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Singapore has always been topped as one of the best economies by the World Bank in the 'ease of doing business' rankings. It has always been among the top three countries in this list for 12 consecutive years. The city-state holds the reputation of a pro-business economy and offers different business models to suit the needs of budding entrepreneurs and the enterprise ecosystem.
An LLC or a Limited Liability Company (also called Private Limited Company) is the most preferred business model in Singapore that provides an edge to Singapore-registered companies over their counterparts. This company model offers multiple benefits like lower compliance costs, limited liability, simple compliance regulations, and lower taxes.
However, the Companies Act of Singapore states that all the Singapore-registered companies must get their accounting records and financial statements audited annually by a public accountant or an auditor unless they fulfill the audit exemption criteria. Companies must maintain proper records and make them available for yearly review and inspection by the auditor.
Companies Amendment Act 2014 has revised the criteria for audit exemption by introducing the new concept of 'small companies' that are exempted from the statutory annual audit.
This guide will help you develop a comprehensive understanding of the 'small company' concept and the new audit exemption requirements. This guide will cover these topics:
Companies are legally bound to audit their accounts at least once in a fiscal year. It is compulsory because:
Hence, an independent audit is crucial to protect their interests.
A qualified chartered accountant registered with ACRA can conduct an audit in Singapore.
The auditor visits a Singapore company once in a fiscal year and examines the financial statements, including various transaction receipts, to verify its accounting records. He must report whether the company's financial statements comply with the respective financial reporting standards. He is also required to provide an objective analysis of the financial performance of the said company.
It ensures that no fraudulent behavior is committed in the company, and the revenue is used in a fair manner per the Company Constitution.
Before the enforcement of the Singapore Companies Amendment Act 2014, only two types of companies could enjoy the audit exemption.
An Exempt Private Company has the following characteristics:
Other companies that do not fall into this category were liable to audit their financial records once in a year. For small businesses that do not make hefty profits and have a below-average turnover, these statutory audits were proved to be too impractical and costly. In most cases, they did not add any value to the company's shareholders as they affected the company's meager profits adversely.
Therefore, the ACRA (Accounting & Corporate Regulatory Authority) created a new concept of 'small company' to foster a pro-business regulatory framework.
The companies qualified as a 'small company' started to enjoy audit exemption on or after the law change, i.e., 1 January 2015. This provision is also applicable for all the newly registered Singapore companies that fulfill the requirements to be qualified as a 'small company.'
To be exempted from the statutory audit, a company must meet the 'small company' criteria. To qualify as a 'small company,' a company must meet two out of the following three criteria.
SFRS (Singapore Financial Reporting Standards) determine the assets and revenue of the company for this provision. Full-time workers who are on payroll are regarded as company employees.
Companies exempted from statutory audit requirements are also relieved from the obligation of two things:
Thus, the exemption reduces the company's compliance cost, which is a massive relief for small businesses with below-average turnover.
A group is defined as a group of companies with a holding company and its subsidiaries. These companies are together referred to as a group due to the common controlling source.
A group company is eligible for audit exemption, if:
The group criteria are applicable even if the holding company is located overseas.
To qualify as a 'small group,' a group must meet two out of the following three eligibility criteria:
The criteria of audit exemption for a company or a group are the same. It means that a holding company and its subsidiaries must fulfill all the requirements to be a 'small company.' As a group, they must also satisfy the requirements to be a 'small group' to qualify for audit exemption.
Let's look at the two different scenarios to understand it further.
Scenario 1
Company A is a part of group A1.
Company A has:
In this scenario, the company fulfills all three requirements to qualify as a 'small company.'
Let's look at the group data now.
Group A1 has:
Group A1 also qualifies as a small group as it fulfills 2 out of 3 requirements.
In this scenario, company A is exempted from the statutory audit requirement.
Scenario 2
Company B is a subset of group B1.
Company B has:
In this scenario, the company fulfills two out of the three requirements. Hence, it will be considered a 'small company.'
Now, let's look at the group statistics.
Group B1 has:
In this scenario, the group only fulfills one out of the three mandatory requirements. Hence, it will not qualify as a 'small group.'
Company B will not enjoy the audit exemption even after qualifying as a 'small company' in this case.
A 'small company' will automatically disqualify and renounce its audit exemption privilege in one of the following scenarios:
The applicability of provision is not much different for existing companies and newly incorporated companies.
A company incorporated before 1 July 2015 can also qualify as a 'small company' if:
The following tables help you understand the transitional provisions for existing companies.
