Why Should I Outsource my Accounting Functions?
Generally, most companies incorporated in Singapore and branches of foreign companies (with the exemption of companies that are considered exempt) are required to prepare their financial accounts annually in accordance with the Singapore Financial Reporting Standards (“SFRS”).
Since 2011, the Accounting and Corporate Regulatory Authority (“ACRA”) has established the Financial Reporting Surveillance Programme (“FRSP”), where a selected pool of financial statements are reviewed to determine if they comply with the SFRS and give a true and fair view of the company’s profit and loss, as well as the state of affairs of the company.
While Singapore has been moving towards adopting the International Financial Reporting Standards (“IFRS”) adopted by countries such as Australia, Canada and the European Union, there are still some differences with the SFRS, hence all companies are largely encouraged to seek the professional services and advice from professionally accredited accountants registered with the Institute of Singapore Chartered Accountants (“ISCA”).
What Accounting Functions would I need?
For budding entrepreneurs or new foreign investors, here are a few of the accounting functions that you may require, some of which, such as GST computation and conversion of financial statements to XBRL (extensible business language) format, are unique to Singapore:
- Statutory Accounting
- Computation of quarterly GST returns
- Compilation of monthly management financial reports
- Preparation of financial statements in compliance with the SFRS
- Preparation of financial statements in XBRL format for submission to the Accounting and Corporate Regulatory Authority (“ACRA”)
- Processing of payment for vendor invoices and employee expenses
- Issuance of payment vouchers, preparation of cheques and fund transfers
- Mailing signed cheques to payees, processing electronic payments or remittance of funds by telegraphic transfer
- Liaising with auditors and any other third parties
- Computation of Estimated Chargeable Income
Focusing specifically on the accounting functions that are unique to Singapore – GST, otherwise known as Goods and Services Tax, is similar to the VAT of European countries and is charged at a flat rate of 7%, regardless of the type of good or service. Almost all sales and services performed locally are subject to GST, with the exception of exported goods and international services, such as air tickets. Companies that wish to charge GST for their goods and services will have to apply for GST registration.
In addition, any business that purchases products from local suppliers may incur GST on these business purchases and expenses, known as “input tax”. Companies can claim input tax if it fulfils all the necessary conditions. This claim will be submitted to the Inland Revenue Authority of Singapore (“IRAS”), for its assessment and approval.
With effect from 3 March 2014, ACRA has mandated that almost all companies will be required to submit their financial statements in full XBRL format. Companies that would be considered exempt are companies limited by guarantee, or foreign companies and their local branches. Preparation of the financial accounts in XBRL format will be a challenge for those unfamiliar with financial accounts. Hence, it is considered prudent to seek the professional services of an experienced accounting firm such as Rikvin to assist you in this area, particularly since ACRA will hold the directors of the company responsible if its financial statements are found to be incomplete or not up to par.
Why outsource your Accounting and Bookkeeping Functions?
Companies mainly chose to outsource their accounting and bookkeeping functions for the following reasons:
Companies that fall into this category are usually small and medium enterprises (“SME”), which need to prioritise their plans for business expansion, growth, training, and research and development over administrative costs.
Rather than hire a team of experienced accountants, or rely on one overworked employee who may be performing multiple duties, companies often find that it is more beneficial to outsource their accounting functions and benefit from having the assistance of an entire team of professionally accredited accountants.
Temporary shortfall in manpower
This typically occurs when there is a sudden drop in manpower in the company’s accounting department, which may be due to a variety of reasons, such as retrenchment, maternity leave, temporary leave of absence, or resignation of employees. As these circumstances are usually temporary, companies may not necessarily want to hire a new employee immediately.
There are some accounting firms such as Rikvin that offer secondment services, where their experienced staff can step in during this interim period.
Given the relative flexibility and the assurance that the incoming staff from Rikvin will be qualified, professional and experienced, some companies opt for this alternative, instead of looking for a short-term contract staff.
Alternatively, companies may simply opt for this on an annual basis, during the “peak” period of the reporting season.
Merger and Acquisition
In instances where an SME goes through a merger or acquisition, the SME’s existing accounting team may require some additional assistance in adapting to consolidating the group accounts, installation of new accounting software, clearing of backlog accounts etc. In these situations, additional assistance may be temporarily required. Particularly in situations where there is a tight timeline before an audit of the company is completed for the merger and acquisition exercise, companies may not have the luxury of recruiting new employees to assist them.
General Accounting Problems
It may be the case that subsequent to a transition of several employees, the company’s accounting team may require some assistance to look through the records and reconstruct past accounts, clear backlog accounts, resolve general accounting related problems or even forensic accounting, in situations where fraud may be suspected.
Given that the team has to continue with their day-to-day functions, the company may wish to seek additional assistance to resolve these issues quickly, particularly if the company is at risk of being late to comply with the annual requirement to submit its accounts to ACRA.
Indeed, the penalties for non-compliance are significant. The Companies’ Act provides that the company and every officer of the company (including its directors and company secretary) who are in default shall be liable on conviction to a fine. Hence, it would be prudent for companies to ensure that bookkeeping records are in order and accounts are prepared on a timely basis.
The Value of Outsourcing your Accounting and Bookkeeping Functions
It is not possible to define the tangible dollar amount that outsourcing your accounting and bookkeeping functions can do for your company, but here are the various intangible benefits that your company and your employees can enjoy:
Professional and Reliable Advice
Professional accounting firms such as Rikvin employ professionally qualified and accredited accountants who are certified by the ISCA. In addition, their accountants are exposed to a wide range of companies in different industries, all with unique circumstances; and can leverage off their experience to advise clients. Particularly in situations where a company has relatively inexperienced staff, outsourcing part of the company’s accounting and bookkeeping functions can help with reducing the workload, as well as providing its employees with sufficient time to learn on the job.
Companies can also leverage off innovative software, which professional accounting firms such as Rikvin has invested in to increase productivity and efficiency for its clients. One great example is Rikvin’s Accounting and Payroll software.
More importantly, Rikvin’s team is regularly updated on changes in the market and is well positioned to advise how your company can benefit from the various tax incentives and other pro-business initiatives aimed at helping entrepreneurs and SMEs compete in the local and international markets.
Moving Forward, to Greater Heights
The start to any business is the ability to visualize its execution, build on its market appeal and grow the business. With that vision in mind, the company’s management’s first and foremost priority should be making that vision a reality. Allowing issues such as accounting and bookkeeping problems to cloud that vision can be a great opportunity cost to the company, particularly when copycats in the market can emerge rapidly.
Keeping Employee Morale Up
While it is a “cost-centre”, a company’s accounting and bookkeeping functions are extremely important and integral to the functioning of the entire company. In the case where a company’s accounting function is not in proper order, vendors and suppliers may not get paid on a timely basis, employees may not get their salaries on time, employees who seek reimbursement for petty cash expenses may find it extremely frustrating to resolve their issues with an overworked and overloaded department; and auditors may demand more time and effort from the company’s employees to resolve and answer for lapses in any bookkeeping.
At the end of the day, maintaining a good accounting and bookkeeping function for your company is truly essential and is not a decision that can be left sitting on the bench for months, especially if your company is required to submit its financial statements to ACRA annually under the Companies Act. More importantly, any financial statements submitted to ACRA become public information, in which members from the public can simply purchase them from ACRA’s website. While it may not seem to have a great impact on a young SME now, it may have a significant impact on its future.