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Singapore Company FAQs - Financial Statements Audit

Singapore Company FAQs - Financial Statements Audit

Q1. Does my company require an annual audit?

A. Under the amended Companies Act of Singapore, dormant companies and small exempt private companies?annual revenue threshold set at S$5 million and below are not mandated by law to audit their accounts.

However, this shall not apply to a company in respect of a financial year which commences before the date of commencement of the amended provisions, which is on 15 May 2003. Hence section 201A of the Companies?Act in force immediately before that date should continue to apply to that company in respect of that financial year. However, all companies must continue to maintain proper accounting records and prepare “true and fair?/STRONG> financial statements that comply with the Financial Reporting Standards (FRS) that are prescribed by the Council on Corporate Disclosure and Governance (CCDG). Additionally, under S 205C of the Amended Companies Act, the Registry of Companies and Business may require Company exempt from audit requirements to lodge audited accounts.

For details and requirements of the amended provision, you can refer to S205A to 205C of the Amended Companies Act Cap 50.

Q2. Why do Singapore companies have audits?

A. Companies invest in an audit for a number of reasons. Larger companies are required to do so by law, but many would do so anyway even if there were no statutory obligation ?as in the USA. An independent audit is crucial to good corporate governance and essential to an effective internal financial control function.

Above all, an audit adds credibility to information provided to shareholders. It provides assurance to investors and other providers of finance who are able to make their decisions in a safe environment, with confidence. Safety and confidence reduce the cost of capital and make companies competitive and profitable.

Companies invest in an audit in order to: 

  • Satisfy stakeholders such as employees, customers, suppliers and pressure group, as well as the investing community, as to the credibility of published information
  • Facilitate the payment of corporate tax, good and services tax, and other taxes on time and accurately, thereby avoiding interest, penalties and investigations
  • Enable them to comply with banking covenants
  • Help deter and detect material fraud and error
  • Facilitate the purchase and sale of businesses
  • Take advantage of the spin-off benefits such as advice on the structure and operations of systems
  • Demonstrate good corporate governance and citizenship

Q3. Are audit fees regulated and is there a scale for fees?

A. Audit fees are not regulated by PAB and there is no scale reference for auditors. Auditors generally charge fees according to time spent on the audit assignment. Fees also reflect the level of skill and experience required and the level of responsibility and complexity involved in audit work. Alternatively, fees are charged on agreed terms between the auditor and the client.

Q4. Must my company adhere to certain accounting standards for compliance purposes?

A. Generally, any company incorporated in Singapore must follow the Singapore Accounting Standards. Auditors have a set of accounting standards to adhere to in any set of accounts. However, depending on the nature of business of the company, not every standard needs to be adhered to.

Q5. My company’s transactions are few (or none), is there a need for an annual audit?

A. Under the Companies Act, all limited companies, except private exempted company, in Singapore need to be audited annually. However, you may note that audit fees are generally lower for companies that have fewer transactions.

Q6. What are the differences between a review and an audit?

A. Review engagements are becoming more common. Many companies see a review as a cost-effective alternative to an audit.

There is a significant difference between an audit and a review; the level of assurance provided by a review engagement is substantially lower than the level of assurance provided by an audit engagement.

A review engagement differs from an audit engagement in the following aspects: 

  • Audit engagements provide a high level of positive assurance, often expressed in ‘true and fair?terms; review engagements only provide a moderate level of assurance, often expressed as ‘negative?assurance and reviewers commonly state that nothing has come to their attention to indicate that the information reported on has not been ‘properly prepared?
  • Audit engagements require the auditor to assess the accounting and internal control systems, to perform detailed tests of control and substantive procedures, and to corroborate explanations received; review engagements rely substantially on analytical procedures and reviewers are not required to assess the accounting and internal control system or to corroborate explanations received.

The level of assurance provided by a review engagement depends on the amount of work performed by the reviewer, which may not be clear to those seeking to rely on the review. And review engagements are less likely to detect material fraud and error than audit engagements.

Q7. Why should smaller companies invest in a voluntary audit?

A. Financial statements audits add value to a company. Smaller companies invest in audits for the same reasons as larger companies, but there are particular issues facing smaller companies that make investment in an audit worthwhile:

  • The cost of the audit is often marginal for very small companies, particularly where the auditor is involved in the preparation of the statutory accounts.
  • Small companies who prepare their own accounts often need help in arriving at adjustments, such as those for obsolete stocks, bad debts and other provisions
  • Small companies grow, and may find themselves subject to a statutory audit requirement - the first year and the subsequent years of an audit can be very trying if the accounts are not in good order
  • An audit is essential in financing negotiations, take-over and buy-out
  • The close involvement of the auditor provides companies with comfort when faced with tax and regulatory investigations

Directors of smaller companies may believe, for example, that because there is no longer any statutory audit requirement, there will no longer be any external ‘checking?of the books and records. The power and resources of the Inland Revenue Authority of Singapore and the Department of Customs and Excise are not to be underestimated and increasing all the time. This means that there are likely to be more investigations in the future, and that there are liable to be more thorough.

Q8. Can all small companies take advantage of audit exemption?

A. Inaccordancy wuth Singapore Companies Act, Only dormant companies and exempt private companies with annual turnover of less than $5 million are exempted from audit. Companies that are entitled to take advantage of audit exemption include the following:

  • Public companies, banks, insurance companies, companies regulated under the financial services legislation, trade unions and employers associations.
  • Certain charitable companies (and other charitable entities)
  • The constitutions of many small companies and entities, including clubs and societies, also require the production of an auditors?report.

It is recommended that, in view of the amended provision of the Companies Act Cap 50 (ie. S205A to S 205C), companies continue to have their accounts audited. 

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