If you’re running an SME in Singapore, you might be wondering whether your company qualifies for the audit exemption granted by ACRA. Generally, privately-held small companies will be exempted from needing to maintain an auditor. The definition of a “small company” is outlined below. This definition is fairly generous and will encompass a significant number of SMEs in Singapore, which is good news for entrepreneurs wanting to focus on their business. This will help minimise compliance and administrative costs.
Have a look at the criteria below to see if your company is audit exempt.
- Small company audit exemption key criteria
- Small group audit exemption key criteria
- History of changes in audit exemption requirements
- Frequently asked questions on audit exemption
- Protecting your audit exempt business
1. Small company audit exemption criteria
There are 2 sets of key criteria that you must meet to be exempted from holding audits.
Audit exemption criteria 1: Run a private limited company
You must run a private limited company. All other types of entities – such as public limited companies, sole-proprietors, LLPs, etc. – do NOT qualify.
Audit exemption criteria 2: Meet at least 2 out of 3 of the following conditions
You meet at least 2 out of 3 of the conditions below:
- Total annual revenue ≤ SGD $10 million
- Total assets ≤ SGD $10 million
- Total number of employees ≤ 50
Example: You run a private limited manufacturing company that has $9 million in annual revenue, $20 million in total assets, and you have 49 employees. Since you’re a i) private limited entity, and ii) your revenue is under $10 million, and iii) your total employee strength is under 50, you are exempted from needing to perform yearly audits.
2. Small company group audit exemption
If your company is part of a bigger group of companies (e.g. you’re a subsidiary), you can also qualify for audit exemption.
There are 2 sets of key criteria that company groups must meet to be exempted from holding audits.
Group audit exemption criteria 1: Run a private limited company
Only private limited companies can be exempted from audits. If you’re a public limited company, or any other type of company, you won’t qualify.
Group audit exemption criteria 2: All companies in the group must meet at least 2 out of 3 of the following conditions
Every single company/subsidiary in the entire group must meet at least 2 out of 3 of the conditions below:
- Total annual revenue ≤ $10 million
- Total assets ≤ $10 million
- Total number of employees ≤ 50
Group audit exemption criteria 3: The entire group, taken as a whole, must fulfill 2 out of 3 of the criteria below:
- Total consolidated group annual revenue ≤ $10 million
- Total consolidated group assets ≤ $10 million
- Total consolidated group number of employees ≤ 50
Basically, the entire group must meet the same audit exemption criteria as that of an individual small company.
Example: You run a group of 4 medical companies, with each registered as a Pte. Ltd. entity. Your entire group of companies has $5 million in annual revenue, $5 million in total assets, and you have 80 employees. Since your i) entire group consists of private limited entities, and ii) your entire group’s revenue is under $10 million, and iii) your entire group’s total assets is under $10 million, you are exempted from needing to perform yearly audits.
3. History of changes in audit exemption requirements by ACRA
In 2014, the Companies Act was updated to introduce new requirements for companies that are exempted from maintaining an auditor. Parliament effected these changes by passing the Companies (Amendment) Act on 8 October 2014. These changes took effect on 1st July 2015.
This Act introduced a new rule, called the “small companies exemption”, which broadened the types and numbers of companies that are now exempt from needing to have auditors.
|Criteria||Old requirements||New requirements|
|1||Company must be registered as an Exempt Private Limited||Company does NOT need to be registered as an Exempt Private Limited
A regular “Pte. Ltd” is sufficient
|2||Annual revenue ≤ SGD $5 million||Must meet 2 out of 3 criteria:
1. Annual revenue ≤ SGD $10 million
2. Total assets less than SGD $10 million
3. Total employees* ≤ 50
*You only need to consider full-time employees
|3||Total shareholders less than 20 people, no corporate shareholders||N.A.|
In the past, you needed to actually incorporate your firm as an “Exempt Private Limited” to qualify for the audit exemption. This took more effort from business owners – some didn’t know about this rule, while others felt it was too much trouble to change entity types, given the hectic schedules of running a business.
The new requirements significantly expand the number of small companies that qualify for audit exemption in Singapore. Companies no longer need to be incorporated as a specific entity, so owners of standard private limited firms can enjoy the new benefits. Revenue caps have been doubled, which significantly increases the number of SMEs covered under this scheme. The removal of shareholder limits also helps to cover business owners who have employee stock option plans (de rigueur in startups), where it is easy to exceed 20 shareholders. This is great news for business owners.
The amended audit rules help to reduce compliance costs for small business owners, which frees up more time and resources for entrepreneurs to scale their businesses. This is part of a broader push to reduce the regulatory burden on SMEs and to support their growth.
4. Audit Exemption FAQ
Do I have to apply for audit exemption?
No. As long as you fulfill the criteria, you do not need to apply to be audit exempt. It’s automatic.
Will the audit exemption make tax evasion easier?
No. Audit exemption does not mean accounting exemption. All companies are still required to maintain their proper financial accounts. These accounts must be kept to the requirements mandated under the Singapore Financial Reporting Standards (SFRS).
ACRA has the legal power to require companies to provide an audited set of accounts for official review, even if the company is normally audit exempt. This can be done if there is a reasonable belief that audit exempt companies are engaging in tax evasion, or other irregular practices.
There is additional surveillance by IRAS, which will perform random checks on small companies. This is done through analysing tax returns and performing audits on submitted accounts. If financial inconsistencies are found in audit exempt companies, IRAS can initiate a wide range of legal action against the company and its officers/directors.
Is there a loophole where a large company could break itself into many different small companies, thereby qualifying for the “small company” audit exemption?
No such loophole exists, because the “small company” requirement also applies at the group level. If a single large business were to split itself into, say, 10 different smaller entities (under the same group), then the “small company group” rules would apply. The requirements are the same for small companies and small company groups, so artificially creating new entities will not allow businesses that should be audited to wriggle away from their responsibilities.
If my company is audit exempt, do I still have to file my financial statements with ACRA?
Yes. Filing financial statements is one of the key duties of company directors, and this duty is not affected by the absence of an auditor.
What is the definition of “employees” in the new requirements?
The limit of 50 employees refers to full-time employees only, at the end of the financial year. Don’t count part-time employees.
Can foreign companies be audit exempt?
Your company must be incorporated in Singapore and qualify for the criteria found at the beginning of the article.
Will I qualify if my company belongs to a foreign group of companies?
Audit exempt criteria:
- Your company must be incorporated in Singapore
- Your company AND the foreign group must qualify for the “small company group” exemption
When assessing whether the foreign group qualifies under the “small company group” criteria, you must take a look at the group’s consolidated financial statements. The consolidated total revenue and consolidated total assets of the entire group (foreign + local) will be the benchmark for determining whether you can be audit exempt.
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