Wednesday, 29 April 2015

Revenue for Compulsory Audit

Most of the time, when it comes to the time to file for audit reports. Auditing is important for ensuring that there is good governance and responsible management of finances and resources. The audits conducted need to be independent in order to get a clear representation of what is really going on. This also helps to prevent any conflict of interest from interfering in the process. Below is an insight with this regard. 

The requirement governing the auditing of companies in Singapore depends on what the company was registered as by the ACRA. All the companies that must have a compulsory audit done must have annual revenues above S$ 5 million. But, for those that are below this expected revenue, they still have to keep maintaining all the relevant records for accounting. The financial statements must comply with the Financial Reporting Standards (FRS). These standards must be those that are prescribed by the Council on Corporate Disclosure and Governance.

The audited reports must be prepared under the following conditions. The first one is if the company has any corporate shareholder. The presence of a corporate entity as a shareholder means that there is need for ensuring that all accounts are being managed well. The second considerate is the annual revenue; it must exceed S$5 million. This is because editing can be a very expensive project; there is no need to stress the so called small companies. Where there are more than 20 shareholders, there is need to do audits on all the accounts.

The audits also depend on whether the company is solvent or insolvent. A solvent company is one that has the ability to cater for their debts by the time that the debt is due to be paid. On the contrary, insolvent companies are those that are unable to cater for their debts by the time the debts are due to be cleared. This helps in giving these companies that are insolvent the proper time and more finances to be used in their operations rather than on conducting audits.

Exempt private companies (EPC)

Private companies in Singapore are all considered as independent legal entities. Therefore the actions carried out by the management of these companies can lead to the company itself being sued. This is not considering the people running it. But, the company will be liable in case they fail to follow audit regulations required by the government. This also means that shareholders cannot be held accountable for any debts or in case a company incurs losses.

These are private companies with annual revenue of S$5 million or less. If the revenue for the year exceed the S$ 5 million then the audit becomes compulsory. These companies need not to have more than 20 shareholders. This is a regulation set by the government. All the shareholders in these companies must be individuals and not corporations. In case there is a corporate shareholder, at least one of the shareholders needs to be an individual. This individual must have shares less than 10% of the available shares . For the solvent companies in this category, the accounts must be audited but they do not need to attach the accounts. However, they must still fill out an online declaration of solvency. Without filling this declaration of solvency, there can be legal repercussions for the company. For the insolvent EPC, the accounts must be audited, but there is need to file the accounts.

Dormant EPC

These are companies that do not have any active accounting transactions going on in their accounts. For the solvent dormant EPC, there is no need for them to have their accounts audited. They will also not be required to attach their accounts, but they will need to fill out and complete online declaration of their solvency. For insolvent dormant companies, there will be no need to audit the accounts and the accounts must be filed.

Non –exempt Private Companies

These are companies which are limited by shares. The number of shareholders in these companies need to be more than 20 .but the maximum number of shareholders is limited to 50. Most of these companies are solvent. For the active ones, the accounts must all be edited and they must also be filed. The dormant ones do not need to be audited; however they must file all the accounts.

Public Companies

Public companies are companies that carry out Corporate Social Responsibility activities. These activities are done in the interest of the national government or the public. Public companies can either be listed on the stock exchange, or they may also choose not to be listed. Such companies have the ability to raise capital through offering shares to the public. The number of shareholders in these companies can be more than 50. They are usually listed as a company on the SGX and are limited by the shares.

These companies are mostly solvent. The active ones in terms of accounting transactions must have their accounts audited. All their accounts need to be filed. For the dormant ones, there is no need for audit but all the accounts must be filed. It is important to note that private companies enjoy a lot of freedom and can easily obtain loans from banks and other financial institutions. There are also measures put to ensure that private companies get more revenue. One such measure is by giving these companies tax exemptions for the first S$ 100,000.

It is important to note the above since in cases where people do not know where their companies stand. They end up conducting unnecessary audits or even handing in information that is not required. Others also end up ignoring the process and this leads to serious implications. Always note that whenever the revenue exceeds S$ 5 million, this is a ground for compulsory audit, no matter the nature of the company. Only dormant accounts are completely exempted from auditing. This is because they will not have any changes in terms of accounting information. The audits need to be done in good time, and they must be based on the real situation in the companies. This is an insight.

