All you need to know about Audits in Singapore

Varun Hariharan

23 Oct, 2020

Singapore is one of the largest financial centres in the world. Owing to this, lot of financial services businesses establish their presence in Singapore. Any investor who forms a company would require Audits in Singapore. To establish an entity, it is important to register with the local authorities that monitor audit compliance in Singapore. Apart from this, an entity must hire an auditor to conduct audits in Singapore.

Which Institution Regulates Audits in Singapore?

The Companies Act, 1967 (Chapter 50) regulates all forms of entities which are established in Singapore. Companies are required to comply with the regulations under this act. As per section 10 of the Companies Act (Chapter 50), an entity or firm must appoint a qualified chartered account. The consent of the specific accounting entity is required before hiring it as an auditor to conduct audits in Singapore.

The primary regulatory authority governing audits in Singapore is the Accounting and Corporate Regulatory Authority^[1] (ACRA). Whenever audits have to be carried out for an entity in Singapore, then compliance under the ACRA is mandatory.

Requirements for Carrying out Audits in Singapore

For an entity to carry out Audits in Singapore, the following has to be complied with:

• All entities require complying with the provisions of the Companies Act (Chapter 50) in Singapore.
• Apart from this, the company has to ensure that the auditors are appointed as per the requirements of the companies’ act of Singapore.
• Once appointed, the Company has to keep information with the registrar of companies. This provision is present under section 173(1)d of the Singapore Companies Act.
• A listed company must nominate an audit committee with a minimum number of directors and members of the company who form a part of the audit committee. This provision is present under section 201(1)B.
• The auditors have to be appointed as per the requirement of the Companies Act.  Under section 205(1) of the Companies Act, auditors are required to be appointed by directors of the company within three months of company incorporation.
• Auditors appointed under this section are required to stay in office till the first annual general meeting.  The auditor will hold the office until the conclusion of the next annual general meeting in the company.

Audits in Singapore: Is it Mandatory?

As earlier mentioned, it is mandatory for a company or any other business entity to appoint an auditor when commencing a business.  Hence a business must appoint an auditor.

Apart from being compulsory for a business to appoint an auditor, the following requirements have to be complied with:

• Appointment as per the ACRA and the Companies Act (Chapter 50) – The appointment of auditors is important and a mandatory requirement for companies established in Singapore. The requirement for carrying out audits in Singapore for a company is present under the Companies Act also. Hence it becomes a legal obligation for a company to appoint an auditor.
• Auditors Responsibilities- Companies that carry out audits in Singapore are required to comply with the requirement of auditors. Under section 207 of the Companies Act, Auditors are required to report on financial statements produced by the company. The reporting has to be carried by the auditor in compliance with the requirement of responsible reporting to the members of the company.
• Section 207(1)(a)- Requires the auditor to place all the financial statements before the board meeting of the company. All financial statements have to be placed before the meeting of a company.
• Section 207 (1)(b)- If a company has a subsidiary, then consolidated financial statements have to be provided by the auditors.
• Section 207(2)(d)- Sets out the requirements for auditors to analyse if there are any forms of defects or irregularities in the financial statements provided by the company.
• Apart from this, auditors are required to provide opinion on the statements, if compliance has been met according to the requirements of carrying out audits in Singapore.
  • Such opinions provided would be as per the statutory duty of an auditor to provide such information.
  • Apart from this under section 207(3)b, auditors would be required to provide information on whether statutory records are held with the registrar in compliance with the provisions in the law in force.
  • Auditors are also responsible for providing reports of the branch offices or the subsidiaries of the parent company. Such reports would be consolidated reports are prescribed according to the act.
• Apart from this, an auditor must have access to records of the company for delivering proper and timely audits for the company.
• Auditors also have to carry out their respective duties in compliance with the requirement of duties carried out by an auditor. This would comply with section 207(5), 207(6), 207(8), and 207(9) under the Singapore Companies Act.
• Auditors Remuneration- Appointment of auditors for carrying out audits in Singapore is a statutory requirement. Under section 205(16), auditors are required to be remunerated according to the services performed by them.

The following remuneration would apply to an auditor:

• If an auditor is appointed during the general meeting of the company, then the remuneration paid to the auditor for the services rendered must be fixed during the general meeting. The directors also have the right to fix the remuneration of the auditor. However, the remuneration, which is fixed by the directors, would be according to the remuneration of the last annual meeting. This provision is present under section 205(16)a of the Singapore Companies Act.
• Suppose an auditor or entity that is carrying out audits in Singapore is appointed by the director of the company or the registrar of companies. In that case, the remuneration payable to the auditor must be stated by the director or the registrar of companies only.  This provision would comply with the provisions of section 205AF of the Companies Act of Singapore.

