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As a business owner in Singapore, one of the critical decisions you'll face is whether your accounts need to be audited. Understanding the legal requirements can help you navigate this process effectively and ensure compliance with Singapore laws.
Understanding Audit Requirements in Singapore
In Singapore, all companies are required to file financial statements and have their accounting records officially audited every year unless they are exempt from audit. A change in the Companies Act was passed on 1 July 2015 to encourage entrepreneurship and reduce the compliance burden of small and medium enterprises (SMEs). Under this change, a private company that qualifies as a small company will be exempt from having an audit[1].
1. Small company criteria
A company that meets at least two of the following criteria is exempt from audit requirements:
Total annual revenue of not more than SGD 10 million.
Total assets not exceeding SGD 10 million.
Number of employees not more than 50.
Otherwise, an audit will be required.
If a company meets the criteria of being a small company, but is part of a group, the entire group must be considered a 'small group' in order for the company to qualify for audit exemption. For a group to be considered a 'small group', it has to meet at least two of the following three criteria for the immediate preceding two consecutive years, including:
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.
2. Dormant Non-listed Companies (Other than a subsidiary of a listed company)
A dormant non-listed company (other than a subsidiary of a listed company) is exempt from the requirement to prepare financial statements if:
the company fulfills the substantial assets test; and
the company has been dormant from the time of formation or since the end of the previous financial year.
The substantial assets test requires that the company's total assets at any time within the financial year not exceed $500,000. For a parent company, the consolidated total assets of the group at any time within the financial year must not exceed $500,000.
Dormant listed companies and their subsidiaries and dormant unlisted companies that do not fulfill the substantial asset test must prepare financial statements but are exempt from audit.
3. Special Circumstances
Certain businesses may be mandated to have audits regardless of size or type. This includes:
Companies regulated by specific government authorities (e.g., financial institutions).
Companies that are subsidiaries of listed companies or are themselves listed on the Singapore Exchange.
Even if your company qualifies for an exemption, you may choose to have an audit conducted. This decision can enhance credibility with stakeholders, including investors and banks, and may be beneficial for internal management purposes. As an SME, you may consider having an audit despite not requiring to have one for the following reasons:
Enhanced Credibility and Assurance: An audit provides an independent assessment of your financial statements, which can increase stakeholder confidence. This could be useful if your stakeholders rely heavily on the financial statements for important decisions.
Risk Management[2]: Auditors can identify potential issues in your financial practices and help mitigate risks before they escalate. You may consider engaging in an audit if expansion plans are in the pipeline. Financial and other process audits will likely identify potential risk areas and internal weaknesses.
Investment Opportunities: Investors and financial institutions often prefer audited accounts, which may facilitate access to funding.
Special purpose Audit: In a unique scenario, an audit may be used as a basis for Valuation. This is usually done in a possible merger or restructuring exercise. In other cases, companies may also opt for having a process audit to review their current practices in pursuit of operational efficiency.
Conclusion
Deciding whether your accounts need to be audited depends on various factors, including the type of company, revenue thresholds, and specific regulatory requirements. While many small businesses in Singapore may be exempt from mandatory audits, the advantages of having accurate and reliable financial records are undeniable.
Good accounting practices form the foundation of any successful business, ensuring that your financial statements are precise and compliant with regulations. At OakTree Accounting and Corporate Solutions, we specialise in accounting and tax services that can help you maintain accurate records and provide you with the confidence that your financial information is reliable—whether or not you require an audit.
If you have questions about your accounting needs or want to learn more about how we can assist you, please feel free to contact us. We're here to help you navigate the complexities of business accounting in Singapore.
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DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily represent the views and opinions of any individuals or organizations with which the author may be affiliated, either in a professional or personal capacity, unless explicitly stated.
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[1] https://www.acra.gov.sg/legislation/legislative-reform/companies-act-reform/companies-amendment-act-2014/two-phase-implementation-of-companies-amendment-act-2014/more-details-on-small-company-concept-for-audit-exemption
[2] https://www.accounting-services.com.sg/articles/is-it-compulsory-to-audit-my-accounts.html
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