Drafting of Financial Statements

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Drafting of Financial Statements

The Directors are responsible for preparing financial statements for each financial year in accordance with the Financial Reporting Standards (FRSs) and general accounting practice. The statements must give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with reporting standards.

Types of Financial Statements

There are 2 types of financial statements – An audited financial statements and an unaudited financial statements.

For exempt private limited companies / small companies eligible for audit exemption, the accounts may be presented as unaudited accounts. For exempt private limited companies with annual turnover exceeding S$5M and private limited companies which are not exempt, the accounts must be audited (unless the company is entirely dormant for the financial period).

Components of Financial Statements

The financial statements are made up of several key sections which include:

  • Directors’ Report
  • Statement by Directors
  • Statement by Auditors (for audited accounts only)
  • Statement of Financial Position (Balance Sheet)
  • Statement of Profit and Loss
  • Statement of Equity
  • Statement of Cashflow
  • Notes to Financial Statements (Disclosure notes)

Companies are legally obliged to include a Director’s Report in their annual financial statement. The report must give a fair review of the company’s financial and operational results and condition and also include additional information such as dividend recommendation, reserved earnings, details of directors and their interest, principal risks and uncertainties etc.

Director’s Report is an important communication medium for a company to interact with various interest groups such as investors, creditors, government bodies, business analysts etc. Therefore it is essential to ensure that the report includes all the relevant information succinctly yet without any ambiguity.

How to Compile a Set of Financial Statements

Each set of accounts is often unique and non-duplicable. Financial Statements are typically prepared by trained accountants who understand the requirements of coming up with a proper set of accounts. It is highly probable that a non-accounts trained individual may struggle to come up with a proper set of accounts, or even totally get it wrong. Our recommendation is always to engage someone who is capable of helping you get the compilation right with minimal fuss.

In order to effectively compile a set of financial statements, you will need to, at the minimum, have the following information on hand:

  • Finalised General Ledger and Management accounts for the current year
  • Prior year Financial Statements
  • Corporate tax transactions made in the current year
  • Fixed Asset Listing and any other supporting information you think may be required for the disclosure notes