Singapore FRS for Small Entities - ACRA

Singapore FRS for Small Entities
Considerations and Opportunities
Presented by Sajjad Akhtar
26 July 2011
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SFRS for Small Entities
Key Features
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What is SFRS for SEs?
• A 230-page self-contained global accounting framework
tailored for smaller businesses’ needs and abilities
• IFRS for SMEs was issued by the IASB in response to
criticism from smaller businesses that full IFRS has
become:
–Overly complex, designed for listed companies
–Does not serve information needs of users of SME
financial statements, and
–Too costly to comply with
• Adopted in Singapore as SFRS for SEs and effective from
1 January 2011
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Who can adopt the standard?
• Entities that:
– Do not have public accountability,
– Publish general purpose financial statements, and
– Meet the size test
• Size test – qualify if meet 2 out of 3 criteria:
1. Total annual revenue not more than $10 million
2. Total gross assets not more than $10 million
3. Total number of employees not more than 50 people
• Disqualified if fail to meet size test for last 2 years
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What are the key features?

SFRS for Small Entities
Considerations for Users
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What should be considered?
• Transition costs – staff training, accounting system
changes, initial FS restatement and reconciliation
• Future plans
– Are size limits likely to be breached soon?
– IPO plans
• Groups – size eligibility and consolidation procedures
• Loan covenants (ratios, whether required to use full FRS)
• Dividends and bonus calculations
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Who should not adopt the standard?
• Companies who are marginal for the size test
– Transition costs wasted if move back to full FRS later
• Companies with plans for expansion or listing
• Companies who are already comfortable using full FRS
• Companies who are part of a group using full FRS
• Companies with particular accounting issues negatively
affected by difference in treatment under FRS for SEs
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Who should adopt the standard?
• Start-up companies
– No transition costs, can achieve immediate time and
cost savings compared to full FRS
• Companies with no major expansion or listing plans
• Companies who struggle with compliance with full
FRS (eg no qualified accountant, use small audit firm)
• Owner-managed companies with few or no external
users for their financial statements ie who do not
benefit from full FRS compliance
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Practical implications of adoption (1)
• Transitional provisions include
– Opening balance sheet for comparatives adjusted
– Disclosure of impact of transition including nature of
changes in accounting policy
– Reconciliation of equity and profit or loss as previously
reported to amounts in opening FRS for SE figures
– Optional exemptions for certain areas
– Concession that if impracticable to restate opening
figures, disclose and restate at earliest possible date
• Can’t pick and choose between full FRS and SE
• Reference to full FRS if situation not covered by FRS for
SEs – may do so but not required to (para 10.6)
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Practical implications of adoption (2)
• Examples of differences between full FRS and simplified
treatment in FRS for SEs:
– R&D and borrowing costs – expensed not capitalised
– Goodwill/ intangibles – amortised, useful life deemed
as 10 years if difficult to determine, no annual
impairment reviews
– Revaluation model not allowed
– Investment properties – FV or PPE, no cost model
– No recycling of eg FX differences on net investment in
foreign operation on disposal
– Tax treatment based on ED for revised full FRS
– Financial instruments - choice of using full FRS 39
measurement & recognition, or simplified section 11/12
based on amortised cost or fair value.
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SFRS for Small Entities
Considerations and
Opportunities for Auditors
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Implications on the audit
• Initial audits of first financial statements after adoption
may be more complicated due to transition issues:
– Changes in accounting policies
– Different financial statements format and templates
– Reconciliation of impact of transition
• In future, the simplified framework should result in
simpler audits:
– Fewer disclosures to deal with
– Less management judgement and choice to assess
– Simplified accounting treatments easier to audit
– Less frequent amendments to the standard
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Practical considerations for auditors
• Training needs – staff need to be familiar with SFRS for
SEs as well as full FRS, and their differences
• Forward planning – identify clients who would benefit
from adoption
– Be proactive in advising them
on all considerations
– Allow time for transition
issues and problems
Eg company with R&D costs
will need to expense, is that ok?
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Implications on fees
• A simpler audit should be faster and cheaper ie may
result in reduced fees
– Particularly in context of likely increases in audit
exemption threshold
• BUT time saving for both auditor and client should be
seen as a business opportunity
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Opportunities for auditors
• How can SMPs make up for fee income lost due to
fewer and simpler audits?
• How else can SMPs be of value to their SE clients?
CONSIDER OTHER SERVICES
Existing clients
New clients
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Accounting services

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Other assurance and tax services

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Business support services

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Advisory services

Next steps
• Do you have the resources in place to expand your role in
other service areas?
– Existing expertise and resources
– Training needs
– Recruitment criteria for new staff
– IT software requirements
• What services do your
clients want and need?
– Ask them!
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Conclusion
• SFRS for SEs can be a very useful reporting framework
for the right size and type of companies
• Take initiative to advise clients on adoption
• Plan ahead for the implications for your practice of
differential reporting and likely increases in the audit
threshold
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Any questions

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Thank you