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Audit Exemtion in Singapore

Ask any business owner for their “top 10 most annoying things”, chances are auditing is one of them. It is one of the most basic compliance requirements that every company in Singapore needs to follow.

The good news is that in Singapore audit exemption is a norm, which sure has lent a touch of commercial appeal to this small island.

So if you are intending to embark on a new business venture here, you should see to it if you are qualified for this significant privilege.

1. The Birth of Audit Exemption in Singapore

Perhaps you are not aware of this but before the Companies Act was amended, only Exempt Private Company is qualified for an audit exemption in Singapore. This type of company can be roughly defined as a private company that has no more than 20 shareholders, none of whom is a corporate body.

Other business entities regardless of their sizes and scope of activities are required to have their accounts audited at least once a year, not to mention other filing requirements such as the submission of financial statements.

From the perspective of these ineligible companies, especially those that live on a below-average amount of income, financial audits can be a ball and chain that is extremely costly and, in some cases, adds no value to their shareholders.

It was not until 2014 that the Amendment took hold and gave birth to the concept of “small company”, thereby allowing these small-scale businesses to lighten the heavy load of regulatory compliances that they used to bear.

2. Requirements for Audit Exemption in Singapore

Without further ado, your company is deemed a “small company” and is entitled to audit exemption in Singapore if it is a private company and manages to fulfill 2 out of the following 3 quantitative criteria:

  • Its total annual revenue evaluated at the end of the preceding fiscal year must not exceed S$10 million.
  • Its total assets evaluated at the end of the preceding fiscal year must not exceed S$10 million.
  • Its total number of full-time employers on the payroll at the end of the preceding fiscal year must not exceed 50.

For all that, at least once a fiscal year, you are still obliged to lodge the financial statement with ACRA as this record serves as the foundation upon which your tax return is computed.

If your company is a constituent – i.e. either a subsidiary or a holding company, of a bigger whole, then it is considered a part of a group company.

Under the Inland Revenue and Authority of Singapore, the facts and figures of the entire group of companies would be the basis on which each of its subsets is appraised as to whether or not they are qualified for audit exemption.

2. Audit Exemption Requirements for a Group of Companies in Singapore

A holding company and all of its subsidiaries, when taken together, constitute a group where they are all ruled over by the same source of control.

Your company, as a mere constituent of a larger group company, can be qualified for the audit exemption in Singapore provided that it is (1) a “small company” per se, and is (2) a subset of a “small group”.

An entire group is referred to as a “small group” as long as for the preceding two fiscal years it has satisfied 2 out of the 3 the following qualifying criteria:

  • Its consolidated revenue must not surpass the point of S$10 million
  • Its consolidated total assets must not surpass the point of S$10 million
  • Its total number of employees on the payroll must not exceed 50.

In light of everything we have discussed until now, does it point to the fact that an independent company and a group of companies are all evaluated by the same set of criteria?

To answer your question, Yes. In order to be considered for an audit exemption in Singapore, an entity, be it an independent company, a subsidiary, a holding company, or a company group, would all be subject to the above-mentioned criteria of a “small company”.

3. Change in Company status

On the flip side of the coin, your company would automatically renounce its privileged status as a “small company” and, as required, employ an independent auditor or an audit firm to have its accounting records audited under any of the following scenarios:

  • Your company ceases to be a private company at any time during a fiscal year – i.e. it takes in the 51st shareholder, or it issues shares to the public.
  • Your company violates more than 2 out of the 3 qualifying criteria to be a “small company” for the past 2 immediate fiscal years.

4. Transitional Provision

It is clear that companies that have just been incorporated as of late would find it impossible to meet these criteria for the immediate past 2 fiscal years.

In order to address this clear need, a set of transitional provisions has applied, allowing companies incorporated before the amendment took place to obtain the “small company” status and profit from it.

If your company is founded before July 1, 2015, it could still be deemed a “small company” as long as:

  • It operates as a private company ever since
  • It could fulfill the set of qualifying criteria either in the first or second fiscal year right after the amendment takes place.

To give you a more concrete idea of this transitional provision, the following is the explanation of it:

  • If your company meets the qualifying criteria in the fiscal year 2015 and fiscal year 2016, it goes without saying that your company is a small company.
  • If your company only meets the qualifying criteria in the fiscal year 15 and not in the fiscal year 2016, it is still considered as a small company for the simple reason: it meets the criteria in the first year after the amendment took place.
  • If your company is unable to meet the qualifying criteria in the fiscal year 2015 but somehow manage to do so in the fiscal year 2016, it is deemed a small company as it meets the criteria in the second year after the amendment took place.
  • But, well, if your company failed to meet any of the criteria in both FY15 and FY16, it is excluded as a small company as the transitional provision is only relevant for the first 2 years since the amendment took place.

The same rule applies for new companies incorporated before Jul 2015, that is, a new company can be entitled to “small company” status if it is a private company and satisfies at least 2 above mentioned quantitative criteria in the first or second financial year after the date of its incorporation.

If you have any further questions regarding audit exemption in Singapore, do not hesitate to talk to our consultants by dropping a chat message or sending an email via [email protected]

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