Common Mistakes in SFRS Compliance for Growth SMEs
- Roger Pay
- 1 day ago
- 10 min read
SFRS Compliance for Growth SMEs
Common Mistakes in SFRS Compliance for Growth SMEs
In the competitive Singapore business landscape, Singapore Financial Reporting Standards (SFRS) compliance is often viewed as a "back-office" chore. However, for growth-oriented SMEs, financial transparency is the bridge to venture capital, bank loans, and successful exits.
This guide outlines the most common SFRS compliance pitfalls and how to turn your compliance journey into a conversion-focused asset.
1. Misjudging Eligibility: Full SFRS vs. SFRS for Small Entities
Many SMEs default to the Full SFRS because they believe it’s "better," only to be overwhelmed by complex reporting requirements. Conversely, others stick to the SFRS for Small Entities long after they have outgrown it.
The Mistake: Failing to transition when you meet at least two of the three criteria for two consecutive years:
Total annual revenue > S$10 million
Total gross assets > S$10 million
Number of employees > 50
The Growth Impact: Using the wrong framework can lead to audit delays and a "qualified" audit report, which scares away institutional investors.
2. Neglecting SFRS 116: The "Invisible" Leases
Since the introduction of SFRS 116, almost all leases—including office rentals and equipment—must be recognized on the balance sheet as Right-of-Use (ROU) assets and lease liabilities.
The Mistake: Treating monthly rent as a simple operating expense.
Why it Matters: This oversight artificially inflates your debt-to-equity ratio and EBITDA, misleading stakeholders about your true gearing and cash commitments.
3. Revenue Recognition Errors (SFRS 115)
For growth SMEs in SaaS, construction, or consultancy, revenue isn't just about when the invoice is sent; it’s about when the performance obligation is met.
The Mistake: Recognizing 100% of a contract value upfront instead of amortizing it over the service period.
The Risk: During due diligence, "lumpy" or incorrectly recognized revenue is a red flag that can lead to a downward valuation of your company.
4. Inadequate Documentation for Related-Party Transactions
Growth SMEs often have "sister companies" or directors who fund the business personally. Under SFRS, these must be disclosed with specific details.
The Mistake: Informal inter-company loans without written agreements or market-rate interest.
Compliance Tip: Ensure all director loans and inter-company transfers are documented with Board Resolutions and clear repayment terms to satisfy ACRA and IRAS.
Comparison: Compliance vs. Growth Readiness
Feature | Low Compliance SME | Growth-Ready SME |
Accounting Frequency | Annual "catch-up" | Monthly Management Accounts |
Framework | Static (doesn't scale) | Strategic (Full SFRS when needed) |
Audit Status | Scrambling for receipts | Audit-ready 365 days a year |
Investor Appeal | High Risk | High Transparency |
Case Study where Proper SFRS Compliance Helped an SME Secure a 7-figure Series A Round
To secure a 7-figure Series A round in Singapore, your financial statements must do more than just "pass" an audit—they must prove that your business is scalable and transparent.
The following case study illustrates how Bestar helped a fast-growing Singaporean fintech SME clean up its reporting to pass a rigorous Tier-1 VC due diligence process.
Case Study: Bestar x NexFlow Payments
The Client: NexFlow Payments (pseudonym), a Singapore-based cross-border payment gateway. The Stage: Pre-Series A, seeking S$7.5 million to fuel expansion into Vietnam and Indonesia.
The Challenge: "Lumpy" Revenue and Undisclosed Liabilities
NexFlow was growing at 300% YoY, but their internal bookkeeping was handled by a digital-only platform that lacked senior technical oversight. When the Lead Investor (a major regional VC) began due diligence, three critical SFRS issues nearly killed the deal:
Improper Revenue Recognition (SFRS 115): NexFlow had been recognizing setup fees and annual service subscriptions as immediate revenue. The VC’s auditors flagged this as an overstatement of current-year performance.
