A Step-by-Step Guide for Companies Navigating the Financial Year-End Process

A financial year-end, also known as a fiscal year-end, is the completion of a 12-month accounting period for an organisation. It marks the end of the financial reporting period, during which a company or entity assesses its financial performance and prepares financial statements.

The financial year-end does not necessarily coincide with the calendar year-end (January 1 to December 31). Many organisations choose different dates as their financial year end based on business requirements or legal regulations. For example, some companies may follow a financial year end that aligns with the calendar year, while others may have a different date such as the end of March, June, September, or any other month. Companies in Singapore can choose their financial year-end date based on factors such as business cycles, industry norms, and administrative convenience. This date determines when your company's tax filing obligations arise. If you don’t recall what your financial year-end date is, you can always check with your corporate service provider or look at your ACRA details.

During the financial year-end, businesses undertake various activities to close their books and compile accurate financial statements. These activities typically include:

1. Financial Statement Preparation
2. Account Reconciliation
3. Audit and Review
4. Tax Reporting
5. Financial Planning (Optional)

Financial Statement Preparation

Financial statements such as the income statement, balance sheet, and cash flow statement provide a snapshot of the organisation's financial health, performance, and cash flow during the specified period. These statements will be useful in assessing your accounts, tax filing and auditing, so they are important to get right. Even if your company is not required to file your financial statements, you are not exempt from preparing them. It is always a good practice to prepare your financial statements and record them.

For companies that utilise a robust accounting system whereby transactions are either automatically or routinely recorded, and the system allows accountants to export these documents directly, then preparing financial statements is a fuss-free experience. Otherwise, they may have to manually calculate categorise and prepare these documents. When it comes to migrating from manual accounting practices to an online accounting system or from one system to another, you may engage us to make your next financial statement preparation a breeze.

When it comes to filing requirements, not all companies have to include financial statements in their tax submissions. Entities that do not have to file financial statements with ACRA:

1. Small non-publicly accountable company: A small non-publicly accountable company pertains to an organisation that, in the current fiscal year, has total assets and total revenue below SGD 500,000 and is not listed on a securities exchange or in the process of issuing debt and equity instruments on a securities exchange.
2. This includes sole proprietorships, partnerships, limited liability partnerships, or limited partnerships.
3. Dormant company: A dormant company refers to an entity that has been inactive since its establishment or since the end of its previous financial year, with total assets not exceeding SGD 500,000 in value. It is neither listed nor a subsidiary company of a listed company.
4. Singapore-incorporated exempt private company: An exempt private company in Singapore is considered solvent, meaning it can fulfil its debt obligations when they are due. This type of company can either be a private company with fewer than 20 employees and without any corporations holding beneficial interest in its shares (directly or indirectly), or a private company owned by the Government and declared as an exempt private company in the Government Gazette.

Account Reconciliation

Reconciles various accounts to ensure that the records accurately reflect the financial transactions and balances. This process involves comparing the information in the general ledger with supporting documents and external statements.

1. Gather Statements and Compare Balances: Collect the relevant statements and documents for each account, such as bank statements and invoices. Compare the balances recorded in your accounting system with the balances shown on the external statements.
2. Investigate and Correct Discrepancies: Identify any discrepancies or differences between the recorded balances and the external statements. Investigate the reasons behind these discrepancies and make necessary adjustments or corrections to ensure the balances align.
3. Document and Review: Document the reconciliation process, including the steps taken, adjustments made, and reasons for discrepancies. Have the reconciliations reviewed and approved by a qualified person to ensure accuracy and accountability.

Audit and Review

Not all companies in Singapore need to be audited. In Singapore, the requirement for a company to undergo an audit depends on its size, nature, and other factors. Here are the key types of companies and their audit requirements:

Requires Audit

1. Public Companies: All public companies in Singapore, regardless of size, are required to undergo a statutory audit. Public companies are those whose shares are traded on a securities exchange.
2.  Large Private Companies: Private companies that exceed at least two of the following criteria in each of the last two financial years are required to have a statutory audit

• Total annual revenue of SGD 10 million or more
• Total assets of SGD 10 million or more
• More than 50 employees

May not require

1. Small Companies: Small companies in Singapore may be exempted from statutory audits if they meet specific criteria for the immediate past two consecutive financial years:

• Annual revenue of SGD 10 million or less
• Total assets of SGD 10 million or less
• Fewer than 20 shareholders (individuals and certain entities are not counted)

2. Dormant Companies: Companies that have been dormant since their formation or the end of the previous financial year, and whose total assets do not exceed SGD 500,000, can opt for audit exemption.

3. Exempt Private Companies (EPC): An exempt private company in Singapore can choose not to have a statutory audit if it meets certain criteria:

• It has fewer than 20 shareholders (individuals and certain entities are not counted).
• No corporation holds any beneficial interest in its shares (directly or indirectly).
• The Government may declare certain private companies owned by it as exempt private companies.

