How to be Eligible for An Audit Exemption in Singapore

A Comprehensive Guide to Singapore Employment Act

All Singapore-incorporated companies are required to have their financial statements officially audited every year. In addition, companies must maintain records and make these records available to auditors who carry out annual reviews and inspections. Moreover, companies that comply with auditing standards must use a public accountant registered with the Accounting and Corporate Regulatory Authority (ACRA) to approve their audits.

However, there is an audit exemption for certain companies that meet the criteria. Therefore, if you intend to start a new business venture in Singapore, you should check if you qualify for this significant privilege.

 

An Introduction to an Audit Exemption in Singapore

Before the Companies Act was amended, only exempt private companies were eligible for audit exemptions in Singapore. These were companies with no more than 20 non-corporate shareholders, none of which are legal entities.

Meanwhile, regardless of the size and scope of their activities, other business entities were required to audit their accounts at least once a year, not to mention other filing requirements such as the submission of financial statements.

Unqualified companies, especially those living on below-average incomes, found financial audits very expensive and, in some cases, did not add value to their shareholders. Fortunately, the Amendment was revised in 2014. The concept of “small company” was introduced, allowing small businesses to ease the heavy burden of regulatory compliance they used to bear.

 

Small Company Criteria for an Audit Exemption

Your company can qualify for an audit exemption as a small company if it meets at least two of the following three criteria for the immediate past two consecutive years: 

  • Its total annual revenue is not more than S$10 million.
  • Its total assets in the financial year do not exceed S$10 million.
  • Its total number of employees in the financial year is not more than 50.

 

Audit Exemption Requirements for Groups of Companies

Companies who are part of a small group of companies can also qualify for an audit exemption if they meet at least two of the following conditions:

  • The total annual revenue for the group is not more than SGD10 million.
  • The consolidated total assets in the financial year do not exceed SGD10 million.
  • The consolidated total number of employees in the financial year is not more than 50.

As long as your business meets the criteria, your company will be exempt from the audit. However, if you are having trouble determining whether or not your company qualifies for an audit exemption due to complex issues, you may consider consulting an accounting professional to help determine its eligibility. This way, you can protect your business from penalties for not complying with statutory requirements.

 

Change in Company Status

A Singapore company that qualifies for a small company status remains a small company for the following years until it is disqualified. Disqualification occurs if:

  • The company ceases to be private at any time during the financial year.
  • The company does not meet at least two of the three quantitative criteria for the last two consecutive financial years.

 

 Transitional Provision

Companies established prior to the amendment to the Act can also take advantage of audit exemptions if they meet two of the three small company qualification criteria. In particular, companies incorporated before July 1, 2015, can qualify as small companies if:

  • They have been operating as private companies since then.
  • They could meet a set of qualifying criteria either in the first or second fiscal year (FY) right after the amendment took place

To provide a more concrete picture of this transitional provision, here is an explanation:

  • If your company meets the qualification criteria in FY 2015 and FY 2016, your company can be considered a small company.
  • If your company only meets the qualification criteria in FY 2015 and not in FY 2016, it is still considered a small company because it meets the requirements in the first year after the change occurred.
  • Suppose your company can’t meet the qualification criteria in FY 2015 but manage to do so in FY 2016. In that case, your company can be reckoned as a small company since it meets the criteria in the second year after the amendment was made.
  • However, if your company fails to meet any of the criteria in FY 15 and FY 16, it is excluded as a small company because the transitional provisions are only relevant for the first two years since the amendment was made.

 

Unaudited Financial Statements

Companies exempted from the audit still have to prepare a complete set of unaudited financial statements, including explanatory notes with the directors’ statements. Moreover, companies need to prepare these financial statements according to the stipulation laid out by the Singapore Financial Reporting Standards (SFRS).

Unaudited financial statements are required for the annual general meeting, tax filing, and accountability to company shareholders. Also, these documents can be used to obtain banking facilities, apply for Singapore government grants, and comply with regulatory requirements in various industries.

Following are the details a company should include in unaudited financial statements:

  • Statement of comprehensive income
  • Director’s statement
  • Statement of financial position (balance sheet)
  • Statement of changes in equity
  • Statement of cash flows
  • Notes to the financial documents

Compliance with Ongoing Statutory Requirements

Regardless of being exempt from audit requirements, businesses still must comply with other ongoing statutory requirements like filing financial statements, keeping accounting records, and being prepared for shareholders who hold 5% or more voting rights to request audited accounts. 

Note that regular spot-checks by ACRA will still be conducted on the businesses’ financial statements. In addition, ACRA may appoint an external auditor to examine your company if it ends up with legal issues.

In any case, your company should be prepared with accurate financial statements and accounting books. To do so, you can consider outsourcing these tasks to a reliable accounting firm that can take care of the necessary compliance in the long run.

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