What is Small Company Concept for Audit Exemption in Singapore

Posted by John Rikvin on February 6th, 2020

In its bid to stay globally competitive and continue to nurture the growth of small and medium enterprises (“SMEs”), the Accounting and Corporate Regulatory Authority (“ACRA”) has introduced the new concept of “small company”. This change is slated to take effect from 1 July 2015.

The “Small Company” Concept

This new concept now allows for qualifying companies to reduce regulatory costs as they have fewer audit requirements to comply with, such as:

• No requirement for its profit and loss accounts, or consolidated accounts and balance sheets to be audited by an approved auditor;
• No requirement to provide members of the company with copies of the auditors’ report;
• No requirement to present copies of the auditors’ report at its Annual General Meeting (“AGM”).

Companies that qualify for audit exemptions will still need to provide and present unaudited reports.

An “approved auditor” means an auditor who has been certified and has a license with the Institute of Singapore Chartered Accountants (“ISCA”), which is the national accountancy body of Singapore. Usually, engaging an approved auditor will mean additional operating costs for the company. In addition, the audit team will most likely have to make visits to the company’s physical office, its storehouse, retail stores; and any other locations where the company carries out its business, to observe and conduct their audits. This may mean that the employees of the company may also have to sacrifice time from their routine day to day jobs to attend to the enquiries or needs of the auditors.

Qualifying Criteria

Under the new regime, a company will need to fulfil any two of the following requirements in order to qualify as a small company in each of the immediate past two financial years (“FYs”):

1. Total Revenue not more than S million;
2. Total Assets of not more than S million; or
3. Number of employees not more than 50.

In addition, the company must be incorporated in Singapore, so foreign-incorporated companies who conduct business operations in Singapore via a Singapore branch would be unable to qualify as a small company and enjoy the concessions granted under the audit exemptions.

With regards to the company’s total revenue and total assets, these should be determined in accordance with the Singapore Financial Reporting Standards (“SFRS”). The company’s total number of employees is determined based on the number of full-time employees employed by the company at the end of the FY.

For companies that are part of a group, the entire group must qualify as a small group, i.e. it needs to meet at least two of these criteria on a consolidated basis for the immediate past two consecutive FYs. By “group”, this means that the company could be related to other companies as a subsidiary, or because it has been formed for the purpose of a joint venture between two companies. Do note that the companies in the group need to qualify together on a consolidated basis, i.e. the combined total revenue and / or assets should not exceed S million; and/or the total number of employees of all the companies within the group should not exceed 50.

There are of course, instances where the holding company of the Singapore incorporated private company, is a foreign company. In such cases, the consolidated total assets should be determined by the aggregation of the total assets of all the members of the group, and the consolidated revenue should be determined by the aggregated revenue of all the members of the group. Ideally, for more complicated cases, companies should consult a professional bookkeeping firm or audit firm on their analysis on whether the company can still fall under the small company concept, rather than run the risk of making the wrong assumptions, which could lead to penalties imposed by ACRA.

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