, as outlined in Sections 11 and 12. Companies have flexibility in choosing their accounting options, whether to follow the provisions in Sections 11 and 12 entirely or apply recognition and measurement provisions similar to FRS 39.
Transitioning Tax Treatment
Entities transitioning to SFRS for SE must consider their tax treatment. The choice depends on their previous tax treatment:
- Entities previously on pre-FRS 39 tax treatment can continue with it.
- Entities previously on FRS 39 tax treatment must apply SFRS-SE tax treatment.
- Entities previously on pre-FRS 39 tax treatment that shift to SFRS-SE tax treatment will need to make tax adjustments.
Newly Incorporated Entities
Newly incorporated entities that adopt SFRS for SE for their first set of accounts can choose to apply pre-FRS 39 tax treatment, with the option to switch to SFRS-SE tax treatment later.
Other Tax Differences
Entities should be aware of additional tax differences between the full SFRS and SFRS for SE, including property, plant, and equipment treatment, research and development cost expensing, and borrowing costs recognition.
For more comprehensive information, please refer to the Accounting Standards Council’s website or consult the original document provided by IRAS.
Must-Know Tips for Enhancing Accounting Practices For Corporate Compliance in Singapore
Finally, here are some tips to ensure your accounting is effective, efficient, and legally compliant:
Implement Robust Bookkeeping Systems
Accurate and organised bookkeeping is the foundation for financial stability and informed decision-making. You must ensure that every balance on bank statements matches the records, and you also need to identify and investigate identifying and investigating discrepancies as soon as they show.
Documentation and Organisation
Proper documentation of invoices, receipts, bank statements, contracts, and other relevant records ensures transparency, accuracy, and compliance with legal and regulatory requirements. An effective filing system, digitisation of documents, and adherence to retention schedules are vital to maintaining organised and accessible financial records.
Segregation of Duties and Internal Controls
An essential tip for compliance excellence is segregating financial duties and internal controls. You should establish several checks and balances within an organisation, ensuring the accurate recording of transactions and proper authorisation of financial activities. For this. assign different individuals to key financial tasks while clearing everyone’s responsibilities so everyone within the firm can keep each other at check.
Financial Analysis: A Tool for Strategic Decision-Making
Conducting regular financial analysis is important- it’s a given. However, you must also know exactly what to analyse. Based on your situation, you may have to look into financial performance, profitability, liquidity, and solvency to identify your strengths and weaknesses. Techniques could include ratio analysis, trend analysis, comparative analysis, cash flow analysis, break-even analysis, sensitivity analysis, and financial forecasting.
Compliance with Tax Regulations
Always stay updated on the tax laws. Also, given the comprehensiveness of Singapore’s taxation landscape, you should consult with tax professionals and strategically plan to minimise tax liabilities. You never know; there could just be another incentive that you don’t know of yet. The tax experts can also help you file your taxes in time so you won’t get into legal trouble unknowingly.
Looking for Accounting Services in Singapore?
You can contact 3E Accounting Singapore. We can handle accounting and bookkeeping to help you maintain compliance and focus on your firm’s growth.