Do You Really Need an Auditor? Understanding Audit Exemption for Small Companies in Singapore

Introduction

In Singapore, many business owners assume that an audit is a mandatory part of running a company. While statutory audits are indeed a legal requirement for many entities, not all companies are required to be audited. In fact, the Accounting and Corporate Regulatory Authority (ACRA) provides audit exemption for certain “small companies.”

If you run a small or medium-sized enterprise (SME) in Singapore, it’s important to understand whether you qualify for audit exemption—and what it means for your compliance obligations. This article explains the criteria for audit exemption, the benefits and risks of opting out of audits, and when it might still make sense to engage an auditor even if you’re exempt.

1. What Is an Audit and Why Is It Required?

An audit is an independent examination of a company’s financial statements to determine whether they provide a true and fair view of its financial performance and position, in accordance with Singapore Financial Reporting Standards (SFRS).

Audits are typically required to:

• Comply with statutory requirements,

• Ensure financial transparency,

• Enhance credibility with lenders, investors, and regulators,

• Detect fraud and financial irregularities.

However, ACRA recognizes that smaller companies may not need the same level of scrutiny and allows exemptions for businesses that meet specific criteria.

2. What Is the Audit Exemption in Singapore?

Under Section 205C of the Companies Act, a company that qualifies as a small company is exempted from the requirement to have its financial statements audited. This applies to financial years beginning on or after 1 July 2015.

To qualify as a small company, a private company must meet at least 2 out of the following 3 criteria for the immediate past two consecutive financial years:

• Total revenue does not exceed S$10 million;

• Total assets do not exceed S$10 million;

• Number of employees does not exceed 50.

For a newly incorporated company, the exemption applies if it meets at least 2 out of the 3 criteria in its first or second financial year.

3. Group Companies and the “Small Group” Concept

If your company is part of a group of companies (e.g., holding company or subsidiary), the group as a whole must also qualify as a small group to be exempt from audits.

To qualify:

• The entire group must meet at least 2 of the 3 criteria (revenue, assets, employees) on a consolidated basis for the past two financial years.

If either the individual company or the group fails to meet the threshold, audit exemption is not granted.

4. When an Audit Is Still Required (Even If You Qualify for Exemption)

Even if your company qualifies as a small company, you may still need to perform an audit due to:

A. Regulatory or Licensing Requirements

Certain industries (e.g., finance, education, charities, construction) may have specific licensing conditions that require audited accounts.

B. Grant Applications

Applying for government grants such as the Enterprise Development Grant (EDG) or Productivity Solutions Grant (PSG) may require audited financial statements to demonstrate financial standing.

C. Investor or Lender Demands

Banks, financial institutions, or investors may require audited financials before offering loans or funding.

D. Shareholder Requirements

Minority shareholders or directors may insist on audits to ensure transparency and prevent disputes.

5. Benefits of Audit Exemption

If your company qualifies and chooses not to conduct an audit, there are several advantages:

• Cost Savings: Audit fees for SMEs can range from S$2,000 to S$10,000+, depending on business complexity.

• Less Disruption: Avoid the time and effort involved in preparing audit documentation and engaging with auditors.

• Simplified Compliance: Only need to prepare unaudited financial statements for internal and filing purposes.

For companies that are newly set up or operating with tight margins, this can be a welcome relief.

6. Risks of Forgoing an Audit

While audit exemption may reduce your compliance burden, there are potential drawbacks:

• Reduced Credibility: Stakeholders may perceive unaudited accounts as less reliable, particularly when applying for loans or pitching to investors.

• Weaker Financial Oversight: Without regular independent checks, financial irregularities or inefficiencies may go unnoticed.

• Unprepared for Future Growth: Businesses aiming for expansion, funding, or eventual sale may find themselves scrambling to retroactively audit prior years.

• Loss of Advisory Insight: A professional audit often comes with valuable recommendations on improving internal controls and financial systems.

7. When Should You Still Engage an Auditor Voluntarily?

Even if you’re exempt, there are situations where voluntary audits may be a smart move:

• You’re planning to seek funding or bank loans soon;

• You’re preparing for merger, acquisition, or business sale;

• You want to instil financial discipline early in your company’s lifecycle;

• You operate in a family-run business or partnership, and wish to avoid disputes;

• You’re applying for government support or public sector contracts.

Voluntary audits can also prepare your business to scale smoothly and meet future compliance expectations without disruption.

8. How to Check Your Audit Exemption Status

To determine your company’s eligibility for audit exemption:

1. Review your financials for the last two years.

2. Check whether you meet at least two out of three criteria (revenue, assets, employee count).

3. If part of a group, calculate consolidated figures.

If unsure, consult with a professional auditor like Koh & Lim Audit PAC to get an accurate assessment.

9. What If You Choose to Remain Unaudited?

If you meet the exemption criteria and decide not to be audited, your company must still:

• Prepare unaudited financial statements in accordance with SFRS,

• File your Annual Return with ACRA on time,

• Maintain proper records for five years, as required by IRAS,

• Submit tax returns (Form C or C-S) to IRAS annually.

Failing to do so can still result in penalties and compliance issues, even without an audit.

Conclusion

Audit exemptions offer significant flexibility for small businesses in Singapore, especially during their early growth stages. However, deciding whether to skip an audit should be a strategic decision, not just a cost-saving measure.

If your company is planning to grow, raise capital, apply for grants, or strengthen internal financial discipline, engaging a qualified auditor—like Koh & Lim Audit PAC—can add immense long-term value.

Need help determining whether your company requires an audit?
Speak with the professionals at Koh & Lim Audit PAC today.

📞 Call us at +65 98638665
📧 Email: Tommyksh@kohlimaudit.sg
🌐 Visit: https://kohlimaudit.sg

Let us help you make the right decision for your business, compliance, and future growth.