Basics of Financial Year End Closing and Compliance Alert
As we quickly approach year end it’s again time to focus on closing your company’s accounts.
Accounts and financial statements will be required to:
- Provide key information to stakeholders
- Review company performance, track cash flows in addition to budgeting
- Analyze assets, liabilities, and changes in owner equity
- Hold management, directors and shareholder meetings
- Comply with statutory and income tax filing regulations
Regardless of whether the account will be audited or not, there is a hard and fast list of factors that must be considered when closing an account. Let’s review.
Key Considerations for Standalone Companies
Revenue Recognition
FRS 115 requires entities to recognize revenue in an amount that represents the consideration to which they expect to be entitled for the goods and services provided by a company. It is crucial that the company review its revenue recognition policy and determine when control of goods and services will transfer and when revenue should be recognized.
Based on the five-step model framework of FRS 115, revenue is usually recognized “at a point in time” (typically, upon delivery) or progressively “over time” (typically, by using the percentage of completion method).
Functional Currency
Functional currency reflects the primary economic environment in which an entity generates and expends cash and the accounting ledgers that are usually maintained. As an example, a company that trades timber internationally, buying from Indonesia in USD and selling to India in USD, with the currency used entirely USD. Therefore, the company’s functional currency should be USD and not Singapore dollars.
Assessment of Principal or Agent
When it comes to its activities, the company must assess whether it is acting as a principal or an agent. This is crucial for determining whether revenue should be reported on a gross or net basis.
If the company acts as a principal in a transaction, revenue is reported on a gross basis, and if it is acting as an agent, revenue is reported on a net basis.
Accountants / and management should consider the above when performing year-end closings for standalone companies.
Key areas for a single company, as well as considerations if being audited:
Key Area | Detail | If Being Audited |
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Taking Inventory |
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In the event that an audit is required, notify your auditing firm to attend the taking of inventory |
Cash Count |
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Auditor should observe the count if the amount is material |
Banking |
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Contact your auditors to send bank confirmations |
Trade Receivables |
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Contact your auditors to send trade confirmations |
Trade Creditors |
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Contact your auditors to send out trade confirmations |
Property, Plant, Equipment (PPE) |
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Notify your auditing firm to attend the physical sighting |
Right-of-Use asset (ROU) / Leases / Provisions for Restoration Costs |
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ROU pertains to the lessee’s right to occupy, operate, or hold a leased asset during the rental period and will be important to any audit |
Investment Properties |
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Investment in Other Financial Investments |
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The investment in unquoted shares (private companies) must be measured at fair value in accordance with FRS113 Fair Value measurement |
Accrual / Provisions |
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Prepayment |
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Dividends |
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Provision for Income Tax |
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Year End Account Closing |
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Prepare Financial Statements |
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Over the years accounting standards and compliance with tax laws have become more complicated, increasing the importance of outside accounting firms. An excerpt from the November 17, 2021 issue of Singapore Business Review.
“Looking into the last five years, the study found that 82% of businesses have already encountered accounting and tax compliance-related challenges.
These businesses said their failure to comply has brought them reputational damage (53%), internal disciplinary action (37%), and fines (35%).
To counter future challenges, 78% of businesses said they will invest in new accounting and tax compliance technology over the next five years; however, 39% of them are being held back by a lack of team knowledge and skill.”
Do you need assistance with any of the above areas with your year-end closing? If so, please get in touch with us.