Company Audits in Singapore: Requirements and Exemptions

Company audits are vital in ensuring that financial statements of the company are true and fair. Thus, the Companies Act (CA) lays out requirements relating to several aspects of company audits, such as the appointment of auditors and which companies are exempt from audit requirements. This article explores these issues.

The following infographic is a summary of company audits requirements and exemptions in Singapore:

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Appointment of Auditors

The directors of a company are required to appoint at least one accounting entity to be the company’s auditor within 3 months of the company’s incorporation. In Singapore, only public accountants or accounting firms approved by the Accounting and Corporate Regulatory Authority (ACRA) can act as company auditors.

Auditors will hold office from the time of their appointment until the conclusion of the company’s next annual general meeting (AGM). Therefore when a newly-incorporated company first appoints an auditor, this auditor will hold office until the conclusion of the company’s first AGM.

Then during the first AGM, the company will have to appoint a new accounting entity (or reappoint the same accounting entity) to act as the company’s auditor until the conclusion of the next AGM. This auditor will then hold office until the conclusion of the company’s subsequent AGM, and so on and so forth.

If the directors fail to appoint a company auditor, any company member may apply to ACRA to have it appoint an auditor for the company instead.

A company auditor can be removed by passing a resolution at a general meeting for which special notice has been given. For more information, refer to our article on removing a company auditor in Singapore.

Role of Auditors

The role of auditors is to report on whether the company’s financial statements:

• Comply with financial reporting standards; and
• Provide true and fair view of the company’s financial position and performance.

The auditor’s report must be attached to or endorsed upon those financial statements when these statements are laid before the company at its AGM.

Auditors are entitled to access the company’s accounting records, or obtain any information and explanations from the company’s officers as required for audit purposes.

Auditor Remuneration

Companies are required to disclose auditor remuneration in a general meeting if a request for details of all payments paid to or receivable by the company auditor is made by:

• At least 5% of the total number of members of the company; or
• Shareholders who hold at least 5% of the total number of issued company shares.

Who can decide the auditor’s fees?

In general, the party which appointed the auditor will be able to fix the auditor’s fees. For example, if the directors had appointed the auditor, then the directors would be able to fix the auditor’s fees.

Alternatively, if the auditor had been appointed by the company at a general meeting, then the auditor’s fees must be fixed by the company in general meeting. (For this scenario however, the company’s members can also authorise the directors to fix the auditor’s fees at the most recent AGM.)

It appears that Singapore’s laws do not state how much auditors should be paid or when payment should be made. These issues are therefore up for negotiation when companies look for public accountants or accounting entities to appoint as their auditor(s).

Exemption from Audit Requirements

Companies that are regarded as a “small company” for a particular financial year, or are dormant, are exempt from audit requirements. These companies therefore do not need to appoint auditors (or have their financial statements audited) for that financial year.

If you are unsure of the end date of your company’s financial year, you may find our article on determining the financial year end of a company useful.

Small company exemption

In general, a company will be considered a “small company” if it is a private company throughout the current financial year, and satisfies any 2 of the following criteria for each of the 2 financial years immediately before the current financial year:

1. The company’s annual revenue does not exceed $10 million;
2. The value of the company’s total assets does not exceed $10 million; or
3. The company does not have more than 50 employees.

Refer to paragraphs 3 and 4 of the Thirteenth Schedule of the CA for the criteria that companies incorporated for less than 3 years, or incorporated before 1 July 2015 respectively, have to meet in order to be considered a “small company”.

Exemption for small companies that are part of groups

(The concept of “group” in the CA has the same meaning as that in the Singapore Financial Reporting Standards.)

Small companies that are part of groups (whether as the parent company, or a subsidiary) will only be exempted from audit requirements if they are part of a “small group”.

For a group of companies to be considered a “small group”, it has to satisfy any of the 2 of the following criteria for each of the 2 consecutive financial years immediately before the current financial year:

1. The group’s consolidated revenue does not exceed $10 million;
2. The value of the group’s consolidated total assets does not exceed $10 million; or
3. The group does not have more than 50 employees.

Dormant company

A company will also be exempt from audit requirements if:

• It has been dormant from the time of its formation; or
• It has been dormant since the end of the previous financial year.

A company is dormant during a period in which no accounting transaction occurs. Dormant companies will cease to be considered dormant once such an accounting transaction occurs.

The following are not to be considered as accounting transactions (refer to section 205B(3) of the CA for the full list):

• The appointment of a company secretary
• The appointment of an auditor
• The keeping of company registers and books
• The payment of any fees or charges that the law requires to be paid

Exception to exemption from audit requirements

Even if a company is exempt from audit requirements, the Registrar may still require the company to lodge its audited financial statements and an auditor’s report if the Registrar is satisfied that the company has breached laws relating to the:

• Keeping of accounting records (section 199 of the CA); or
• Laying of its financial statements at its AGM (section 201 of the CA).

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