Audits in Singapore

Auditing and accounting process in Singapore

Auditing in Singapore is a critical aspect of the financial reporting process. The essential object of audits is to provide an independent assessment of the accuracy and reliability of the company’s financial statement and to ensure that the company is complying with relevant accounting standards and regulations. It is mandatory to comply with the rules governed by the Companies Act. Auditing in Singapore is carried out to ensure that the record presented in the financial statement is true and accurate. As per the companies act, every company must hire an auditor to conduct an audit.

Auditing in Singapore is regulated by the Accounting and Corporate Regulatory Authority (ACRA)^[1] and the Institute of Singapore Charted Accountants (ISCA). However, the regular auditing in Singapore in the business comes under the ACRA’s compliance.

Auditing Requirements in Singapore

A business must follow the regulation of ACRA at the time of doing an audit. The following factors need to be taken into account while conducting audits in Singapore:

Appointed auditors

The entity must select an auditor per the Singapore Companies Act requirements. If the business is to conduct audits in Singapore, these criteria must be met. The ACRA’s regulations must be governed while hiring an auditor. Companies that are exempt from this obligation do not require to appoint an auditor.

Duties of Auditor

Auditors must diligently carry out audits. Additionally, the auditors have to adhere to the ACRA auditing requirements. However, auditors must also adhere to international auditing standards like IFRS and GAAP. In addition, the auditors are in charge of examining the financial statements. In the meantime, at the Annual General Meeting (AGM), the auditors present the financial accounts to conduct an audit.

Companies are not required to do audits in Singapore.

Every entity must do an audit; some are exempted from doing audits. The following organisations are not permitted to conduct audits:

Small Businesses

According to the Singapore Companies Act, every company must submit an audit report within a specific time frame. The Government of Singapore and the ACRA have exempted certain corporations from submitting audits report after the modification made in 2014. Singapore does not require audits if a company is categorised as a small business. On July 1, 2015, this amendment became effective. As a result, this will apply to all businesses that meet the criteria for small businesses. The following conditions must be met.

• The company’s revenue does not exceed SGD 10 million (Singapore Dollars);
• At the end of the financial year, the company’s assets can total up to SGD 10 million (Singapore Dollars); there can only be a maximum of 50 staff members.

Therefore, a corporation is exempt from audits in Singapore if it meets the requirements above.

Groups of Businesses

Group businesses are considered to be a component of the parent company under the Singapore Businesses Act. The parent company (holding company) and the subsidiaries are group companies under the Singapore Companies Act. However, the regulation impacts the parent company and its subsidiaries. As per the law, group companies are also liable to be exempted from carrying out audits in Singapore if the parent company and its subsidiaries would satisfy the following requirements:

• A group company, including its parent and subsidiary companies, must meet at least two Singaporean standards for small businesses.
• A small company must be used to describe any business that falls within the group company.
• The parent business and its subsidiaries must meet at least two requirements to be considered a small business.

Subsidiaries

Group corporations will also be free from specific requirements under the Singapore Corporations Act.

Dormant Company

 A corporation is dormant under the Singapore Companies Act if there isn’t a transaction between the companies. The action is a financial or accounting transaction. A firm must meet the following requirements to be dormant:

• Since the company’s incorporation, no accounting or financial transaction may occur.
• No transaction has taken place between the commencement of the financial year and the end of the financial year.

Regulatory Authority to Conduct an Audit

The primary governing body for audits in Singapore is the Accounting and Corporate Governing Authority (ACRA). In Singapore, audits must be conducted by all entities. The Singapore Companies Act also governs routine audits. In Singapore, certain businesses are excused from undertaking audits. For this purpose, they must meet the eligibility requirements. The Singapore Companies Act was amended to exempt small businesses from doing audits under the Companies (Amendment) Act of 2014.

Steps for conducting audits in Singapore

Understanding whether audits are necessary before an entity register with the ACRA is critical. There are some entities for whom doing an audit is required. For performing audits in Singapore, the following procedures are necessary:

Requirements audit

The organisation or entity must first comprehend the need for an audit. To determine if they belong under exempted entities, they must consult with the ACRA. The audit is optional if they fall under the category of exempted entities.

Appointment of an auditor

• If the business has to execute audits, it must choose a Singapore-based organisation that specialises. Within three months of the company’s incorporation, this must be completed. The corporation can be audited by a public accountant qualified to do so under the ACRA.
• The auditor will serve in this capacity until the following Annual General Meeting (AGM). The auditor will serve until the first annual general meeting if the company is newly incorporated.
• Afterwards, the business must select a new auditor or keep the same one for the AGM. The same auditor may alternate depending on the needs of the business.
• If the directors do not appoint an auditor within the prescribed timeline, any company individual can apply to the ACRA. The ACRA will appoint an auditor as per the requirements. An auditor can be removed if a special resolution is passed in the general meeting (GM).