Missing Lease Liabilities (SFRS 116): The company’s long-term office lease in the CBD was missing from the balance sheet, hiding nearly S$400,000 in future liabilities.
Complex Inter-company Transactions: NexFlow had a subsidiary in Malaysia with poorly documented "transfer pricing," raising red flags about potential tax exposure with the IRAS.
The Bestar Intervention: Strategic SFRS Compliance
Bestar was brought in to act as the Interim CFO/Assurance Partner to lead the "Clean-Up" before the final funding round.
Audit-Grade Revenue Mapping: Bestar’s team applied the SFRS 115 5-Step Model. They re-categorized subscription fees into "Contract Liabilities," ensuring the revenue was recognized only as services were rendered. This gave the VC a "True and Fair" view of the company’s high-quality recurring revenue.
Balance Sheet Fortification: Bestar identified all office and equipment leases, calculating the Right-of-Use (ROU) Assets and corresponding liabilities per SFRS 116. This eliminated the "invisible debt" that concerned the investor.
XBRL & Group Consolidation: Bestar moved the company from simple spreadsheets to a consolidated Xero-based framework, ensuring the Malaysian subsidiary’s accounts were correctly translated and eliminated during consolidation.
The Result: A Successful S$7.5M Series A
By delivering a set of audit-ready, SFRS-compliant financial statements within four weeks, Bestar transformed the VC’s perception of NexFlow from a "risky startup" to a "mature, institutional-grade enterprise."
Valuation Preservation: The VC proceeded with the original valuation because the restated financials provided a clear, predictable growth trajectory.
Due Diligence Success: The Lead Investor’s auditors gave a "Clean Report" with zero material adjustments required.
Funding Secured: NexFlow successfully closed its S$7.5 million Series A round on schedule.
Testimonials
Here are three persona-based testimonials, highlighting the "Goldilocks" balance of technical expertise and personalized service.
1. The Tech Founder (Series A Readiness)
"We were three months away from our Series A closing when the VC’s auditors flagged our revenue recognition as a major risk. Our previous 'digital-only' firm couldn't handle the complexity of SFRS 115. We brought in Bestar, and their team restated our financials and stabilized our balance sheet in record time. Their status as a licensed PAC gave our investors the institutional confidence needed to wire the funds. Bestar didn't just fix our books; they saved our deal."— Jia Hao Tan, CTO & Co-Founder, NexGen Fintech
2. The Growing SME (Navigating Complexity)
"As we crossed the S$10M revenue mark, the transition from 'Small Entity' reporting to Full SFRS felt overwhelming. Bestar was the 'Goldilocks' choice for us—they provided the deep technical knowledge of a Big 4 firm but with the accessibility and speed of a local partner. They identified hidden lease liabilities under SFRS 116 that our previous accountant missed, protecting us from a potential loan covenant breach with our bank."— Sarah Lim, Finance Director, Apex Logistics Singapore
3. The International Investor (Family Office & Compliance)
"Setting up a Single Family Office in Singapore requires a partner who understands the nuances of Section 13O tax exemptions and MAS compliance. Bestar has been our one-stop ecosystem. From managing our EPs to providing rigorous audit assurance, they have been indispensable. They are large enough to handle complex cross-border tax issues, yet small enough that I can reach a partner on the phone whenever I need a strategic opinion."— David Richardson, Managing Director, Richardson Global Holdings
Why Growth SMEs Choose Bestar
Big firm expertise with a local partner's heart"
Unlike digital-only platforms that focus on basic filing, Bestar specializes in the "SME+" segment. We provide the senior-level accounting expertise required to navigate the complexity of SFRS 115, 116, and 109, ensuring your business is ready for the high-stakes scrutiny of venture capital.
Don't wait for ACRA's 2026 enforcement—Get a free compliance health check today.
The "Pre-Audit SFRS Checklist for Growth SMEs" covers the essential standards including SFRS 115 (Revenue), SFRS 116 (Leases), and SFRS 37 (Provisions) to ensure you are audit-ready.
