Audit Exemption for Small Companies in Singapore
ACRA has implemented many key changes in the Companies (Amendment) Act 2014, one of which is Audit Exemption for small companies. The new rule is meant to offer flexibility to small/single companies to have or not to have audit assurance.
New audit exemption has been effective from financial year beginning on or after the change in the law (1st July, 2015).
The Accounting and Corporate Regulatory Authority (ACRA) ACRA is the national regulator of business entities, public accountants and corporate service providers in Singapore.ACRA also plays the role of a facilitator for the development of business entities and the public accountancy profession.
The New Audit Exemption regulation introduced on 1 July 2015 allows more categories of companies to qualify for exemption from conducting statutory audit of their financial statements. This implies that larger number of small to medium companies can exempt themselves from conducting Audit Assurance.
- The concept of Private Exempt Company was removed; and
- Revenue threshold (for Statutory Audit) was increased from SGD 5 million to SGD 10 million.
Reason for Introducing New Audit Exemption
Similar exemptions were made in the year 2003 and 2005. The purpose of introducing such exemption is to reduce regulatory burden and compliance cost (Audit fees) for smaller companies that have a small market and limited budget.
What is Meant by Private Exempt Company Concept?
As a background to New Audit Exemption, it’s important to know which companies qualified as Private Exempt Company prior to New Audit Exempt was introduced.
Criteria for Exempt Private Company
- Not having more than 20 individual members (shareholders); and
- Not having corporate shareholders (shares held by another company).
Prior to 1 July 2015, only Exempt Private Companies (EPCs) qualifies under Singapore law to be exempted from statutory audit, if:
- Annual revenue is less than SGD $5 million SGD (US$3.61 million)
- Have less than 20 shareholders
- Have no corporate shareholders
- Are not part of a group of companies
Criteria for Audit Exemption for Small Companies
- The concept of private exempt company has been removed, which means companies with more than 20 shareholders which previously were required to file an annual audit with ACRA will now count as exempt. A private company which has corporate shareholders but fulfils the criteria can be entitled to the small company audit exemption.
- In order to qualify as a “small company”, a company must be a private and fulfil at least 2 of the following 3 quantitative criteria in each of the immediate past two financial years (FYs):
3 Quantitative Criteria
Total annual revenue of not more than SGD $10 million (for the entire financial year);
Does the private company fulfil any 2?
Total assets of not more than SGD $10 million (as at financial year end);
Number of employees of not more than 50 (full time employees as financial year end).
Do take note: The earlier exemption was applicable to exempt private companies with annual revenue of SGD$5 million or less for the Financial Year.
Safeguards to the Audit Exemption for Small Companies
No policy comes without the safeguards. Existing safeguards will be retained, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts.
If you need further information or clarification on:
- Whether your Company is exempted from audit?
- Which financial year it will be effective?
- Whether your company is qualified as a small company under the new Companies Act? or
- Any other questions
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Audit Exemption for small companies comes as a breather for businessmen, it still advisable to have Audit Assurance by an external company, as it has multiple benefits.
In our following post in our Auditing Series, we will discuss Advantages of Conducting Audit Assurance.