Auditor Duties

The auditor must carry out the duties per the ACRA’s requirement. The following duties have to be carried out by the auditor:

• The auditor must follow the compliance standards of accounting and reporting.
• The auditor has to act according to the organisation’s code of conduct.
• The auditor must also verify the financial reports of the company. The auditor must also provide an informed opinion on the company’s actual state of accounts.
• They are also required to provide reports to the executives.

Accounting Standards in Singapore

• In Singapore, Financial Reporting Standards (SFRS) are the accounting-provided guidelines used in Singapore. All businesses with fiscal years beginning on or after January 1, 2003, must adhere to SFRS.
• One of the core concepts of Singapore accounting standards is dormant-based accounting. Dormant accounting is used in the preparation of financial accounts. According to this rule, transactions and other events’ impacts are recognised as they happen rather than when currency or its equivalent is received or paid.
• In addition to past transactions involving the payment and receipt of cash, readers of financial statements prepared on an accrual basis are also made aware of future cash payment obligations and assets that represent future cash receipts.
• It has 41 standards, out of which FRS X, such as FRS 1, make up Singapore’s accounting standards. Each standard addresses a particular subject, such as the presentation of financial statements, revenue recognition, inventory accounting, etc.

Accounting standards are known as Singapore Financial Reporting Standards (SFRS) in Singapore. All companies with financial periods starting on or after January 1 2003, must comply with SFRS.

Dormant Account

A dormant account is one of the primary principles of Singapore accounting standards. Financial statements are prepared based on accounting. They have recorded the accounting details and reports in the financial statements. Financial statements were prepared on time and informed the users about their past transactions involving payment and cash receipts.

Singapore’s comprehensive set of accounting standards contains about 41 standards, such as FRS 1. Each standard provides a specific topic, such as presenting financial statements, revenue recognition, accounting for inventories, etc.

Accounting Standards for Small Entities in Singapore

• In a demanding and constantly changing environment, accounting rules are becoming more and more difficult. Small firms must work harder. For small and medium-sized companies (SMEs), complying with the whole SFRS required much labour because the requirements taxed their meagre resources. Most businesses in Singapore, as in many other nations, are SMEs.
• IASB released an IFRS for SMEs in 2009 to address the particular requirements of global SMEs. The Singapore Financial Reporting Standard (SFRS) for Small Entities (SE) was introduced in November 2010, according to a separate announcement by Singapore’s Accounting Standards Council (ASC).
• For Singaporean-qualified entities, the SFRS for Small Entities (SE) provides an alternate framework to the entire SFRS. The SFRS for SE was released following extensive stakeholder input and is closely aligned with the IFRS for Small Entities.
• It offers small entities an optional financial reporting standard for reporting(SFRS) periods starting on or after January 1, 2011.
• The SFRS for SE’s goal is to exempt small businesses from full SFRS compliance while maintaining quality, openness, and comparability, which can benefit the financial community and other users of financial statements.
• A Singapore-incorporated firm or a Singapore branch of a foreign company must not be publicly accountable for applying the SFRS for SE.
• It releases general-purpose financial statements for users outside the company.
• It is a small organisation. A company is considered a small entity if it satisfies two out of the three requirements listed below:
• Not more than $10 million in total annual revenue
• Assets valued not more than $10 million in Singapore
• There are at least 50 employees overall.

Furthermore, since the SFRS for SE came into force on January 1, 2011, an entity must have satisfied the requirements for the preceding two years to be eligible for the streamlined SFRS. Once it crosses the size criterion for two successive reporting periods, a business that meets the requirements may abide by the rules. In these circumstances, the business must adhere to the whole SFRS.

If a subsidiary of a holding company that adopts the complete SFRS satisfies the requirements, it may adopt the SFRS for SMEs.

Difference between “SFRS” with “SFRS for SE”

• Regardless of size, all Singapore-registered entities recently adhered to the complete SFRS. Companies who meet the requirements for the new standards now that there is an SFRS, particularly for small organisations, must consider a few essential factors before adopting the SFRS for SE.
• Before implementing these requirements, businesses should assess their growth strategies and the nature of their industry. Accounting system and software, transition costs, training costs, and other concerns must be carefully examined.
• The complete SFRS should be followed by marginal enterprises on the verge of exceeding the size criterion rather than vacillating between the standards.
• Similarly, businesses that are accustomed to the full SFRS, those that are part of a group or are held by parent businesses that use the full SFRS, and businesses that may be adversely affected by how specific accounting items are handled under the simplified version must hold off on adopting the SFRS for SE.

Thus, the streamlined SFRS for small organisations will be perfect for startups and businesses struggling with Singapore’s financial standards.

Conclusion

Both accounting and auditing requirements are essential for securing the integrity of financial reporting and ensuring stakeholders have access to reliable financial information. Companies are required to comply with accounting and auditing standards, regulations, and laws to promote transparency and accountability.

Read our Article: All you need to know about Audits in Singapore