Financial Reporting Environment In Singapore Accounting Essay

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This report provides information on the financial reporting environment in Singapore, which can be used by Taste of Aussie Ltd as a guide for both financial reporting and decision making to establish a distinctive F&B brand and outlet in Singapore.

Financial Reporting Environment in Singapore

In Singapore the Accounting Standards Committee (ASC) is in charge of standard setting. Singapore closely models its Financial Reporting Standards (FRS) according to the International Financial Reporting Standard (IFRS), with appropriate changes made to suit the Singapore context. Before a standard is enacted, consultations with the International Accounting Standards Board (IASB) are made to ensure consistency of core principles.[1] It is strongly influenced by professional accounting bodies rather than government due to it being an Anglo-American model. Financial statements are prepared on the accrual basis of accounting as it is one of the main principals of Singapore accounting standards. Under this basis, users were informed not only of the past transactions involving the payment and receipt of bash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future. The overall set of accounting standards in Singapore contain about 39 different standards and each covers a specific topic such as presentation of financial statements, recognition of revenue, accounting for inventories and more.

Cultural Influences on Singapore's Financial Reporting

Upon understanding the accounting standard in Singapore, we have to understand the cultural influences on the financial reporting standards. Hofstede (1980, p25) defines culture as 'the collective programming of the mind which distinguishes the members of one human group from another'.

This is important as culture influences: (i) the norms and values of systems, (ii) behaviour of groups in their interactions within and across systems, and we have to understand them to understand how the reporting system works. (Harrison & McKinnon, 1986)

Source: Gray, S.J (1998), Towards a theory of cultural influence on the development of accounting systems internationally, Abacus, pp12

Gray's (1988) study had shown that a country's accounting system can be explained by the accounting values, which were derived from Hofstede's (1984) cultural dimensions (Power Distance, Individualism vs. Collectivism, Uncertainty Avoidance, and Masculinity vs. Femininity). Gray had identified four accounting values (Professionalism vs. Statutory Control, Uniformity versus Flexibility, Conservatism vs. Optimism, and Secrecy vs. Transparency) and made hypotheses to link them with Hofstede's cultural dimensions.

A research by ITIM International (2012) had compared the cultural dimension indexes of Singapore with that of Australia in Figure 1. Figure 2 gives an overview on the accounting values which would then determine the accounting practices.

Figure 1: 2012 Singapore against Australia Cultural Dimensions Indexes

Source: ITIM International 2012, Geert Hofstede Cultural Dimension,Singapore

Figure 2: Gray's Hypotheses in Accordance with Hofstede's Cultural Dimensions

Lastly, Singapore is more transparent, so they will disclose more information about its financial position and performance to enable better comparison of the level of performance of different entities to see where they stand.

Political Processes

Deegan (2006) states that accounting standard setting is a political process as it are not as simple as it seems due to the many complications associated. Accounting standards can have a wide range of economic consequences as it can affect economic relationships and distribution of wealth among individuals and groups via the general purpose financial report.

Watts and Zimmerman (1978), Smith and Warner (1979) were of the view that regulations are not required to control the economy as the organizations have enough incentives to provide credible information about their organization to the stakeholders. They further argue that the demand of standardization of accounting information is raised by those groups who want to control the market for their own benefits. While other researchers like Cooper and Keim(1983), Demski and Feltham (1976) argue that free market theory lead to the market failure and there will be a chaos as accounting information provided by the organizations on the need of their users will differ considerably, so in order to make the accounting information user friendly, the regulation is a must.

Regulation of auditing and financial reporting is no longer localised but carries a global perspective. International issuers in Singapore's capital market are increasingly significant in both market and strategic value. At the same, Singapore companies are crossing over to international market in pursuing growth opportunities in the global marketplace. Moving in tandem with global entrepreneurship and capital flows in the preparation of financial reports, which now operates in a global environment that extend well beyond Singapore's shores. A win-win proposition for both the audit regulator and the audit profession to ensure investors on receiving high quality financial and audit reports, regardless of where the issuer is incorporated. This is vital for Singapore's reputation as an trusted international financial hub.

Convergence of FRS with IFRS

It was announced that the Accounting Standards Council (ASC) has completed its review of the plans for full convergence of the Singapore FRS with the International Financial Reporting Standards (IFRS) for Singapore incorporated companies listed on the SGX.

The timeline for full convergence will be adjusted in tandem with international developments, and will depend on the progress of the key projects undertaken by the International Accounting Standards Board (IASB). These key IASB projects are still in progress, and are not expected to take effect before year 2015.

Information provided in the Financial Statements

BreadTalk contents page from: Annual report 2012 BreadTalk's contents page from: Annual report 2003

As seen from above, the BreadTalk's Annual Report provides a wide range of financial and non-financial information to the stakeholders, showing its strategy and financial position which allow them to make decisions regarding the company.

Additional Report

BreadTalk's Annual Report 2003, Pg.17.

Apart from financial information, BreadTalk Group Limited provides non-financial report in its annual report. This include a voluntary disclosure with a Corporate Responsibility Report, it is a triple bottom line reporting which address human, environmental and other social issues to the public community and consists information on the sustainable activities the company has undertaken in the past till date as shown on the above.

Influences of Reporting Environment on BreadTalk

Under the cultural influences, Gray's (1988) study had shown that the strong accounting values are Professionalism, Flexibility, Optimism and Transparency. Thus, they use their judgment to apply a variety of accounting methods in a principle based accounting standard. However due to their optimism, they will be less prudent and utilise accounting methods that lead to higher levels of performance. Also the company is more transparent to disclose more financial and non-financial information as seen from its annual report and corporate responsibility report.

Legitimacy Theory, a social contract cover the society's expectations and norms about what the company should do, and "legitimacy" is considered as an important resource which a company is dependent on for survival (O'Donovan 2002).

An organisation's goal should harmonise with the societal expectations of the environment in which it operates in. Therefore, BreadTalk disclosed information regarding its impact on the social and environmental issues on an accurate and timely basis. By being compliance to these societal expectations, it would ensure loyalty and support from customers and employees, as well as the trust of the communities.

Stakeholder theory, means of business ethics and organizational management that addresses values and morals in managing an organization. Freeman (1984) identifies and models the stakeholders of a corporation, and both describe and recommend methods which the management can use to benefit the interests of those groups. In short, it attempts to address the "Principle of Who Really Counts." (Freeman, 1984). BreadTalk tried to address all the different stakeholders by providing a financial focused annual report and a non-financial focused corporate responsibility report.


Financial reporting is influenced by different political and cultural backgrounds, affecting the way organizations deliver information to their stakeholders. Convergence of standards to achieve a 'one-size-fits-all' notion still poses challenges even though the trend has scaled towards accepting international standards progressively. Nonetheless, the problems can be overcome with higher quality formulation of standards which is able to addresses the different backgrounds and requirements of the countries. Lastly, it is important for the company who wish to venture into Singapore's capital market to have relevant information on Singapore's economic and social environment, so as to make optimal business decisions. Management should weight the costs and benefits of various business practices as to effectively adopt them on meeting the company's strategic objectives and goals.