Company formation in Singapore is a strategic move for global entrepreneurs, requiring astute financial management and adherence to Singapore Financial Reporting Standards (SFRS). SFRS aligns with the International Financial Reporting Standards (IFRS) to ensure accurate and reliable financial statements. However, beyond compliance, proficient financial management offers a comprehensive understanding of business dynamics, influencing decisions and potential growth. This blog post sheds light on essential financial considerations for overseas businesses and how Iris International provides comprehensive support.
Accounting standard
All companies and branches of foreign companies are required to have annual financial statements prepared in accordance with the Singapore Financial Reporting Standards (SFRS), which are consistent with the International Financial Reporting Standards (IFRS).
In most cases, companies that are classified as small companies are permitted to prepare accounts under SFRS for Small Entities (SFRS SE), which is closely aligned with IFRS for Small Entities.
Accurate financial statements are vital to any well run, successful business. They give an up-to-date picture of the financial health of a company at any time, as well as allowing compliance obligations to be satisfied efficiently. When a business is seeking to expand, either through borrowed funds or additional equity, financial statements are vital to an assessment of the creditworthiness of a business and its future growth prospects.
The majority of companies in Singapore are small companies. An entity can use SFRS SE if it is a company that is not publicly accountable. A company that is not publicly accountable is one that does not have to file accounts with statutory authorities or one that has not issued securities or shares to the market. Even if a company is a small company under Singapore’s Company’s Act, it may still need to comply with IFRS if it is publicly accountable.
The main difference between SFRS and SFRS SE is disclosure which results in simplified financial statements. The aim is to meet the needs of the users of the statements more efficiently and cost-effectively.
The implementation of and any changes to SFRS or SFRS SE are overseen by the Singapore Accounting Standards Board (SASB).
Financial year
The standard financial year-end for companies in Singapore is 31 December. However, it is open to any company to choose its financial year-end. This allows companies that are part of a larger worldwide group to align their year-end in Singapore with that of the group, making consolidation of accounts a more streamlined process.
Audit requirements
Accounts of Singapore companies need to be audited unless the company is small, as defined in the Companies Act.
A small company is a private company that satisfies 2 of the 3 criteria below in the two immediately preceding financial years:
The revenue of the company does not exceed SGD10 million per fiscal year
The company’s total assets do not exceed SGD10 million in value at the end of each financial year
The company does not have more than 50 employees at the end of each fiscal year
If the Singapore company is part of a corporate group (whether onshore or overseas), then the tests above are measured by reference to the group, rather than the company in Singapore. This can mean that a company with limited operations in Singapore may still need to be audited, because of the activities in the rest of the group.
5 reasons for using accounting services
Helps You Prepare Financial Statements
There are different financial statements that every business should arm itself with. The top 3 that startups and SMEs must prepare to assess their financial position and make financial projections include:
a. Balance Sheet
A balance sheet provides an overview of the assets (what you own) and liabilities (what you owe) of your business as of a particular date. It plays a key role in making accurate computations of various rates of return and for assessing the capital structure of your business.
b. Profit and Loss Statement (P&L)
Also known as an income statement, a P&L provides a summary of the costs of sales, expenses, revenue, and gross margin incurred by your company over the course of a specified accounting period, usually monthly, quarterly, half-yearly, or annually. It is the most common financial statement for all businesses and a go-to report by potential investors.
c. Cash Flow Statement
A cash flow statement sums up the amount of cash inflow and outflow in your business in a detailed manner compared to a P&L statement. It demonstrates the extent to which a startup generates cash to fund its operating expenses and pay its debts.
Without the abovementioned financial statements, you’ll will likely be operating your business without knowing key information about debt, expenses, profitability, and revenue. This puts your start-up at a high risk of failing.
Provides An Accurate Portrayal Of Your Financial Position
Do you want to know exactly how your start-up or SME performed monthly, quarterly, half-yearly, yearly or over a specified period of time? Accounting services is the most effective way to get an accurate picture of the currently financial position of your business. All you need to do is to carry out an in-depth assessment of your financial records and statements since they reflect your current standing as reflected by your periodic financial discussions and resulting operations.
You need accounting services because it helps you update your financial statements accurately and promptly. For instance, when you procure goods from a supplier but you miscalculate the amount paid for them, this could affect the actual value of your profits. However, a professional accountant can promptly help you identify such anomalies and guide your decisions when updating your financial statements. Therefore, without accounting services, it can be a daunting task for startups and SME owners to understand their business performance.
Supports Financial Planning For Growth
Once your start-up or SME kick starts its operations in Singapore, the obvious ultimate goal is to progressively grow and scale it in order to have a level playing field with other competitors in your sector and beyond.
The biggest question is: how do I grow my business?
The simplest answer is: You need capital!
To raise capital, you’ll need external funding. To effortlessly secure funding from external sources, you’ll need to present skillfully prepared financial records rigged with precise cash flow projections. This makes it easier for you to convince any lender or investor that your business will be profitable in the short-term or long-term.
That being said, having your accounting records in order is one of the most important things to do when you are seeking capital to grow your small business. Whether you want to secure a business loan from an investor or a line of credit from a local bank in Singapore, you’ll have to ensure that your financial documents have detailed information about your company’s financial health.
Reduces Tax Liability
Let’s face it! However much you’ll try, avoiding taxes in Singapore is something you can’t avoid, at least, legally. As such, it is important to streamline your accounting records in such a way that you can accurately project the amount of tax that your startup business should pay over a specific period. This not only keeps you informed about the right figures, but also financially prepares you for the subsequent tax period.
Any computation errors in your financial statements may lead to higher or lower amounts of tax payments. Either way, you are likely to lose money. On one hand, paying a tax amount that is lower than what you are legally obliged to may lead to grave legal consequences, such as hefty fines. On the other hand, paying a tax amount that is higher due to computation errors in your financial statements may cut down your profits.
Provides Reliable Information About Your Business Drivers
As an owner of a start-up or SME, you need to identify areas or factors that potentially facilitate the growth of your business. With a robust accounting system, you’ll will not find it challenging to sift key information on a number of business drivers that would help you answer key questions, such as:
- Which categories of products are the most profitable?
- Which categories of products are the least profitable?
- How many daily, weekly, monthly or annual orders are you receiving?
- How much capital do you need to venture into a new line of products/service?
- Which target market produces the most customers to bring in sales?
Once you answer the above questions, you can set them against your current and projected financial position, which goes a long way in ascertaining whether or not your objectives are being fulfilled. If your startup objectives does not match your projections, the information will be instrumental in restructuring your accounting system.
How Iris’s Accounting Services can assist you?
In the intricate landscape of business setup in Singapore, Iris International emerges as a reliable ally, not only aiding in compliance with SFRS and effective financial management but also extending support in foreign company registration, incorporation services, and tailored solutions. Our expertise in abroad incorporation, combined with comprehensive services like human resource management, accounting, and payroll processing, positions Iris International as a strategic partner for cross-border success. Engage with us to optimize your journey and ensure enduring financial prowess for your business.
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