Table 1.1
Scenario 1.1 |
Meets Quantitative Criteria |
Qualifies as 'small company.' |
Remarks |
FY 2015 | Yes | Yes | First FY after amendment hence company qualifies as a 'small company' for meeting the quantitative criteria |
FY 2016 | No | Yes | An already qualified company cannot be disqualified if it fails to meet the criteria for one of the two preceding FY |
FY 2017 | Yes | Yes | Continue to qualify as a small company as it meets the quantitative criteria even after failing it in the preceding year |
FY 2018 | No | Yes | Already a qualified company cannot be disqualified even if it does not meet the quantitative criteria in its current FY and one of the two preceding FYs |
FY 2019 | No | Yes | |
FY 2020 | Yes | No | Even after meeting the 'small company' criteria in its current FY, the company is disqualified because it failed to meet the requirements in its two preceding FYs |
Table 1.2
Scenario 1.2 |
Meets Quantitative Criteria |
Qualifies as 'small company.' |
Remarks |
FY 2015 | No | No | First FY after amendment, so the company does not qualify as a 'small company' for not meeting the quantitative criteria |
FY 2016 | Yes | Yes | Second FY after amendment, so the company qualifies as a 'small company' for meeting the quantitative criteria |
FY 2017 | Yes | Yes | Continue to qualify as a 'small company' as already qualified in FY 2016 |
FY 2018 | No | Yes | Cannot be disqualified for not meeting the quantitative criteria for only current FY |
FY 2019 | No | Yes | Cannot be disqualified for not meeting the quantitative criteria for current FY and one of the preceding FYs |
FY 2020 | Yes | No | Could not meet the quantitative criteria for two preceding consecutive years hence disqualified even after meeting the quantitative criteria for current FY |
Newly incorporated companies cannot meet the quantitative criteria for two preceding FYs. However, the transitional provision allows a freshly registered company to qualify as a 'small company' if:
There are three different scenarios for explaining the applicability of the 'small company' criteria. The following three tables will give you a better insight into them.
Table 2.1
FY |
Meets Quantitative Criteria |
Qualifies as 'small company.' |
Remarks |
FY 2017 | Yes | Yes | Already qualifies as a 'small company.' |
FY 2018 | No | Yes | An already qualified company cannot be disqualified if it fails to meet the criteria for one FY |
FY 2019 | Yes | Yes | An already qualified company cannot be disqualified if it fails to meet the criteria for one of the two preceding FY |
FY 2020 | No | Yes | Already a qualified company cannot be disqualified even if it does not meet the quantitative criteria in its current FY and one of the two preceding FYs |
FY 2021 | No | Yes | |
FY 2022 | Yes | No | Even after meeting the 'small company' criteria in its current FY, the company is disqualified because it failed to meet the requirements in its last two preceding FYs |
Table 2.2
FY |
Meets Quantitative Criteria |
Qualifies as 'small company.' |
Remarks |
FY 2017 | Yes | No | Fail to meet quantitative criteria in the last two preceding FYs, hence does not qualify as 'small company' even after fulfilling requirements in the current FY |
FY 2018 | Yes | No | It only fulfills the 'small company' criteria for one preceding FY and does not qualify as a 'small company.' |
FY 2019 | Yes | Yes | Qualifies as a 'small company' for fulfilling the 'small company' requirements for two preceding FYs |
FY 2020 | No | Yes | Already a qualified company cannot be disqualified even if it does not meet the quantitative criteria in its current FY and one of the two preceding FYs |
FY 2021 | No | Yes | |
FY 2022 | Yes | No | Even after meeting the 'small company' criteria in its current FY, the company is disqualified because it failed to meet the requirements in its last two preceding FYs |
Table 2.3
Scenario 1.2 |
Meets Quantitative Criteria |
Qualifies as 'small company.' |
Remarks |
FY 2017 | No | Yes | Already a qualified company cannot be disqualified even if it does not meet the quantitative criteria in its current FY and one of the two preceding FYs |
FY 2018 | No | Yes | |
FY 2019 | Yes | No | Even after meeting the 'small company' criteria in its current FY, the company is disqualified because it failed to meet the requirements in its last two preceding FYs |
FY 2020 | Yes | No | Even after meeting the 'small company' criteria in its current FY, the company is disqualified because it failed to meet the requirements in its last two preceding FYs |
FY 2021 | Yes | Yes | Qualifies as a 'small company' for fulfilling the 'small company' requirements for two consecutive FYs preceding the current FY |
FY 2022 | Yes | Yes | Continue to enjoy the 'small company' privilege for qualifying as a 'small company' in FY 2021 |