Are any companies exempted from carrying out Audits in Singapore?

Under the companies’ act of Singapore, there are specific entities which are exempted from carrying out the audit requirements in Singapore. These companies would be exempted as per the statutory norms under the companies act.

The provisions of exempted companies are present under section 205A(1) of the companies act of Singapore. As per the section, companies that are exempted from carrying out audits in Singapore have to satisfy the requirements under the Companies Act of Singapore.

The following companies are exempted from carrying out audits in Singapore:

• Dormant Companies
• Small Companies
• Groups of Companies

Dormant Companies

Under section 205(B) 1, a company would be considered a dormant company and exempted from the requirement of carrying out the audit, if the company has met specific criteria.

A company is said to be dormant if it meets the following criteria:

• 205B (1) a– If the company or entity has not carried out any form of operations since the time of incorporation.
• 205B (1) b– If the company or entity has been dormant since the previous financial year in Singapore.

Any company which has carried out a financial transaction in the previous accounting year would not be considered as a dormant company.  However, there are several transactions which cannot be considered for conducting audits in Singapore.

The following transactions would not be considered to be disregarded for audits:

• Acquisition of shares in the company as per the constitution of the company.
• When a company secretary is appointed as per the provisions of section 171 of the Singapore Companies Act.
• Any form of appointment of auditors under section 205 of the Singapore Companies Act.
• Expenses used for maintaining registered office under provisions of section 142, 143 and 144 of the Companies Act of Singapore.
• If the transaction involves storing any form of records or information with the registrar of companies.
• If the company pays any penalty for not complying with the relevant provisions of law, then the same would also not be considered as a transaction for calling the company as an active company. The company would still have the status of a dormant company.
• Any form of composition amount payable by the company to the authority.
• Any form of transaction which is considered as a payment or receipt by a company. However, the payment or the receipt by the company should not exceed a specific amount to be considered as a part of the transaction.

Therefore for carrying out audits in Singapore, the above transactions would not be considered to construe the meaning of a dormant company. Only if some form of accounting transaction happens then the dormant status of the company will not be present anymore. Dormant companies would be exempt from complying with the requirement of audits.

Small Companies

Under section 205C of the companies, act defines small companies that are present in Singapore.  Small companies are also exempted from carrying out any form of audits in Singapore. However, there are specific exemptions which apply to small companies.

Section 205(C) 3 states that this provision would not apply to a parent company unless the parent company is considered a small company or come under the definition of a company which forms a part of the group of companies.

The small company, therefore under the Companies Act and the ACRA would include any form of company which comes under the definition of the Singapore Companies Act. 

The government of Singapore brought out an amendment in 2014, which exempted small companies for carrying out audits in Singapore. Hence these companies do not have to carry out audits in Singapore to comply with the provisions of the Companies Act of Singapore.

The following features were a part of the amendment brought out by the government of Singapore:

• Revenue earned by the company in the financial year does not exceed SGD 10 Million . Revenue will include the total revenue earned by the company.
• The assets (fixed assets+ current assets and any form of intangibles applicable) does not exceed more than SGD 10 million in a financial year. Hence the number of fixed assets and current assets, including depreciation, should not exceed the above value.
• The number of workers in the company in the financial year must not be more than 50.

Through the amendment, the government of Singapore came out with a concise definition of the meaning of a small company under the act. This definition would also cover small companies such as start-up companies and SME established in Singapore.

Group of Companies

Group of Companies would form a chain of companies that belong to the parent group. Hence all the companies which belong to the parent company would require carrying out audits in Singapore. Under the companies’ act of Singapore, a group company or certain companies under the group would be able to claim the exemption for carrying out audits in Singapore, if the following requirements have been satisfied by the parent company and the subsidiary:

• The group company should fulfil the criteria of being recognised as a small company under this act. This means that the amount of revenue earned by the group company must not be more than SGD 10 Million in a financial year. The number of assets in the company must not be more than SGD 10 Million in a financial year. Apart from this, the number of employees in the company must not be more than 50.
• Any of the entities have to fulfil the criteria of being called a small company under the definition.
• To be called a small company, the parent company and at least the subsidiary have to satisfy at least 2 out of 3 criteria.

It is mandatory for a company carrying out business in Singapore to carry out audits. Carrying out audits in Singapore would not be required if the company falls under the exemptions listed above.

Conclusion

Read our article:Conversion of Active Company to Dormant Company – Section 455, Companies Act 2013