It is important to note that even if a company is exempt from statutory audit, it is still required to prepare unaudited financial statements that comply with Singapore Financial Reporting Standards (SFRS) and file them with the authorities. To correctly identify your requirements, you may contact us to advise on the specific audit requirements applicable to your company based on its circumstances and ensure compliance with the relevant regulations.

Here’s how companies can prepare before engaging with an auditor for a smooth experience:

1. Financial Statements and Documentation: Prepare accurate and up-to-date financial statements, including the income statement, balance sheet, and cash flow statement. Gather supporting documents such as invoices, bank statements, and contracts to substantiate the financial information.
2. Internal Controls and Policies: Document the company's accounting policies and procedures, outlining the methods for recording transactions and any significant accounting estimates. Assess and document the effectiveness of internal controls, ensuring proper authorization, segregation of duties, and safeguarding of assets.
3. Compliance and Review: Review regulatory requirements and accounting standards applicable to the company. Address any findings or recommendations from previous audits or internal reviews and take appropriate corrective actions. Perform reconciliations, analytical reviews, and variance analysis to ensure accuracy and identify significant transactions impacting the financial statements.

By focusing on these areas, a company can better prepare for the audit process, facilitate a thorough review by the auditor, and ensure compliance with relevant regulations and standards.

Tax Reporting

The Inland Revenue Authority of Singapore (IRAS) mandates the filing of corporate income tax for the following types of entities:

1. Companies: This refers to business entities incorporated or registered under the Companies Act 1967 or any applicable law in Singapore. These companies typically have names that include 'Pte Ltd' or 'Ltd'.
2. Foreign Companies Registered in Singapore: This category encompasses foreign companies that have registered a branch or representative office in Singapore.
3. Foreign Companies Incorporated or Registered Outside Singapore: It includes foreign companies that are incorporated or registered outside of Singapore but carry out business activities within Singapore.

It is important to note that sole proprietorships or partnerships are not classified as companies. The tax obligations for sole proprietorships or partnerships are addressed through individual income tax rates. To ensure compliance, companies falling under the aforementioned categories must file their corporate income tax returns in accordance with the requirements set by the IRAS.

Filing Estimated Chargeable Income (ECI) with IRAS

ECI is a requirement in Singapore for companies to estimate their chargeable income and report it to the Inland Revenue Authority of Singapore (IRAS) within three months from the end of their financial year. The purpose of filing ECI is to provide IRAS with an early estimate of the company's taxable income. This allows the IRAS to perform an initial tax assessment and issue a Notice of Assessment (NOA) based on the estimated chargeable income. The ECI helps the IRAS to monitor and ensure compliance with tax obligations.

Calculating ECI

When filing the Estimated Chargeable Income (ECI) in Singapore, the Inland Revenue Authority of Singapore (IRAS) typically requires the following broad categories of details. Before calculating your ECI on the IRAS portal, you should have this information available:

Company Information

1. Company name, Unique Entity Number (UEN), and contact information.
2. Financial year-end date.

Revenue Information

1. Total revenue generated during the financial year.
2. Breakdown of revenue by specific categories, if applicable.

Deductible Expenses

1. Details of deductible expenses incurred during the financial year.
2. Breakdown of expenses by specific categories, such as employee costs, rental expenses, utilities, professional fees, etc.

Adjustments and Addbacks

1. Adjustments made to align financial figures with tax regulations and principles.
2. Non-taxable income, disallowed expenses, and other adjustments for tax purposes.

Capital Allowances and Tax Incentives

1. Information related to capital allowances claimed for qualifying assets, such as machinery, equipment, or intellectual property.
2. Any tax incentives or allowances availed, such as the Productivity and Innovation Credit (PIC) or Pioneer Certificate Incentive (PCI).

It's important to note that the specific details and forms required for ECI filing may vary based on the company's circumstances and the requirements of the IRAS. It's advisable to refer to the official guidance and forms provided by the IRAS or consult with a tax professional for accurate and up-to-date information relevant to your company's ECI filing.

In addition to filing the Estimated Chargeable Income (ECI), there are several other key requirements and documents needed for tax filing in Singapore. These include:

1. Corporate Income Tax Return (Form C-S or Form C)
2. Supporting Documents: Companies should retain and have available the supporting documents and records relating to their income, expenses, deductions, and transactions. 
3. Other Statutory Forms such as Form IR8A
4. Tax Exemptions and Incentives: Companies eligible for tax exemptions or incentives, such as the Partial Tax Exemption (PTE) or the Tax Exemption for New Start-Up Companies (SUTE), should determine their eligibility and include the relevant information in their tax filings.

For these matters, it would be convenient for most companies to engage an experienced tax professional service to prepare these documents on their behalf.

Have a smooth Financial year-end preparation process

By maintaining accurate financial records, preparing and filing the necessary documents, and engaging in strategic tax planning, your company can successfully navigate the year-end process and set the stage for continued growth and success.