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Singapore – New Exemption From “Audit” For Small Companies.

1 December, 2014

Through the Companies (Amendment) Bill 2014, the Steering Committee for the Review of the Companies Act (“CA”) has embarked on the largest revision exercise with the most number of changes to the CA since its enactment in 1967. One significant change which will be regulated by the Accounting and Corporate Regulatory Authority of Singapore (“ACRA“) is the “small company” concept for audit exemption. This will replace the current concept of the “exempt private company” (“EPC”) which will be discussed further below. This article will elaborate on the concept of a “small company”, the criteria for exemption from statutory audit, and how this new concept under the Bill can potentially reduce the compliance costs and regulatory burden on small companies.


To qualify as a small company and be exempted from statutory audit, a private company must meet at least 2 out of the following 3 quantitative criteria:


(a) total annual revenue of not more than SGD 10m;


(b) total assets of not more than SGD 10m;


(c) number of employees not exceeding 50.


An existing private company qualifies as a small company in a particular financial year if it meets at least 2 of the 3 criteria in each of the previous two financial years. This deviates from the current statutory concept and criteria of an EPC, i.e. a company in which: (a) the beneficial interests in its shares are not held by a corporation; (b) has 20 members or less; and (c) has an annual revenue of less than SGD 5m, is exempted from statutory audits. The small company criteria above are consistent with those used in the Singapore Financial Standards for Small Entities and therefore are not an unknown concept in Singapore’s accounting and auditing structure. For corporate secretarial compliance and business continuation, qualifying small companies will remain exempted until it is disqualified, which could be in the form of the company ceasing to be a private company, or if it does not meet at least 2 of the above criteria for the past 2 consecutive financial years.


The new audit exemptions will apply for financial years commencing on or after the effective date of the amendments (“Start Date“). For existing or new companies incorporated shortly after the Start Date, the entity must be a private company and must satisfy at least 2 out of the 3 criteria in either the 1st or 2nd year after the Start Date. This affords companies adequate time and flexibility to adapt under the new CA amendments.


To prevent crafty businesses from creating many small companies or a group of companies to exploit the audit exemption, new laws introduced under the Bill will require a company, being a part of a group to qualify as a small company and the group to also satisfy at least 2 of the 3 quantitative criteria on a consolidated basis for the past 2 financial years (“small group“).


Existing safeguards under the CA such as the requirement for all companies to keep proper accounting records and the empowerment of shareholders with no less than 5% voting rights to require the preparation of audited accounts by a company will continue to apply. Account keeping must comply with the Singapore Financial Reporting Standards, with exceptions applying to non-listed companies having no more than $500k in assets in total and have no accounting transaction in a year. Efforts to discourage tax evasion by companies arising from audit exemption remain strong as IRAS is expected to increase its checks on record keeping practices of small companies by reviewing tax returns, conducting tax audits and site visits.


Audits can be costly and time-consuming and perceived to have no real value for the owners/stakeholders of a small company. The new audit exemption laws benefit eligible companies and almost 25,000 other existing companies in reducing their compliance costs and regulatory burden, and also cut ACRA’s enforcement costs in apprehending companies and its officers who are in default of their statutory obligations under the CA.

 

ATMD Bird & Bird

 

For further information, please contact:

 

Tony Quek, ATMD Bird & Bird

tony.quek@twobirds.com

 

ATMD Bird & Bird Corporate/M&A Practice Profile in Singapore

 

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