The Key Fact About Company Statutory Audit in Singapore

What does a Statutory Audit look like in Singapore?

A statutory audit is usually conducted once a year and is a type of external audit that ensures compliance with laws and regulations.

As the name suggests, all companies operating in Singapore are required to go through a statutory audit, unless in the case of an audit exemption. This type of audit requires the examination of an organization’s financial data and book of accounts to guarantee its credibility and to avoid any misstatements or discrepancies.

1. What are the Legal Requirements of a Statutory Audit?

All companies in Singapore are required to appoint an auditor within 3 months of their incorporation unless they are exempted in the case that they are classified as a “Small Company” or “Small Group”.

Small Company Audit Requirements
  • Corporations that fall under the “small company” category must be private companies in the financial year according to the Singapore Companies Act
  • A company is a “small company” when it achieves 2 out of the following 3 criteria:
  • Total annual revenue of $10 million or less; (Total revenue ≤ S$10m)
    Total gross assets of $10 million or less at the end of the financial reporting period; or (Total assets ≤ S$10m)
    50 employees or less at the end of the financial year. (No. of employees ≤ 50)
Small Group Company Audit Requirements
  • All corporations that are part of a “small group” must be labeled as “small companies” according to the Singapore Companies Act.
  • Group companies are entities that are formed of a set of companies that are under common control. They will be exempt from the annual audit of its accounts if the holding and all subsidiary companies individually:
  • Fulfill a minimum of 2 of the small company qualifying conditions, and
  • Belong to a “small group.”

For a Group to qualify as a “small group,” it is required to meet a minimum of 2 of the 3 following quantitative criteria on a consolidated basis (Parent + Subsidiaries) within the last two consecutive financial years:

  • Total annual consolidated revenue of $10 million or less;(Total revenue ≤ S$10m)
  • Total gross consolidated assets of $10 million or less; or (Total assets ≤ S$10m)
  • The total number of 50 employees or less. (No. of employees ≤ 50)
An Illustration

On the 21st of January 2020, Company X was incorporated as a private company. Its gross assets were valued at $6 million at the end of the financial year 2020, with 42 employees and annual revenue of $8 million. Company X did not need to undergo a Statutory Audit as all the qualifying criteria for a small company were fulfilled. In the case that a private company decides to stop being a private company, it will then be subject to a statutory audit.

Therefore, if Company X decides to stop being a private company in the year 2021, it will be subject to a statutory audit.

2. What causes changes in the Audit Status of the Company?

Companies that fall under the “small company” category generally hold that status for subsequent financial years until they are disqualified. When they are disqualified, the following criteria must be met:

  • It stops being a private company during a financial year; or
  • It has failed to meet at least 2 of the 3 quantitative criteria in the previous 2 financial years.

When a group falls under the “small group” category, they usually hold this status for subsequent financial years until they fail to meet at least 2 of the 3 quantitative criteria within the previous 2 financial years.

3. What are the requirements for companies that are audit-exempt?

Companies still must prepare and file unaudited annual financial statements even if it is exempted from statutory audit. These statements help in the computation and preparation of the company’s corporate tax returns. Companies that are exempted from audit do not have to appoint an auditor within three months of incorporation, and their accounts are not audited.

4. Transitional Provisions for existing companies:

All existing companies, whether corporate or individual shareholder, incorporated on or before 30th June 2015 can qualify as “small company”, if it meets at least 2 out of 3 quantitative criteria for the financial year commencing from 1st July 2015 i.e.,

  • Total annual revenue of $10 million or less; (Total revenue ≤ S$10m)
  • Total gross assets of $10 million or less at the end of the financial reporting period; or (Total assets ≤ S$10m)
  • 50 employees or less at the end of the financial year. (No. of employees ≤ 50)

5. What are the non-compliance penalties in a Statutory Audit?

Companies that are not exempted from the Statutory Audit must appoint an auditor within 3 months of their incorporation.

Failure to do so in Singapore is a punishable offense that may incur penalties. Section 173A (1) states that a company shall by notice furnish to the Registrar

  • Within 14 days after a person becomes an auditor; and
  • Within 14 days after any change in the appointment of an auditor.

Failure to comply with the above section is an offense of the Act and every officer of the company who is in default shall each be guilty of an offense and shall be liable on conviction to a fine not exceeding $5,000 and also to a default penalty.

Conclusion

A statutory Audit is not required for a company in the category of a “small company” or a “small group”. They are required to meet a number of quantitative criteria in order to qualify as a small business or a small group, deeming them exempt from statutory audits. In the case that a “small company” or a “small group” qualifying exemption are not met, the company or group is then required to appoint a statutory auditor to conduct a statutory audit.

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