Sunday, 5 April 2015

7 Mistakes To Avoid For Small Business Accounting

Before fully plunging into the discussion, it is imperative to get the basics clear. What is a small business? There are usually sole proprietorships, privately owned corporations or partnerships with a relatively small number of employees. There are innumerable small businesses in Singapore accounting for more than 50 percent of all jobs and sales. Small businesses are the life line of the economy and therefore their importance cannot be overstated. Of course, the basic motivation of starting a business is to make profits. Thereafter, maximizing on these profits is important for it is the only way to grow. But is this always achievable? Certainly not; there are several mistakes that small business managers make especially on bookkeeping that hinder the business from attaining its full potential. Below are some small business accounting mistakes to avoid lest you risk nose diving your sales.

Mistakes to Avoid For Small Business Accounting
1. The first killer accounting blow to your business is receipts. Where are your businesses’ receipts? If your business has not yet learnt to consider receipts for what they really are, which is cash; you might need to provide them with the motivation to keep up with them. If the authorities are to look at your tax returns, legitimate write-offs will come from only the purchases backed with receipts. It therefore follows that the lack of receipts directly denies you write-offs. In such a situation, your business throws cash out of the window. As a remedy, devise a system, whether electronic or manual that will file every single receipt.

2. Secondly, wrongly recording big purchases is a petty, but very serious financial mistake. The full understanding and knowledge of the distinction between short and long term assets can save your business tons of cash. It is painful to lose out on tax breaks by hulling all purchases made into one basket. For instance, packs of folders and new letter head designs are immediate consumables that should go under basic expenses. On the other hand, company vehicles and new computer systems are long term assets which will depreciate with time as they remain under use.

3. Mixing business and personal finance is a dangerous ploy. Its ultimate damages will turn out as monstrous. Many new business owners who do not have the expertise and experience to manage a business have the tendency of forgetting to demarcate the boundary between business and personal monies. It is not very hard to find yourself between a rock and a hard place by having business money scattered all over. Imagine how difficult it can get explaining to the authority intermingled business finances. Having a designated bank account for your business is the only solution to this problem.

4. Another grave mistake small business make is not having a definite management plan for their earnings. Planning is important, it is the torch light and guidance for every step a business should follow. It is not uncommon to find a company without a well stipulated earnings management plan. They usually withdraw money from one account for utilization in another without correctly accounting for it. The confusion this can cause is unimaginable. A well structured business will correctly account for expenditure, including savings and investments. To succeed, small business managers should have a master plan outlining how money will be spend.

5. Managers will fringe in surprise when the financial records of their business do not add up. The sole cause of inaccuracies in financial reports is the inconsistent recording of expenses and assets. When the person in charge of finances is not using the correct method to perform cash flow allocation, inconsistent financial records are inevitable. The neatest and safest way to straighten your financial records is the cash accounting procedure. Through it, you will be able to easily follow how cash is flowing in and out of your company business. Computerized payroll systems and accounting software are other helpful tools to protect you from running into financial blunders.

6. When too many individuals can access the financial records of a business or a company, they are bound to contain errors or alterations. No business, regardless of its size and mode of operation, should have unlimited and easy access of financial files be granted just to anyone. That can be suicide for the business. To curb such a menace, special software’s with several security hurdles that limit the access to a company’s financial files is the only solution. If possible, only those employees whose role is accounting should have access to accounting records.

7. Lack of an efficient file backing up strategy is another great mistake with severe side effects. Whether you are using a computerized or manual filing system, loss of files is a very common problem that businesses run into. Since the operation and future of the business might heavily rely on certain records, the disaster caused by their loss is unthinkable. This is one of the easiest mistakes to avoid. As a manager, instill in the employees dealing with financial records the delicateness of financial records and hence the importance of a backup plan. This may entail the use of a new cloud computing system, or a seamless combination of both online and offline backup methods. Some records have no replacement. As a result, it is only safe for a business if they are backed up.

In summary, how a business handles its records, with particular reference to financial records can either make or destroy the business. Receipts, planning, bank accounts, backing up of files, security of financial records, consistency and accuracy in keeping records are some of the factors that require serious consideration when dealing with a company’s finances. Payroll is another factor that determines the survival of a company. True, employees are the backbone of a business. A payment system that leaves employees complaining is a bullet in the feet of a company. A mistake with the payroll system can easily stall the company. When financial matters get out of hand, it is always important to enlist the help of experts. There are many companies with top notch professionals in the field, and having them on your team should get your business back on track. All you have to do is find a good financial consulting company. 

Wednesday, 1 April 2015

How to Read and Analyze a Profit and Loss Statement?

