The amendments to the Companies Act include Singapore Audit Exemptions for smaller companies with financial periods on or after 1 July 2015. Let’s find out more.
With accordance to the legislative amendments introduced by the Companies (Amendment) Act 2014, the first phase of the legislative amendments has taken effect on 1 July 2015. Amongst the list of proposed amendments, one of the most significant changes would be the new audit exemption for “small companies” concept. In prior to the amendments, a company is exempted from having its accounts audited if it is an exempt private company (EPC) with annual revenue of $5 million or lower.
The amendments have been modified to include a broader set of criteria that defines those entities eligible for audit exemption, reflecting that audit is more of value to broader groups of stakeholders like suppliers, employees and customers than shareholders. This newly introduced concept allows more corporations to opt for audit exemption. This would in turn reduce compliance costs and responsibilities.
Thirteenth Schedule (Section 205C) of the Companies Act states that a company is considered a “small company” if:
- It is a private corporation throughout the financial period in question; and
- It satisfies any two of the three criteria below for each of the two preceding consecutive financial years:
- The annual revenue does not exceed $10 million.
- The value of total assets does not exceed $10 million as at the end of the financial year,
- There are no more than 50 employees at the end of the financial year
The qualifying factors are consistent with Singapore Financial Reporting Standards for Small Entities approach, but are slightly different by incorporating additional requirements that the “small company” status to be determined through reference of a two-year period. There is limitation in revealing the reason behind this requirement but there has been justifications made to further justify the criteria, namely to safeguard against manipulation in order to achieve the audit-exemption status and to assess the eligibility on a longer term basis so that the impact of abnormal earnings are reduced and the company will not lose its exemption status due to a sudden yet short-lived increase in their earnings.
As the amendments are scheduled to take effect only for financial periods commencing on or after 1 July 2015, there have been transitional arrangements made for corporations that are formed before the day that the “small company” criteria starts. Companies, which are formed before the effective date, will still be qualified as a small company from the first or second financial period on or after the effective date, on the condition that it is a private company throughout the concerned financial period and meet the quantitative criteria for that financial period.
Once audit-exemption status has been granted to a company, the status shall remain valid until it is no longer a small company when:
- The Quantitative Criteria is not being satisfied for two immediately preceding financial years; or
- It ceases to be a private company during a financial year.