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Like most other developing countries, Singapore understands the importance of a robust SME (Small and Medium Enterprise) landscape. The government brought significant reforms to strengthen these businesses by refining the definition of small companies in its Companies Act on 1st July 2015.
The introduction allowed private companies that meet specific criteria to qualify for audit exemption. It would allow them to focus on improving their business and reduce the regulatory burden.
What do we mean by audit exemption?
If you are operating a business, it is imperative for you to get your financial statements audited in Singapore.
External auditors that are not related to the company are required to carry out the audit.
However, if a company or a group fulfills specific criteria, the government allows exemption from the cumbersome process. It is known as audit exemption and can either be complete or partial, depending on your business’s status.
Which entities qualify for audit exemption?
The audit exemption is applicable for financial years beginning on or after the change in the law (i.e. 1 Jul 2015)., any private company that qualifies as a “small company” or “small group” according to the provisions of the Singapore Companies Act will be exempted from audit.
Small company qualifying criteria
The Thirteenth Schedule of the act states that any company can be a small company for a particular year if –
- It is a private company throughout the financial year AND
- It satisfies any two of the following three quantitative criteria in the immediate past two consecutive financial years –
- The revenue of the company for each financial year does not exceed SGD 10 million
- The total asset value at the end of the financial year does not exceed SGD 10 million
- It has at the end of the financial year not more than 50 employees
Small group qualifying criteria
If a company is part of a group, we must consider the entire group as a “small group” for availing exemption. For the group to be considered as a “small group,” it must satisfy any two of the following three quantitative criteria in the immediate past two consecutive financial years –
- Its consolidated revenue for each financial year does not exceed SGD 10 million.
- Its consolidated total asset value at the end of the financial year does not exceed SGD 10 million.
- The group has at the end of its first financial year an aggregate number of employees of not more than 50.
How are the new provisions different from the old ones?
Before the Amendment Act, 2014 came into force, only a dormant private company or an Exempt Private Company (EPC) with an annual turnover of SGD5 million or less is exempted from having its accounts audited.
With the new small company concept, there is no longer a requirement that the company has to be an exempt private company (one of the requirements for which is that there is no corporate shareholder) to qualify for the audit exemption.
A private company that has corporate shareholders but fulfills the criteria can be entitled to the small company audit exemption.
Transitional provisions for existing companies and new companies
Transitional provisions for existing companies
- An existing company can qualify as a “small company” if it is a private company throughout the period and meets the quantitative criteria in the first or second financial year commencing on or after 1 July 2015.
For example –
- Company X Pte Ltd. was incorporated in 2013. It meets the quantitative criteria in FY15 and FY16. In this case, it qualifies as a small company in FY16 and is exempted from audit.
- Company Y Pte Ltd. was incorporated in 2013. It meets the quantitative criteria in FY15 but becomes a public company in FY16. In this case, it does not qualify as a small company and requires an audit.
- Company Z Pte Ltd. was incorporated in 2013. It could not meet the qualifying criteria in FY15 but meets them in FY16. In this case, it qualifies as a small company in FY16 and is exempted from audit.
Transitional provisions for new companies
A company incorporated on or after1 July 2015 can qualify as a small company if it is a private company throughout the period and meets the quantitative criteria in its first or second FY after incorporation.
Disqualification of audit exemption
Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified. A small company is disqualified if:
(a) it ceases to be a private company at any time during a financial year; or
(b) it does not meet at least 2 of the 3 quantitative criteria for the immediate past two consecutive financial years.
Where a group has qualified as a small group, it continues to be a small group for subsequent financial years until it does not meet at least 2 of the 3 quantitative criteria for the immediate past two consecutive financial years.
Intime’s Audit Exemption Tool Flowchart
Intime’s efficient tool allows users to check whether their company qualifies for audit exemption.
Here is a flowchart depicting the workflow of the tool –
FAQs on Audit Exemption in Singapore
1.What do we mean by the total assets of the company?
The company’s total assets refer to the total value of the assets owned by the company as per the applicable accounting standards in Singapore. The figure reflects in the balance sheet of the company at the end of the financial year.
2. If a company is exempt from audit, will it still require preparation and filing its financial statements for the year?
ACRA mandates companies to prepare audited or unaudited financial statements unless it qualifies as a dormant relevant company as per the Companies Act. The obligations for filing financial statements are determined by whether the company is a solvent exempt private company or required by law to file their financial statements with ACRA. The only exemption you get is that you do not need to appoint an auditor for the year to get your accounts audited.
3. My company has met the quantitative criteria and qualified as a small company in FY2017 and FY2018. It remains a private company but does not meet the quantitative criteria for FY2019 and FY2020. Will I lose the status of “small company” for FY2020?
No. Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified.
A small company will be disqualified if it ceases to be a private company at any time during a financial year or it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
In this case, your company will not qualify as a small company in FY2021 as it does not meet the quantitative criteria in FY2019 and FY2020 and thus, not eligible for an audit exemption in FY2021.
4. Does the audit exemption apply to foreign companies in Singapore? Will the answer be any different if the company is a part of the “small group” in Singapore?
No. The audit exemption only applies to companies incorporated in Singapore.
But if the foreign company is a part of a group in Singapore, the consolidated total assets, consolidated revenue and total employees of the group, including the foreign company, are taken into account to assess for audit exemption.
5. If a foreign holding company has audited the consolidated financial statements for the group, would the Singapore subsidiary be required to audit its financial statements, even if the Singapore subsidiary satisfies as a small company?
Yes. Even if the holding company is a foreign company, a Singapore subsidiary will need to determine whether the entire group, including the foreign holding company, qualifies as a small group and fulfill the thresholds on a consolidated basis.
Where the foreign holding company has prepared consolidated financial statements, the “consolidated total assets” and “consolidated revenue” of the group shall be determined in accordance with the accounting standards applicable to the group.
Where the foreign holding company does not prepare consolidated financial statements, the consolidated total assets should be determined by the aggregation of the total assets of all the members of the group, and the consolidated revenue should be determined by the aggregated revenue of all the members of the group.