Bestar the "Goldilocks" Choice
In the search for an accounting partner, many growth SMEs find themselves caught between two extremes: the "Small Boutique" that lacks technical depth and the "Global Giant" that lacks personal touch.
Bestar Singapore occupies the "Goldilocks" zone—providing the institutional authority of a Public Accounting Corporation (PAC) with the agility and partner-led attention of a local specialist.
Comparison: Finding Your "Goldilocks" Partner
Feature | Boutique Specialist | Bestar Singapore (The "Goldilocks" Choice) | Large Global Network |
|---|---|---|---|
Best Fit For | Micro-SMEs & Early Startups | Growth SMEs, Series A-C, Family Offices | Multinationals & Listed Conglomerates |
Audit Authority | Local Audit Firm | Licensed PAC & Specialized Assurance | Global Audit Network |
Service Model | Transactional / Compliance-led | Strategic Partner-led Advisory | Process-driven / Departmental |
Technical Depth | Standard SFRS / Bookkeeping | SFRS 115, 116, 109 & M&A Support | Global Tax & Cross-border Legal |
Communication | Fast but limited scope | Direct Partner Access + High Speed | Multi-layered / Standardized |
Pricing | Low / Budget-focused | Value-based / Transparent | Premium / Corporate Rates |
Why Bestar is the "Just Right" Choice for Growth
1. Not Too Small: We Have "Big Firm" Technical Teeth
Unlike boutique firms that may struggle with complex standards like SFRS 115 (Revenue) or SFRS 116 (Leases), Bestar’s team includes seasoned experts who have navigated high-stakes due diligence. We provide the same technical rigor as a global network but without the bureaucratic "red tape."
2. Not Too Big: You Aren't Just a "File Number"
At global firms, growth SMEs often get assigned to junior associates. At Bestar, our partners stay close to the account. You get the peace of mind that comes with senior-level oversight, ensuring that strategic opportunities (like tax incentives or grant eligibility) aren't missed.
3. Integrated Ecosystem
While boutiques focus on "the books," Bestar looks at the business. From M&A Deal Advisory to Employment Pass (EP) applications and Valuations, we provide a holistic infrastructure that allows founders to focus on product-market fit while we handle the "boring" (but critical) structural integrity.
The Bestar "Health Check"
If you are currently with a boutique firm and feel you’ve outgrown them, or if you’re with a large firm and feel ignored, it’s time for a transition.
Would you like a "Transition Plan" that outlines how we can migrate your data and take over your ACRA/IRAS filings with zero downtime?
Q&A
To help you navigate the complexities of accounting in Singapore, we’ve compiled the most frequent questions growth-stage SMEs ask when transitioning from basic bookkeeping to professional SFRS compliance.
Q1: My revenue is under S$10 million. Why should I care about Full SFRS compliance?
A: While you may currently qualify for "Audit Exemption" as a small company, investors and banks don't just look at today; they look at your exit potential. If you plan to raise a Series A or B round, VCs will scrutinize your past three years of financials. If those years were recorded using "simplified" standards, you may face a costly and time-consuming restatement of accounts, which can stall or even kill a deal during due diligence.
Q2: What is the most common mistake Bestar sees in SME financial statements?
A: Without a doubt, it is SFRS 115 (Revenue Recognition). Many SMEs record revenue the moment they send an invoice. However, SFRS requires you to recognize revenue only as "performance obligations" are met. For a SaaS company, this means spreading a 12-month subscription across the entire year. Mismanaging this doesn't just affect compliance—it gives you an inaccurate view of your actual monthly burn and runway.
Q3: How does SFRS 116 (Leases) impact my ability to get a bank loan?
A: Before 2019, leases were often hidden in the footnotes. Now, under SFRS 116, they must appear as a "Right-of-Use" asset and a corresponding liability on your balance sheet.
