How to Prepare Financial Statements in Singapore

Financial statements provide a clear overview of a company’s financial performance and position. In Singapore, preparing these statements is a requirement for companies, ensuring transparency and accountability. These reports help stakeholders like investors, creditors, regulators, and management make informed decisions. Adhering to established financial reporting standards in Singapore builds trust and facilitates strategic planning.

Components of Financial Statements in Singapore

A complete set of financial statements in Singapore comprises several distinct reports, each offering insights into a company’s financial standing. These include the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows, and Notes to the Financial Statements.

The Statement of Financial Position, commonly known as the Balance Sheet, presents a snapshot of a company’s assets, liabilities, and equity at a specific point in time. Assets represent what the company owns, categorized into current assets (convertible to cash within one year) and non-current assets (long-term holdings like property and equipment). Liabilities are the company’s financial obligations, divided into current liabilities (due within one year) and non-current liabilities (long-term debts). Equity reflects the owners’ residual interest in the business after deducting liabilities from assets.

The Statement of Comprehensive Income, often called the Profit and Loss (P&L) Account, summarizes a company’s financial performance over a specific period, such as a quarter or a year. This statement details revenues earned and expenses incurred, ultimately calculating the net profit or loss. It includes elements like sales revenue, cost of goods sold, operating expenses, and income tax expense, providing a picture of the company’s profitability and its ability to generate earnings.

The Statement of Changes in Equity tracks the movements in the equity section of the Balance Sheet over a reporting period. It reconciles the opening and closing equity balances by showing the impact of net income or loss, dividends paid to shareholders, and any additional capital contributions or share repurchases. This statement provides a detailed account of how the owners’ stake in the company has changed.

The Statement of Cash Flows reports the cash inflows and outflows during a specific period, categorized into operating, investing, and financing activities. Unlike the Statement of Comprehensive Income, which uses accrual accounting, the cash flow statement focuses purely on actual cash transactions. Operating activities relate to the company’s core business, investing activities involve the purchase or sale of long-term assets, and financing activities cover transactions with owners and creditors. This statement helps assess a company’s liquidity and solvency.

Notes to the Financial Statements provide additional details, explanations, and disclosures that supplement the main financial statements. These notes include significant accounting policies adopted by the company, a breakdown of certain line items, and information about contingencies, commitments, or related party transactions. These notes are important for a complete understanding of the company’s financial position and performance, as they clarify accounting treatments.

Accounting Standards and Principles

Financial statements in Singapore are prepared under the Singapore Financial Reporting Standards (SFRS), established by the Accounting Standards Council (ASC). The SFRS are largely based on the International Financial Reporting Standards (IFRS), ensuring global comparability and transparency in financial reporting. This framework provides relevant and reliable information to stakeholders, facilitating informed decision-making and enhancing credibility. The ASC, now part of the Accounting and Corporate Regulatory Authority (ACRA), is responsible for developing and updating these standards.

For smaller businesses, the Accounting Standards Council also introduced the Singapore Financial Reporting Standard for Small Entities (SFRS for SE). This simplified framework is designed to reduce the reporting burden for small entities while still maintaining quality and transparency. An entity is eligible to apply SFRS for SE if it is not publicly accountable and meets at least two of the following criteria for the current and preceding two consecutive financial years:
Total annual revenue not exceeding S$10 million.
Total gross assets not exceeding S$10 million.
Total number of employees not exceeding 50.

This provides a less complex alternative to the full SFRS, with simplified measurement principles and fewer disclosure requirements.

Several accounting principles guide the application of SFRS. The accrual basis of accounting requires transactions to be recorded when they occur, regardless of when cash is received or paid. This method ensures financial statements reflect economic reality by recognizing revenues when earned and expenses when incurred. Another principle is the going concern assumption, which presumes a company will continue to operate for the foreseeable future, justifying the classification of assets and liabilities and the use of depreciation. If this assumption is not valid, financial statements must be prepared on a liquidation basis.

Materiality dictates that financial statements must include all significant transactions and events that could influence users’ economic decisions. This principle recognizes that omissions or misstatements are material if they could reasonably be expected to affect a user’s judgment. Consistency requires a company to apply accounting policies uniformly from one period to the next. This ensures comparability of financial information over time, allowing users to identify trends and evaluate performance.

Gathering and Organizing Financial Data

Preparing financial statements begins with gathering and organizing financial data. This involves collecting source documents that provide evidence of business transactions, such as:
Invoices, which record sales and purchases.
Bank statements, showing cash inflows and outflows.
Payroll records, documenting employee earnings and deductions.
Contracts, detailing financial obligations and asset utilization.

These source documents form the basis for recording transactions in a company’s internal ledgers. The general ledger acts as the central repository for all financial transactions, categorizing them into accounts such as assets, liabilities, equity, revenue, and expenses. It provides the data needed for financial statement preparation. For detailed tracking of customer and supplier transactions, businesses utilize subsidiary ledgers like the sales ledger, which records amounts owed by customers (accounts receivable), and the purchase ledger, which tracks amounts owed to suppliers (accounts payable).

Maintaining accurate data capture throughout the accounting period is important. Every financial transaction must be systematically recorded, ensuring that debits equal credits in the double-entry bookkeeping system. This record-keeping supports informed decision-making, allowing businesses to track performance, identify trends, and manage cash flow. Errors or omissions in this initial stage can significantly impact the reliability and integrity of the final financial statements, potentially leading to incorrect financial assessments and non-compliance.

