Apart from the law requiring larger companies to have an audit, there are other reasons for having an audit:
- to satisfy stakeholder as well as the investor community, as to the credibility of published information
- to enable clients to comply with banking covenants
- to help detect and prevent fraud and error
- to take advantage of the benefits of an audit such as advice on the structure and operations of systems and to suggest improvements
- to demonstrate good corporate citizenship
Smaller companies have easier corporate reporting requirements with audit exemption. In July 2015, the Companies Act (the Act) was amended allowing small company to be exempted from audit. A company qualifies as a small company if:
a) it is a private company in the financial year in question; and
b) It meets at least 2 of 3 following criteria for immediate past two financial years:
- total annual revenue less than or equal S$10 million;
- total assets less than or equal S$10 million;
- no. of employees less than or equal 50
For a company which is part of a group:
- the company must qualify as a small company; and
- entire group must be a “small group” to qualify to the audit exemption.
For a group to be a small group, it must meet at least 2 of the 3 above quantitative criteria on a consolidated basis for the immediate past two consecutive financial years.
Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified. A small company is disqualified if:
(a) it ceases to be a private company at any time during a financial year; or
(b) it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Where a group has qualified as a small group, it continues to be a small group for subsequent financial years until it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
However with the audit exemption, Companies are still required to maintain proper accounting records, prepare and present financial statements in compliance with the Act and the Singapore Financial Reporting Standards (FRS). In other words, Companies are required to prepare directors’ report, balance sheet, profit and loss account, and statement of changes in equity, cash flow statement and notes to financial statements. Everything is the same with the exception of the audit report.