This increases your reported debt. If your accountant hasn't properly structured this, your Debt-to-Equity ratio might look worse than it actually is, potentially triggering a loan covenant breach or a higher interest rate from your bank.
Q4: We use a digital accounting app. Isn’t that enough for compliance?
A: Digital apps are excellent for recording data, but they cannot interpret accounting standards. An app won't tell you if your inter-company loan needs an interest rate adjustment for Transfer Pricing or if your employee share option scheme (ESOP) requires specific disclosures under SFRS 102. Bestar layers expert human oversight on top of your digital tools to ensure the "logic" behind the numbers is audit-proof.
Q5: Is Bestar just an audit firm, or can you help with my EP and Payroll too?
A: We are a full-service Public Accounting Corporation (PAC). We act as a single-entry point for growth SMEs. This means your lead accountant, your corporate secretary, and your immigration specialist for Employment Pass (EP) applications are all in the same room. This integration prevents "data silos" where your payroll taxes don't match your accounting provisions—a common trigger for IRAS audits.
The Bestar "Ready-to-Scale" Assessment
If your goal is... | You need... | Bestar's Role |
|---|---|---|
Venture Capital Funding | Clean, SFRS-compliant 3-year history | Financial Due Diligence Readiness |
International Expansion | Transfer Pricing & Tax Treaties | Cross-border Tax Advisory |
Government Grants | Certified Statement of Accounts | Independent Audit & Certification |
Operational Efficiency | Automated, real-time reporting | Cloud Accounting Implementation |
Bestar Singapore Accounting Firm
Common Mistakes in SFRS Compliance for Growth SMEs
In the competitive Singaporean market, your choice of accounting partner can be the difference between a "box-ticking" exercise and a strategic growth asset. Bestar Singapore is not just a bookkeeping service; it is an ACRA-registered Public Accounting Corporation (PAC) that transforms mandatory compliance into a tool for securing capital and scaling operations.
Here is how Bestar differentiates itself for growth-oriented SMEs.
1. Institutional-Grade Audit & Assurance
Many digital accounting firms outsource their audits to third parties, which leads to delays and fragmented communication. As a licensed PAC (Bestar Assurance PAC), we handle the entire process in-house.
Statutory Audits: Ensuring full compliance with the Singapore Companies Act and SFRS.
Special Purpose Audits: Independent verification for grant claims (ESG/EDB), due diligence, and money lending licenses.
The Bestar Edge: We specialize in complex sectors, including SaaS, Financial Services (FMCs), and Single Family Offices (SFOs), providing the high-level assurance required by MAS and Tier-1 VCs.
2. Strategic "Growth-First" Tax Advisory
Compliance is about the past; tax planning is about your future. Bestar moves beyond simple filing to help you optimize your cash flow.
GST Optimization: Navigating the 9% GST environment, from registration to complex cross-border consultancy.
Tax Incentive Schemes: Helping SFOs and FMCs qualify for Section 13O and 13U tax exemptions.
Transfer Pricing: Ensuring inter-company transactions between regional subsidiaries are documented to meet IRAS "Arm's Length" requirements.
3. Seamless One-Stop Corporate Ecosystem
Scaling an SME requires managing multiple administrative pillars. Bestar integrates these into a single point of contact.
Corporate Secretarial: Managing board resolutions, ACRA filings, and statutory registers.
Visas & Immigration: Licensed experts for Employment Pass (EP) and S Pass applications, crucial for bringing in global talent.
HR & Payroll: Outsourced solutions that ensure compliance with MOM labor regulations and CPF contributions.
Conversion Strategy: Start Your Compliance Audit Today
If you are preparing for a funding round or approaching the S$10 million revenue threshold, your window for error is zero.
Free Compliance Health Check: We offer a zero-onus consultation to review your current financial structure and identify "red flags" before they reach the auditors.
Would you like to schedule a consultation?
Article written by Roger Pay (CEO)
keywords:
SFRS compliance for Singapore SMEs
Common accounting mistakes Singapore businesses
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