Audit Exemption for Small Companies in Singapore
In Singapore, private limited companies are obligated by law to undergo official audits of their financial statements conducted by licensed auditors or public accountants. These audits must be carried out at least once a year, and companies are required to maintain proper records that are accessible to auditors during the annual review and inspection process.
However, a significant change was introduced in 2014 to the Companies Act, which included an amendment outlining the criteria for audit exemption for small companies in Singapore.
Overview:
Definition of a small business:
To qualify as a small company in Singapore, a company must be a private limited company. Listed companies are considered large corporations and are subject to the mandatory annual audit requirement.
Additionally, a company can be classified as a small company if it meets at least two out of three audit exemption criteria for the immediate preceding two consecutive financial years. These criteria are based on the company’s number of employees, revenue, and assets.
Revenue is calculated as the sales amount generated from the company’s primary business activities as defined in its Articles of Association. Total assets include properties, cash, and trade receivables recorded in accordance with the latest accounting standards.
Criteria for audit exemption in Singapore:
Presently, a company in Singapore is exempted from audit if it qualifies as an exempt private company and has annual revenue of S$5 million or less.
However, a new concept of small companies is being implemented to determine the audit exemption in Singapore. Under this concept, a company does not need to be an exempt private company to be exempted from audit.
To qualify as a small company, a business in Singapore must meet the following criteria:
It is a private company in the current financial year. It satisfies at least two of the following requirements for the immediate past two consecutive years:
- Annual revenue is less than S$10 million.
- Total assets are valued below S$10 million.
- The number of employees is less than 50.
The same criteria apply to group companies in Singapore:
The company must qualify as a small company. The entire group must qualify as a small group company. These criteria must be fulfilled to qualify for the audit exemption as a small company.
It is important to note that for a group company to be considered a small group or holding company, at least two of the three quantitative criteria on a consolidated basis must be met for the immediate past two consecutive financial years.
Once a company in Singapore qualifies as a small company, it retains that status for subsequent years until it becomes disqualified. Disqualification occurs if:
The company ceases to be a private company at any time during the financial year. The company fails to meet at least two of the three quantitative criteria for the immediate past two consecutive financial years.
Audit requirements for small companies:
Although companies exempt from audit are not required to undergo an official audit, they are still obliged to prepare a complete set of unaudited Financial Statements, including explanatory notes with the directors’ statement. These statements must comply with the Singapore Financial Reporting Standards.
The unaudited statements are necessary for annual general meetings, tax submissions, and accountability to the company’s shareholders. Additionally, these documents may be used to secure banking facilities, apply for Singapore government grants, and meet regulatory requirements in various industries.
The unaudited statements typically include the following components:
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 statements
Filing of annual return (ACRA):
A Singapore company must submit an annual return (AR) to the Accounting and Corporate Regulatory Authority (ACRA) within one month of its Annual General Meeting (AGM). The AR should include details of the company officers, registered address, and auditors.
Filing of annual tax return with IRAS:
Singapore companies are also required to file their annual tax return with the Inland Revenue Authority of Singapore (IRAS) by November 30th. The tax return is based on the preceding financial year, and the profits for that year will form the basis for filing the tax return in the current year.
It is the responsibility of the directors of the company to ensure compliance with the annual filing requirements.
Key considerations and obligations for small companies in Singapore:
Before the change in regulations, the maximum threshold to qualify for audit exemptions was set at S$5 million. However, ACRA’s adjustment has expanded the audit exemption eligibility, allowing at least 25,000 small and medium-sized enterprises (SMEs) in Singapore to qualify.
Despite the audit exemptions, small companies in Singapore still have certain obligations and requirements, which include:
Prepare unaudited financial statements: Even though small companies are exempt from the statutory audit, they are still required to prepare unaudited financial statements. These statements provide an overview of the company’s financial position and performance and should comply with the Singapore Financial Reporting Standards.
Maintain proper accounting records: It is essential for small companies to maintain accurate and up-to-date accounting records, even if they are exempt from audit. ACRA may conduct periodic checks, and in case of legal issues, an external auditor may be appointed to audit the company.
Empower shareholders with at least 5% voting rights: Shareholders holding at least 5% of ordinary shares in the company have the right to request the preparation of audited accounts. Small companies must adhere to this requirement and accommodate such requests from eligible shareholders.
Proper accounting knowledge and experience are necessary for the company’s employees to ensure accurate preparation of profit and loss accounts, balance sheets, and other financial documents in accordance with the Singapore Financial Reporting Standards. Additionally, all relevant documentation, including bank statements and invoices, should be properly maintained.
It is important to note that a small company may be disqualified if it ceases to be a private company at any time during the financial year or fails to meet the qualifying criteria for the immediate past two consecutive years.
Conclusion:
Singapore is known for being a favorable business hub for both local and foreign investors and entrepreneurs. The government strives to maintain a business-friendly environment and has implemented the audit exemption framework to support small businesses.
The attractive tax regime in Singapore remains unchanged, further enhancing its appeal as a destination for businesses. However, it is crucial for small companies to understand and fulfill their obligations regarding annual filing requirements, proper accounting records, and shareholder rights.
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