Compiling and Reviewing Financial Statements

The process of compiling financial statements begins with systematically posting all recorded transactions from journals to their respective general ledger accounts. Each transaction impacts at least two accounts, with a corresponding debit and credit entry to maintain the accounting equation. At the end of an accounting period, typically monthly, quarterly, or annually, the balances from all general ledger accounts are extracted to prepare a trial balance. This internal report lists all debit and credit balances, serving as an arithmetic check to ensure that total debits equal total credits. A balanced trial balance indicates that the bookkeeping system is mathematically accurate at that point, forming the foundation for preparing the financial statements.

Once the unadjusted trial balance is complete, necessary year-end adjustments are made to adhere to the accrual basis of accounting and ensure financial statements provide a true and fair view. Accruals, for instance, involve recognizing expenses incurred or revenues earned that have not yet been recorded, such as unpaid utility bills or interest earned but not yet received. Conversely, prepayments account for expenses paid in advance for future benefits, like prepaid rent or insurance, allocating the expense to the period in which the benefit is consumed.

Depreciation is another common adjustment, systematically allocating the cost of tangible fixed assets over their useful lives to reflect wear and tear. In Singapore, while accounting depreciation is recognized, for tax purposes, businesses claim capital allowances instead. Provisions are also established for probable future obligations of uncertain timing or amount, such as for doubtful debts or potential legal claims, ensuring that these liabilities are recognized when the obligation arises from a past event and can be reliably estimated.

After all adjusting entries are made, an adjusted trial balance is prepared, which then serves as the data source for consolidating the primary financial statements. Data from the adjusted trial balance is methodically transferred to populate the Statement of Financial Position, Statement of Comprehensive Income, Statement of Cash Flows, and Statement of Changes in Equity. For companies with subsidiaries, a consolidation process is undertaken, combining the financial statements of the parent company and its controlled entities to present a unified financial picture of the entire group. This involves aligning accounting policies, eliminating intercompany transactions, and ensuring consistent reporting periods across all entities.

This stage involves drafting the Notes to the Financial Statements. These notes provide additional qualitative and quantitative information, explaining accounting policies, breaking down line items, and disclosing contingencies or commitments. They help users understand the financial data and underlying assumptions.

Before finalization, an internal review and reconciliation process ensures the accuracy, completeness, and compliance of financial statements with SFRS. This review involves cross-referencing figures, verifying calculations, and checking for adherence to accounting policies and disclosure requirements. Internal audits identify potential errors or irregularities before external reporting, strengthening internal controls and enhancing financial information reliability. This rigorous review process helps safeguard against misstatements and ensures the financial statements present a true and fair view of the company’s financial health.

Statutory Filing and Compliance

Once financial statements are prepared, companies in Singapore must fulfill statutory filing obligations with the Accounting and Corporate Regulatory Authority (ACRA). All Singapore-incorporated companies, except for certain dormant relevant companies, are required to file financial statements with ACRA as part of their Annual Return. This ensures transparency and compliance with the Singapore Companies Act.

ACRA filing involves the use of eXtensible Business Reporting Language (XBRL). Since 2007, companies required to file financial statements with ACRA must do so in XBRL format. This standardized digital tagging system allows for efficient electronic exchange, analysis, and comparison of financial data by regulators. ACRA provides the BizFinx Preparation Tool, a free utility that companies can use to prepare, validate, and upload their financial statements in XBRL format. The extent of XBRL filing varies based on the company’s size and nature, with smaller, non-publicly accountable companies often filing a Simplified XBRL template, while others use a Full XBRL template.

The Annual Return, which includes the financial statements, must be filed within specific deadlines. For most non-listed companies, the Annual Return is due within seven months after their financial year-end (FYE). Listed companies generally have a shorter deadline of five months after their FYE. Failure to meet these deadlines can result in late lodgement penalties imposed by ACRA, which can range from S$300 to S$600 depending on the duration of the delay. Companies can apply for an extension of time from ACRA if unforeseen circumstances prevent timely submission, though this requires an application fee and sufficient lead time.

Certain companies may qualify for exemptions from audit requirements, particularly “small companies.” A private company is considered a small company if it meets at least two of the following criteria for each of the immediate past two consecutive financial years:
Total annual revenue not exceeding S$10 million.
Total assets not exceeding S$10 million.
Not more than 50 employees.

While these small companies are exempt from statutory audits, they are still required to prepare proper accounting records and unaudited financial statements. This exemption helps reduce compliance costs for smaller entities, but it does not waive the obligation to maintain accurate financial records.

The prepared financial statements are also linked to corporate income tax filing with the Inland Revenue Authority of Singapore (IRAS). Companies use their financial statements to determine their chargeable income for tax purposes. IRAS requires companies to file an Estimated Chargeable Income (ECI) within three months after their financial year-end. The corporate income tax return (Form C, Form C-S, or Form C-S (Lite)) must typically be filed by November 30 of the year of assessment. While the financial statements provide the basis for tax computation, specific tax adjustments are made to align with tax regulations, as accounting depreciation, for instance, is not tax-deductible in Singapore; instead, capital allowances are claimed.