Accounting and Auditing Services in Singapore: An Overview

The Singapore Financial Reporting Standards (SFRS) are followed for Accounting in Singapore which are based on the International Financial Reporting Standards. Companies within a financial period starting on or after January 2003 are required to comply with SFRS.

Accrual-based accounting forms one of the main principles of the Singapore Financial Reporting Standards, i.e. preparation of financial statements is done on an accrual basis. This roughly implies that the effects of transactions are recognized on their occurrence (not as they are received or paid out), and they are recorded and reported based on the periods they relate to. Financial statements prepared in this manner inform its users of both past transactions (payment and receiving of cash) and future obligations to pay cash, along with references to resources that represent cash.

There are about 41 different Singapore Financial Accounting Standards, named using the format FRS X (example FRS 1). Each accounting standard covers a specific topic, such as accounting inventories, presentation of financial statements, recognition of revenue, etc.

Accounting Requirements in Singapore

The accounting requirements in Singapore are discussed below –

IFRSs and SFRSs must be applied by profit-oriented entities. These entities' financial statements provide information about position performance and cash flow that is useful to a variety of users in making financial decisions. These users include shareholders, creditors, employees and the general public. A complete set of financial statements includes

• Statement of financial position (commonly referred to as “Balance Sheet”) Statement of comprehensive income
• Statement of changes in equity Statement of cash flows
• A description of accounting policies
• Notes to the financial statements

Tax Year

Calendar year (1 January to 31 December) also called the Assessment Year (AY). Income assessment for the AY is on the basis of the income derived from the previous calendar year (or basis year), although IRAS permits businesses with a non-calendar accounting year end for using the accounting year as a basis year instead.

Publication Requirements

Every company is obligated for the production of a profit and loss account and financial balance sheet.  The retention of the accounting records must be made for 5 years following the end of the business year of each transaction. Audited accounts must be filed with ACRA  annually, but companies have the liberty of choosing their tax year.

A company must maintain certain records along with the accounting records, e.g. registers of substantial debenture, shareholders holders, directors and chief executive officer's (CEO)  shareholdings, registrable controllers and nominee directors (if any).

A foreign company must be filing its financial statements and the audited financial statements of the branch within a period of 2 months of the date of the head office's annual general meeting or within a period of 7months from the date of financial year-end if the head office isn’t needed to have an annual general meeting pursuant to law in the place of its incorporation.

Singapore Accounting Standards for Small Entities

Accounting standards are complicated, and the complexity grows with the requirement of such audits, making it difficult for small businesses to comply with such standards. Earlier, adherence to the Singapore Financial Reporting Standards was challenging for small businesses. Similar to other countries, SMEs comprise the majority of companies currently operating in Singapore.

For the accommodation of the SMEs and their willingness towards compliance, the International Accounting Standards Board issued the Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities) in November 2010 with the main objective to provide relief for small entities from compliance with full SFRS along with the maintenance of accountability, quality, and transparency of financial reporting.

The Singapore Financial Reporting Standard for Small Entities (SFRS for Small Entities) is based on the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs). This accounting standard is intended for startups, companies having difficulties in compliance with the full SFRS and companies whose financial statements aren’t used by external parties.

Qualification Requirements for SFRS for Small Entities

A company incorporated in Singapore or a Singapore branch of a foreign company is eligible for SFRS for Small Entities upon the fulfilment of the below-mentioned qualification requirements:

• The company not being publicly accountable
• Publication of the publishes general purpose financial statements for external users by the company
• The company is classified as a small entity

A company qualifies as a small entity upon the fulfilment of two of the three criteria:

• A total annual income not exceeding S$10 million
• Total gross assets not exceeding $10 million
• The total number of employees not exceeding 50

SFRS for Small Entities came into effect in January 2011; therefore, for companies to be eligible for the SFRS for Small Entities, they must have met at least 2 of the 3 criteria mentioned for the previous 2 consecutive years.

The company will continue the adherence to those standards upon its being qualified up until it falls out of the size threshold for two consecutive reporting periods. In that case, the company shall be required to comply with the full SFRS.

A subsidiary of a holding company that already complied with the full SFRS may be considered qualified for the SFRS for Small Entities till the time they meet the mentioned criteria.

Audits in Singapore

All entities must comply with the rules for carrying out Audits in Singapore. Audits in Singapore are carried out compulsorily as per the laws. These are carried out to ensure that the value presented in the financial statement is true and fair. The Companies Act of Singapore requires companies to carry out Audits. As per the companies act, entities require to hire an auditor if they satisfy the minimum requirements.

