What is the Audit Exemption Threshold in Singapore?

In Singapore, understanding the audit exemption threshold is crucial for many businesses, especially small and medium-sized enterprises (SMEs) looking to manage compliance costs efficiently. Over the years, the government has introduced measures to ease the regulatory burden for smaller companies, one of which is the audit exemption framework.

What is Audit Exemption?

Audit exemption means that a company is not required to have its financial statements audited by an external auditor. However, even if a company qualifies for exemption, it must still prepare financial statements and file the necessary annual returns. The exemption only removes the obligation for a statutory audit, not the requirement to maintain good financial records.

The Small Company Concept

The small company concept was introduced to determine which companies qualify for audit exemption. To be considered a small company, a business must meet two out of three quantitative criteria over the past two consecutive financial years:

• Total annual revenue not exceeding S$10 million;

• Total assets not exceeding S$10 million;

• No more than 50 employees at the end of the financial year.

Additionally, the company must be a private company throughout the financial year. A private company is one that does not have more than 50 shareholders and does not offer its shares to the public.

If these conditions are met, the company can be exempted from appointing an auditor and from having its financial statements audited.

Audit Exemption for Groups of Companies

When a company is part of a group, the audit exemption can extend to the entire group under the “small group” concept. To qualify:

• Each company within the group must individually qualify as a small company; and

• The group on a consolidated basis must meet at least two out of three of the same thresholds:

  • Consolidated revenue not more than S$10 million;

  • Consolidated total assets not more than S$10 million;

  • Consolidated total employees not more than 50.

This approach ensures that only genuinely small groups enjoy the audit exemption benefits.

What About Dormant Companies?

Dormant companies — companies that have no significant accounting transactions during a financial year — are also eligible for audit exemption. If a company is dormant, it can be exempted from preparing audited financial statements, provided it remains inactive and fulfills certain basic filing requirements.

However, it’s important to remember that a dormant company must still comply with annual return filings and maintain accounting records even if no business activities occur.

Why the Audit Exemption Matters

The audit exemption offers several benefits:

• Cost Savings: Audits can be expensive. Small companies often find it challenging to justify these costs, especially when they are operating on tight budgets.

• Administrative Relief: Without the audit requirement, management can focus more on business operations rather than preparing for an annual external review.

• Efficiency: Internal bookkeeping processes become more streamlined without the additional step of audit preparations.

• Encouraging Entrepreneurship: By reducing compliance costs, Singapore fosters a more conducive environment for startups and small businesses to grow and succeed.

Responsibilities Remain Despite Audit Exemption

Even if a company qualifies for audit exemption, it is still legally required to:

• Keep proper accounting records;

• Prepare unaudited financial statements in accordance with accounting standards;

• File annual returns with the Accounting and Corporate Regulatory Authority (ACRA);

• File corporate income tax returns with the Inland Revenue Authority of Singapore (IRAS).

Non-compliance with these requirements can lead to penalties and other enforcement actions, even if an audit is not required.

Losing Audit Exemption Status

Companies should also be aware that audit exemption is not permanent. A company can lose its small company status and be required to appoint auditors if:

• It ceases to be a private company during the financial year; or

• It fails to meet at least two of the three quantitative criteria over the last two consecutive financial years.

Similarly, a group can lose its small group status if it does not meet the required thresholds consistently over the same period.

If a company or group no longer qualifies, they must appoint an auditor and have their financial statements audited for the following financial year.

Practical Advice for Businesses

For businesses close to the audit exemption thresholds, it is advisable to:

• Monitor annual revenue, total assets, and headcount closely;

• Keep accounting records in order, regardless of audit exemption;

• Conduct regular internal reviews to ensure readiness if an audit becomes necessary;

• Seek professional advice if planning expansion or restructuring, as these could affect qualification status.

While avoiding audit costs is attractive, good financial discipline should always remain a priority to maintain stakeholder confidence, especially for companies seeking external investment or loans.

Conclusion

The audit exemption threshold in Singapore is a significant support for small companies, offering meaningful cost and administrative savings. However, qualifying companies must still uphold financial transparency and compliance with regulatory requirements. Proper financial management ensures businesses not only remain compliant but also position themselves strongly for future growth opportunities.

By understanding and managing audit exemption eligibility carefully, companies can take full advantage of Singapore’s pro-business regulatory environment while maintaining good corporate governance.