Stay Up-To-Date on Accounting and Corporate Regulatory Authority (ACRA) changes.
ACRA has implemented many key changes in the Companies (Amendment) Act 2014, one of which is audit exemptions for small companies. The new rule is meant to offer flexibility to small/single companies to have or not to have audit assurance.
The new audit exemption has been effective from the 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.
Audit Exemptions for Small Companies
The New Audit Exemption regulation introduced on 1 July 2015 allows more categories of companies to qualify for exemptions from conducting statutory audits of their financial statements. This implies that a 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 Audits) was increased from SGD 5 million to SGD 10 million.
Reason for Introducing New Audit Exemptions
Similar exemptions were made in the year 2003 and 2005. The purpose of introducing such exemptions is to reduce the regulatory burden and compliance cost (audit fees) for smaller companies that have a small market and limited budget.
What is Meant by the “Private Exempt Company Concept”?
As a background to the New Audit Exemption, it’s important to know which companies qualified as Private Exempt Companies prior to the New Audit Exemption being 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) qualified under Singapore law to be exempt from statutory audit, if:
- Annual revenue was less than SGD $5 million SGD (US$3.61 million)
- Had less than 20 shareholders
- Had no corporate shareholders
- Were not part of a group of companie
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 are now 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 “mall company”, a company must be a private entity 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 two?
|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 of 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 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.
Audit Exemptions for small companies come as a breather for businessmen, but it is still advisable to have Audit Assurance completed by an external company, as it has multiple benefits.
If you are seeking professional audit assurance counsel for your SME, your client’s SME or group level audit assurance please get in touch for a free consultation. We can help you answer the following key questions:
- Whether your company is exempt from audit?
- Whether your company is qualified as a small company under the new Companies Act? or
- Any other questions pertaining to audit assurance, tax or accounting for Singapore and the rest of Asia.