Audit Exemptions in Singapore: Reducing Compliance Costs for Your Pte Ltd

For many businesses in Singapore, the annual audit of financial statements by an external auditor is a statutory requirement. While audits provide invaluable assurance and transparency, they also come with a significant cost. The good news for smaller Private Limited Companies (Pte Ltds) in Singapore is that the Companies Act offers specific audit exemptions, helping to reduce compliance burdens and foster a pro-business environment. 

Understanding these exemptions can save your company time and money, allowing you to re-invest those resources back into growth. 

Who Needs an Audit in Singapore? 

Generally, under the Singapore Companies Act, every company must appoint an auditor within three months of incorporation and have its financial statements audited annually. However, there are two primary categories of companies that can qualify for audit exemption: 

1. Dormant Companies: As we discussed in a previous post, a company that has had no accounting transactions (beyond specific maintenance activities) during a financial year can be exempt from audit. 

2. "Small Companies" and "Small Groups": This is the most common exemption for active businesses. Introduced in 2015, the "small company" concept replaced older criteria, making audit exemptions more accessible to a wider range of private companies. 

The "Small Company" Audit Exemption Criteria 

To qualify as a "small company" and be exempt from audit for a particular financial year, a private company must meet at least two out of the following three quantitative criteria for the immediate past two consecutive financial years: 

1. Total Annual Revenue: Not more than S$10 million 

2. Total Assets: Not more than S$10 million 

3. Number of Employees: Not more than 50 (full-time employees at the end of the financial year) 

Important Nuance: "Small Group" Exemption 

If your company is part of a larger group (i.e., it has subsidiaries or a holding company), both your company and the entire group must qualify as "small" for the audit exemption to apply. 

For a group to qualify as a "small group," it must meet at least two of the three quantitative criteria (revenue, assets, employees) on a consolidated basis for the immediate past two consecutive financial years. Furthermore, each company within the group must individually qualify as a "small company." 

Implications of Audit Exemption: What You Still Need to Do 

Even if your company is exempt from audit, it doesn't mean you're free from all financial reporting obligations. You are still required to: 

• Prepare Financial Statements: You must still prepare financial statements that comply with the Singapore Financial Reporting Standards (SFRS) or International Financial Reporting Standards (IFRS). These will be unaudited financial statements. 

• Maintain Proper Accounting Records: Keep accurate and complete accounting records as required by the Companies Act. These records form the basis of your unaudited financial statements. 

• File Annual Returns (AR): Your unaudited financial statements will be lodged with ACRA as part of your company's Annual Return filing. 

• File Corporate Income Tax Returns: Your unaudited financial statements will also be used for preparing your annual Corporate Income Tax Return (Form C-S/C) for IRAS. 

The key difference is that you are not required to appoint an external auditor to formally examine and report on these financial statements. 

When Can the Exemption Be Lost? 

A company that qualifies as a "small company" continues to be one until it is disqualified. Disqualification occurs if: 

• It ceases to be a private company at any time during a financial year (e.g., becomes a public company). 

• It fails to meet at least two of the three quantitative criteria for the immediate past two consecutive financial years. 

Seek Professional Advice 

Determining audit eligibility, especially for group structures, can be complex. Consulting with a qualified corporate service provider or an accounting firm is highly recommended. They can: 

• Help you accurately assess your company's eligibility for audit exemption. 

• Ensure your unaudited financial statements comply with the relevant accounting standards. 

• Manage your other ongoing statutory compliance requirements, keeping your company in good standing. 

The audit exemption is a fantastic benefit for Singapore businesses, but it comes with precise conditions. By understanding and adhering to these requirements, you can effectively manage your compliance costs while maintaining strong financial governance.