Audit Exemption in Singapore Explained: The New 'Small Company' Concept?

Before the enforcement of the Singapore Companies Amendment Act 2014, only two types of companies could enjoy the audit exemption.

• A dormant company
• An exempt private company

Exempt Private Company

An Exempt Private Company has the following characteristics:

• No more than S$ 5 million in annual turnover
• No more than 20 shareholders
• No corporate entity as a shareholder

Need for the concept of 'small company.'

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.

Introduction of the 'small company' concept

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.'

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:

• It passes as a 'small company' by fulfilling 2 out of 3 qualifying requirements for a 'small company.'
• It is a subset of a 'small group.'

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:

• Group's consolidated revenue does not exceed S$10 million for the preceding financial year
• Group's consolidated asset does not exceed S$10 million for the preceding financial year
• Total employees are less than 50, i.e., the total number of employees in the holding company and its subsidiaries

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.

Examples

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:

• S$2 million revenue in the preceding fiscal year
• Assets worth S$4 million in the preceding fiscal year
• Ten employees

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:

• S$6 million revenue in the preceding financial year
• Assets worth S$15 million in the prior financial year
• 40 employees

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:

• S$5 million annual turnovers in the preceding fiscal year
• Assets worth S$12 million in the prior fiscal year
• 45 employees

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:

• S$8 million turnovers in the preceding fiscal year
• Assets worth S$20 million in the prior fiscal year
• 100 employees

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.

The applicability of provision is not much different for existing companies and newly incorporated companies.

For existing companies

A company incorporated before 1 July 2015 can also qualify as a 'small company' if:

• The company keeps operating as a private company within the period
• Fulfill the quantitative requirement in its first or second fiscal year after the commencement of the new amendment

The following tables help you understand the transitional provisions for existing companies.

Table 1.1

Table 1.2

For newly registered companies (after 1 July 2015)

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:

• It operates as a private limited company
• It fulfills quantitative requirements in its first or second financial year after incorporation

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.

Scenario 2.1

• The company meets the 'small company' criteria in FY 2015 & 2016
• The company qualifies as a 'small company' in FY 2016

Table 2.1

Scenario 2.2

• The company does not fulfill the quantitative requirements for FY 2015 & 2016
• The company is not a 'small company' in 2016

Table 2.2

Scenario 2.3

• The company fulfill the quantitative requirements for a 'small company' in FY 2015 and 2016
• The company qualifies as a 'small company' in 2016

Table 2.3