Which companies are required to have their financial statements audited?

Operating a private company in Singapore is not without its requirements. A critical requirement for those who want to incorporate in Singapore is being audited.

Unless you are exempted…..

In this article, we'll talk about the different audit requirements for private companies, how to qualify for audit exemption, and much more.

What is a Statutory Audit in Singapore, and Why is it Required?

Under the Singapore Company Act, private limited companies in Singapore must have an annual Statutory Audit. This is a checkup of their financial statements by a licensed auditor or public accountant.

Statutory audits are necessary because they can give an unbiased view of your company's financial statements to ensure that they fairly and accurately represent its financial position. This can raise stakeholders' confidence in the financial reporting and make sound investment decisions.

Who Needs to be audited in Singapore?

A private company in Singapore must be audited unless they are small companies, small groups, or dormant companies.

However, suppose a company breaks any laws or regulations related to laying the financial statements during AGM or keeping accounting records. In that case, ACRA may choose to audit the companies even if they are exempt from audits.

I know you may have a lot of questions here after reading this. You may wonder

• How do you define a small company in the audit exemption?

• What does a small group mean?

• How do you determine exemption for companies incorporated in Singapore?

Don't worry; we will explain the audit exemption requirements and all those definitions in more detail later in this article. Now, let's look at the audit requirements for private companies first.

Audit Requirements for a Private Company in Singapore

There are three main audit requirements for a private company that ACRA sets out.

1. Appointment of auditors

2. Role of auditors

3. Auditor remuneration

Appointment of Auditors

All private companies in Singapore must appoint at least one auditor within three months from the date of incorporation. The auditor must be a public accountant or an accounting firm registered with the Accounting and Corporate Regulatory Authority (ACRA).

The auditor will stay in this position until the first annual general meeting of the shareholders. The company can either keep the same auditor or choose someone new at that time.

Role of Auditors

As part of the audit process, companies in Singapore are required to prepare an Audited Financial Statement. The company's financial statements will contain the balance sheet, income statement, cash flow statement, and more.

The role of auditors is to:

• Express an opinion on whether the audited financial statements give an accurate and fair view of the company's financial position and report any material discrepancies they may find.

• Check if the financial statements comply with local and international financial reporting standards.

To do all this, auditors must have access to company records to properly and timely audit the company's finances.

Auditor Remuneration

Auditors must be paid for their services by the provisions of the Companies Act. However, there is no specific law on how much audit firms should charge their clients. This means the fee is open for negotiation between the client and the audit firm.

However, companies must disclose their auditor's remuneration in a general meeting if shareholders request it.

What if a company auditor resigns or is removed?

The company will need to appoint a new auditor if the old one is removed or resigns.

If the company directors fail to appoint an auditor, the Accounting and Corporate Regulatory Authority of Singapore (ACRA) may appoint an auditor for them.

Under the Companies Act, there are different procedures for appointing a new auditor when the previous one is removed or resigns.

If the previous auditor was removed, then:

• The company must inform the auditor that they will be removed.

• The company meets and appoints a new auditor through a decision made and approved by at least three-fourths of the general meeting's attendees.

• The company will notify the Registrar about the auditor's removal.

If the previous auditor resigns:

• The company meets within three months after receiving the auditor's resignation notice.

• The company appoints a new auditor and notifies the Registrar within 14 days after the appointment has been approved in the General Meeting.

All the companies that fail to comply with the above regulations will be fined S$5,000.

Do you have any immediate questions or concerns about auditing requirements in Singapore?

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Which companies are Exempt from Audit in Singapore?

As we mentioned earlier, some companies may be exempt from statutory audits in Singapore. These companies are typically classified as small companies, small groups, or dormant companies.

Audit Exemption for Small Companies in Singapore - Eligibility Criteria

To qualify for the small company audit exemption in Singapore, your company must be a private company within the current financial year and meet at least two of the following three audit requirements for the past two consecutive years.

• The company has a total annual revenue of less than or equal to S$10 million.

• The company also has a total asset worth less than or equal to S$10 million.

• The company employs less than or equal to 50 individuals.

Audit Exemption for Small Groups in Singapore - Eligibility Criteria

If a company is part of a group company, the following requirements are needed to qualify for audit exemption:

1. The company in question must meet the criteria to be eligible as a small company - refer to the conditions above.

2. The entire group that the company in question belongs to has to qualify as a small group company.

In other words, if a company is part of a group company, you can only be exempt from audit if you are a small company that is part of a small group.

What are the requirements to qualify as a small group company? For a group company to be eligible as a small group, at least two of the following three requirements must be met for the past two consecutive years:

1. The consolidated revenue of the entire group must not exceed S$10 million.

2. The total assets of the whole group must not exceed S$10 million.

3. The total number of employees in the whole group must not exceed 50.

Singapore companies classified as small companies retain their status for the subsequent financial years until they are disqualified.

Small companies are disqualified if:

• The company in question stops being private any time during the financial year

• The company in question does not meet two of the three qualifying criteria for the past two consecutive financial years.

Audit Exemption for Dormant Company in Singapore - Qualification Criteria

There are two ways for a dormant company to be exempt from audit requirements if it can prove that:

1. It has not been active since it was created; or

2. It has not been active since the end of the previous financial year.

Any Statutory Requirements Even If Your Company Qualifies for Audit Exemption?

Even if a small company is exempt from audit, it will still need to follow these requirements:

• Preparation of unaudited financial statements (UFS)

• Maintaining proper accounting records

• Holding AGM

• Lodging Annual Return

The unaudited financial statements are required for tax submission, annual general meetings (AGM), and company shareholders' accountability. These documents will also be used to apply for bank accounts, Singapore government grants and meet government regulations for different industries.

Unaudited financial statements have:

• 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

It is important for a company incorporated in Singapore to always keep good accounting records. This is because ACRA regularly checks companies to ensure everything is in order. External auditors may also be appointed if a company deals with legal issues.

Singapore is, without a doubt, one of the best countries to do business with. Not only is it easy for local and foreign business owners to incorporate their companies in Singapore, but the government enforces unparalleled transparency and accountability.

Here at Piloto Asia, we’ll be more than happy to assist you with the auditing process for your company.

Get in touch with us now.

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