Introduction
In Singapore, the Companies Act (Cap. 50) requires certain companies to have their financial statements audited annually by an ACRA-registered public accountant. However, not all businesses are subject to this requirement. In 2014, the Small Company Concept was introduced to ease the compliance burden for small and medium enterprises (SMEs) that meet specific criteria.
Knowing when SMEs qualify for audit exemptions helps business owners save time and costs while still maintaining proper financial governance. This article explains the criteria, how it applies to different company structures, and important considerations for SMEs that fall under the exemption.
1. What Is an Audit Exemption?
An audit exemption means that a company is not legally required to have its financial statements audited annually. The exemption applies only to statutory audits — SMEs may still choose to conduct voluntary audits for business or stakeholder purposes.
Benefits of audit exemption:
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Lower compliance costs.
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Reduced administrative burden.
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Faster year-end closing process.
However, even if exempt, businesses must still:
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Keep proper accounting records.
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Prepare unaudited financial statements in compliance with Singapore Financial Reporting Standards (SFRS).
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File annual returns with ACRA.
2. The Small Company Concept
The Small Company Concept sets out the criteria for audit exemption.
A company qualifies as a small company if:
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It is a private company throughout the financial year; and
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It meets at least two out of the following three criteria for the immediate past two consecutive financial years:
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Total annual revenue ≤ S$10 million
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Total assets ≤ S$10 million
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Number of employees ≤ 50
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If the company is part of a group, the entire group must qualify as a small group on a consolidated basis using the same criteria.
3. How the Criteria Are Applied
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Private company status: The company must remain a private company for the whole financial year. If it converts to a public company during the year, the exemption no longer applies.
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Two out of three rule: Meeting only one criterion is not enough — at least two criteria must be met in each of the past two financial years.
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Consolidated assessment for groups: All group members’ revenues, assets, and employees are aggregated for the purpose of the test.
4. Examples of Qualifying Companies
Example 1 — Standalone SME:
A retail company with annual revenue of S$8 million, assets of S$7 million, and 35 employees qualifies for audit exemption if it meets these criteria for two consecutive years.
Example 2 — Group structure:
A subsidiary may meet the small company thresholds on its own, but if the parent company exceeds them, the subsidiary will not qualify for exemption because the group does not meet the small group criteria.
5. When SMEs Do Not Qualify
Even if an SME meets the small company thresholds, it must undergo an audit if:
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It is a public company.
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It is a subsidiary of a non-small group.
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It operates in a regulated industry requiring audits (e.g., banking, insurance, financial services, co-operatives).
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It is required by shareholders holding at least 5% of voting rights.
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It is required by external parties such as banks, investors, or grant authorities.
6. Common Misunderstandings About Audit Exemption
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Myth 1: Audit exemption means no financial statements are needed.
Reality: SMEs must still prepare unaudited financial statements in compliance with SFRS. -
Myth 2: Exemption is automatic.
Reality: Directors must assess and ensure the company meets the criteria for two consecutive years. -
Myth 3: Voluntary audits are unnecessary for exempt companies.
Reality: Many SMEs still choose voluntary audits for investor confidence, bank loans, or grant applications.
7. Advantages of Audit Exemption for SMEs
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Saves cost by avoiding annual audit fees.
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Reduces audit-related administrative work.
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Allows management to focus resources on growth.
8. Why Some SMEs Choose to Audit Voluntarily
Even when exempt, SMEs may still request a voluntary audit for:
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Bank financing: Lenders often prefer audited statements.
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Investor relations: Attracting or retaining investors is easier with verified financial data.
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Tender requirements: Some contracts require audited accounts.
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Grant compliance: Government agencies may request audited financials before releasing funds.
9. How to Maintain Audit Exemption Status
To retain exemption status, SMEs should:
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Monitor annual revenue, asset values, and employee count.
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Maintain private company status.
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Keep group size and operations within the small group thresholds.
If the company breaches the criteria for two consecutive years, it will lose exemption and be required to appoint an auditor.
10. Implications of Losing Audit Exemption
If your company no longer qualifies:
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You must appoint an ACRA-registered public accountant before the next financial year-end.
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You must prepare for a statutory audit, which may require additional documentation.
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There may be cost implications for businesses that have not previously been preparing for audit.
11. How Koh & Lim Audit PAC Supports SMEs
At Koh & Lim Audit PAC, we help SMEs:
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Assess whether they qualify for audit exemption.
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Prepare unaudited financial statements in compliance with SFRS.
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Provide voluntary audit services for SMEs seeking external validation.
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Advise on maintaining exemption status while meeting stakeholder requirements.
Conclusion
SMEs in Singapore qualify for audit exemption under the Small Company Concept if they are private companies that meet at least two of the three set thresholds for revenue, assets, and employee count, for two consecutive years. However, exemptions do not remove the obligation to maintain proper records and prepare compliant financial statements.
Call to Action:
If you want to confirm whether your SME qualifies for audit exemption — or if you need unaudited or voluntary audited financial statements — contact Koh & Lim Audit PAC today.
📞 +65 98638665
📧 Tommyksh@kohlimaudit.sg
🌐 https://kohlimaudit.sg/