The Accounting and Corporate Regulatory Authority (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.
A private limited company is the most suitable form of business structure in Singapore. It provides benefits such as limited liability, tax savings, and simple compliance obligations. The Companies Act in Singapore has introduced the concept of “small company” that exempts private companies that fulfill certain criteria from the requirement of annual audit. This helps the company reduce its compliance costs as well as its overall regulatory burden.
ACRA has implemented many key changes in the Companies (Amendment) Act 2014, one of which is Audit Exemption for small companies. The new rule is meant to offer flexibility to small/single companies to have or not to have audit assurance. New audit exemption has been effective from financial year beginning on or after the change in the law (1st July, 2015).
The small company concept is applicable to existing as well as newly registered private limited companies in Singapore.
Previous Criteria for Audit Exemption
The Singapore Companies Act states that every company (unless exempted) must get its financial statements and accounting records audited by an auditor on an annual basis. The auditor examines these records and provides an independent opinion about the fairness of the accounts. This is a mandatory requirement that every company must follow.
Prior to the Amendment Act 2014, an Exempt Private Company with an annual turnover less than or equal to S$ 5 Million was exempt from having its accounts audited. Note that an Exempt Private Company is a company that has less than 20 shareholders and no corporate shareholders. Pursuant to the Amendment, the criteria has changed. Now, any company defined as a “small company” will not have to conduct an annual audit of its accounts.
The New Criteria for Audit Exemption
The Companies (Amendment) Act 2014 introduced the concept of a “small company” which came into effect on July 1, 2015. The Act states that a company is considered to be a small company if it fulfils at least two out of the following three conditions:
- The total annual revenue of the company must not exceed S$ 10 million;
- The total assets of the company for the financial year end must not exceed S$ 10 million;
- The number of full-time employees at the end of the financial year must not exceed 50.
- Besides private companies, group companies (holding and subsidiary companies) can also avail the audit exemption if they qualify as a small group per the criteria described below.
Group Company Audit Rule
A group company is defined as a holding company and its subsidiaries that together form a group due to a common source of control. A group company will be exempt from annual audit of its accounts if the holding and all subsidiary companies individually:
- Fulfil at least 2 of the small company qualifying conditions and
- Belong to a “small group”
To qualify as a “small group”, the group (comprising of all the companies) must fulfil two out of the following three conditions in the immediate two preceding financial years:
- The consolidated revenue must not exceed S$ 10 million;
- The consolidated total assets must not exceed S$ 10 million;
- The total number of employees of the group must not exceed 50.
In other words, this means that to qualify for the audit exemption, the individual subsidiary companies as well as the holding company, as a group, must fulfil the eligibility criteria of a small company.
Change in Company Status
Once a company acquires the “small company” status it continues to enjoy the audit exemption benefit unless the company is disqualified. Disqualification of a company occurs if the company:
- Ceases to operate as a private company in the financial year or
- does not satisfy the “small company” qualifying conditions for the two immediately preceding financial years.
A company incorporated before the changes in the Act can also avail the audit exemption if the company fulfils two out of the three qualifying criteria of a small company. Specifically, a company incorporated before July 1, 2015 can qualify as a small company if:
- It is a private company and
- Meets the qualifying criteria either in the first or second financial year after the commencement of the small company criteria (i.e. July 1, 2015)
The following table explains the transitional provisions:
The transitional provisions are applicable only for the first two years from the change in this law.
An entrepreneur setting up a business in Singapore must be aware of annual filing requirements and the exemptions that are applicable to certain companies such as small companies, exempt private companies, dormant companies, etc. A newly incorporated company, an existing company and a company that is a part of a group can avail exemption from the annual audit of its accounts if it qualifies as a small company. To ensure that your company complies with these conditions and can avail this audit exemption, it is advisable to engage the services of a good corporate services provider.
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