Carrying out audits in Singapore is mandatory if it is not exempt under any form of law in force. A business requires complying with the norms laid down by the Accounting and Corporate Regulatory Authority (ACRA). An entity carrying out regular audits comes under the compliance of the ACRA.

Audit Requirements for a Private Company in Singapore

There are 3 main audit requirements for a private company provided by the ACRA

• Appointment of auditors
• Role of auditors
• Auditor remuneration

Appointment of Auditors

All private companies in Singapore must be appointing a minimum of 1 auditor within 3 months from the incorporation date. The auditor should be a public accountant or an accounting firm registered with the Accounting and Corporate Regulatory Authority (ACRA).

The auditor will stay in this position until the first annual general meeting of the shareholders is held. The company can either keep the same auditor or choose someone new at that time for the purpose of auditing.

Role of Auditors

As part of the audit process, companies in Singapore must prepare an Audited Financial Statement. The company's financial statements will contain the income statement, cash flow statement, balance sheet and more.

The role of auditors is to:

• Providing an opinion on the accuracy and fair view of the company's financial position followed by  reporting  any material discrepancies which might be found
• Checking the compliance of financial statements with local and international financial reporting standards.

 For this purpose, auditors must have access to company records to facilitate a proper and timely audit of the company's finances.

Auditor Remuneration

Auditors must be paid for their services by the provisions of the Companies Act. However, there isn’t any specific law on the remuneration to be charged by the auditors for their clients, implying that the fee is open for negotiation between the client and the audit firm. However, companies must disclose their auditor's remuneration in a general meeting upon the request of the shareholders.

Removal or Resignation of the Auditor

 In case of the removal or resignation of the auditor, the company shall be required to appoint a new auditor.

Upon the failure of the company’s directors in respect of such an appointment, the Accounting and Corporate Regulatory Authority of Singapore (ACRA) may appoint an auditor for them.

Under the Companies Act, there are different procedures for the appointment of a new auditor in case of the resignation or removal of the director.

If case of the removal of the auditor –

• The company must inform the auditor that they will be removed.
• The company should conduct a meeting followed by the appointment of a new auditor through a decision made and approved by at least 3/4th of the general meeting's attendees.
• The company must notify the Registrar about the auditor's removal.

In case of the resignation of the auditor

• The company must hold a meeting within 3 months post the receipt of the notice of resignation by the auditor.
• The company should appoint a new auditor and notify the Registrar within 14 days subsequent to approval of the appointment in the general meeting.

Failure in compliance with the same shall attract a fine of S$5,000.

Unless the firm is meeting the audit exemption criterion, the Singapore Companies Act mandates every company to have its financial statements and accounting records audited by an auditor annually

The exemption criteria for a small company are as follows.

• The total annual revenue of the company shouldn’t exceed 10 million SGD.
• The company's total assets for the financial year-end shouldn’t exceed more than 10 million SGD.
• The no. of full-time employees at the end of the FY shouldn’t exceed 50.

Private limited companies in Singapore don’trequire to be audited in case of

• A dormant company, or
• An exempt private company (EPC) with annual revenue of 5 million SGD or less.

Despite this, the business is still required to file the financial statement with ACRA at least once in every fiscal year as it forms the basis for computing the tax return.

The business is considered to be a member of a group company if it is a constituent, such as a subsidiary or holding company of a larger entity.

As per Singapore’s Inland Revenue and Authority, each of the group’s subgroups would be evaluated to ascertain their qualification for audit exemption based on the facts and no. of the entire group of firms.

Audit Requirement for Group Company

When being considered together, a holding company and its entire subsidiaries form a group that is all under the same source of control.

If the company is both

• a “small company” per se and
• a subset of a "small group," it qualifies for the audit exemption in Singapore as a mere member of a larger group company.

A group company or a holding company is exempted from audit if all of the subsidiary companies;

• Fulfil at least two of the conditions of a small company
• A relatively small group of companies.
• A small group of companies is qualified as so if two of the small company criteria are met in two consecutive financial years.

Change in Company Status

In any of the below-mentioned circumstances, the company would instantly forfeit its privileges as a "small company" and be required to hire an independent auditor or audit firm for the audit of the accounting records.

• Addition of the 51st shareholder or issuance of shares to the general public at any time during a fiscal year, ending its status as a private corporation.
• Violation of more than two of the three requirements for qualification as a “small company” for the last 32 immediate FY

Exempted Audit Disqualification

The company can be disqualified from the small company status due to the change in company audit status. Disqualification occurs in the following circumstances.

• The company isn’t categorized as a private company in the financial year any longer
• Non-fulfilment of the small company requirements for 2 consecutive financial years.