The Profit and Loss Statement provides you with important means of tracking your business progress. Therefore, it’s one of the most important documents associated with your funds. When you run a business in the competitive environment of Singapore, you need to understand how the Profit & Loss Statement works. In this guide, we have explained the structure of the P & L Statement, and how you can use this statement to manage your business in a better way. The Balance Sheet and the Profile & Loss Statement are two major financial documents. They are most familiar to business owners and executives. Out of these two, the Profit & Loss Statement is simpler to understand. It has a simpler and straightforward format. It’s worth mentioning that once you have understood the Profit & Loss Statement, you should also understand how the Balance Sheet works.

Purpose of the P & L statement
The Profit & Loss Statement is known by many different names. Sometimes, it’s also referred to as a Statement of Financial Performance or an Income & Expenditure Account. As the names suggest, the primary purpose of the P & L Statement is to list all the income and expenses. The difference between your income and expenses determines either the loss or profit you have made for a specific period. This allows you to analyze your performance.

Here’s how you read the Profit and Loss Statement:
Check the Math -
It’s worth mentioning that there may be some printing errors in the P & L Statement, even in the ones produced by some of the largest Singapore companies. In case you find an error, you may uncover something to change the entire result. In addition to this, when you run through the subtracting and adding, you may improve your understanding of how all the numbers fit together.

Focus on the Bottom Line -
The bottom line is whether your business has made any profits or incurred losses. Needless to say, it’s better when the bottom line of the P & L Statement shows a positive number. This means, your business can keep the lights on and pay the employees without borrowing any money. However, if the bottom line of the statement is preceded by a negative sign, enclosed in parentheses or printed in red, it means your expenses exceed the revenue. You need to find out the reasons for the losses, and make necessary changes to your business strategy.

It’s important to understand that net loss once in a while does not lead to disaster. Many new companies in Singapore don’t expect to turn any profits in the first couple of years. It’s also possible that your business is cyclical, such as agriculture. In case your business grows corn, and there was not any rain this year, you’re likely to incur losses. 
On the other hand, you need to make sure net losses don’t become a trend. The company needs to generate profits, and possess sufficient funds to manage business during the down times. A Profit and Loss Statement can give you a good idea about where your business is heading. 

Consider the Sources of Income -
All the sources of income should make sense for the business. For instance, if you run a cotton candy business, sales income from the local county fair seems right. However, if one income line is just a Gifts from Friends, it’s definitely not sustainable. You need to have some options for the next year when your friends don’t come through. It’s possible you’re reviewing the statements for a big museum. In this case, 10% of your income may come from admission fees, while 90% income was generated from ticket sales of a special exhibit. If you plan to organize a special blockbuster every year, it’s fine to generate such income. However, if it was an isolated incident, you need other sources of income. In simple terms, your revenue model should be sustainable. 

Notice the Expense Categories -
You need to make sure that the expense categories seem logical. For most business organizations in Singapore, you can see wages, salaries, rent, insurance, interest, supplies and some other things. You need to make sure nothing is missing from the expense categories. For instance, if your business has more than hundred employees and you don’t see any mortgage interest or rent, you need to know why. If there’s an office, you need to know how it’s being paid for. 

Look at the Biggest Expenses -
If you run a service business, you should expect to see a good number for salaries. In case it’s a manufacturing business, supplies and materials may be a significant total. On the other hand, you need to check the ratio between salaries and number of employees. If your employees are being overpaid, you may notice a big number in the salary category. In the Profit and Loss Statement, you need to check why you have been borrowing money, and from which parties. 

Compare Numbers for Different Years -
In most cases, the P & L Statement has a separate column with figures for the prior financial year. If your Profit & Loss Statement does not show the percentage change in each category, you should calculate the numbers yourself. You should also question significant changes in the statement. For instance, you need to check why the sales are 50% percent lower than last year. Similarly, you need to know why insurance has gone 20% lower. This information in the Income Statement can help you learn where you have been going wrong, and what you have been doing right. This is one of the most important functions of reading your Profit & Loss Statement. 

Think About the Relationships Between Numbers -
In most Singapore companies, employee benefits account for a significant cost. This may include health insurance, parking passes and retirement plan contributions. If your salary line doubles, but benefits go up by just 10%, you should consider this an anomaly. You need to know the reason your new employees don’t qualify for benefits. While going through your Profit and Loss Statement, these were the most basic things you should read. A better understanding of your P & L Statement allows you to take the right steps to boost your business. If you still experience any problems, you should consult a reputed and experienced professional.