Audit Exemption for Small Companies - ACRA

Audit Exemption for Small Companies 

Mr Yeo Boon Chye 

Partner, Assurance and Business Advisory 

Foo Kon Tan Grant Thornton 

2008 Foo Kon Tan Grant Thornton

Agenda 

• Users of financial statements 

• Purpose and reason for a statutory audit 

• Value of an audit for Small Medium Enterprises 

(“SMEs”) 

• Audit exemption 

• Exempt Private Companies (“EPCs”) 

• Statistics 

• Services small companies can get from 

professional firms 


Users of financial statements 

suppliers and trade 

creditors 

customers 

employees 

existing and 

potential investors 

government and 

its agencies 

Users of 

financial statements 

- satisfy different needs for information 

lenders and 

financial 

institutions 

shareholders 


Purpose and reason for a statutory audit 

• a statutory audit provides benefits to companies, 

regulators, shareholders and other stakeholders 

– a deterrent to fraud and money laundering 

– a stimulus to openness and transparency 

– a highly effective driver for the promotion of 

good corporate governance 

– Increase in the reliability of accounts and thus 

their value to all users 

– protection of the wider public interest 


Purpose and reason for a statutory audit (cont’d) 

• regulatory requirements; the Companies Act, Cap. 

50 (“the Act”) requires 

– the directors of the company to lay before the 

company at its AGM a duly audited profit and 

loss accounts and balance sheet made up to a 

date not more than six months before the date of 

the AGM 

– an auditor to examine the company’s accounting 

records and financial statements and to obtain all 

the information and explanations needed so as to 

enable him to form an opinion 


Value of an audit for Small and Medium Enterprises 

(“SMEs”) 

• provides credibility of published information to users of 

financial statements, eg. 

– to facilitate the payment of taxes on time and accurately, 

thereby avoiding penalties, interest and investigations 

– improvements to the funding of businesses 

– play a key role in the raising of finance and capital 

• improve controls, deter and detect material fraud and error 

• demonstrate good corporate citizenship 

• other spin-off benefits of an audit such as advice on the 

structure and operations of systems 


Audit exemption 

• audit exemption applicable to 

– dormant companies 

– small exempt private companies (“EPCs”) 


Dormant companies 

- definition 

• a company that has no accounting transactions for 

the financial year in question or has not started 

business since its corporation 


Exempt Private Companies (“EPCs”) 

- definition 

• a private company in the shares of which no 

beneficial interest is held directly or indirectly by 

any corporation and which has not more than 20 

members 

OR 

• any private company, being a private company that 

is wholly-owned by the Government, which the 

Minister, in the national interest, declares by 

notification in the Gazette to be an exempt private 

company 

2008 Foo Kon Tan Grant Thornton 

Ref: Companies Act Section 4(1)


- criteria for EPCs to be exempted from audit 

• financial period commences on or after 15 May 2003 but 

before 1 June 2004 and the company’s revenue is not more 

than S$2.5 million 

OR 

• financial period commences on or after 1 June 2004 and 

the company’s revenue is not more than S$5.0 million 

OR 

• *any company including an EPC that is dormant for the 

financial year commencing on or after 15 May 2003 

* not subsidiaries of listed companies 

Ref: 



- criteria for EPCs to be exempted from audit 

• proper accounting records are maintained 

• the financial statements are prepared according to 

Singapore Financial Reporting Standards (FRS) for 

submission to IRAS 

• an audit is not requested by 

– shareholders holding not less than 5% interest 

in the company’s share capital; or 

– ACRA; or 

– other government authorities/financial 

institutions/creditors 



• audit exemption 

– remove the statutory burdens and costs on 

smaller businesses 

– provide an efficient and pro-business 

environment for small businesses 

• the profit and loss accounts or consolidated 

accounts and balance sheet DO NOT have to be 

audited 

• copies of an auditor’s report DO NOT have to be 

presented at the AGM 



• however, the Registrar may require the company 

to submit audited accounts and the auditor’s 

report, to the Authority if 

– the Authority believes that there has been a 

breach of s199 (relating to accounting records 

and system of control) and s201 (relating to the 

accounts and director’s reports) of the Act; or 

– it is otherwise in the public interest to do so 


S205(d) of the Act

Annual Return (AR) filing by EPC 

• need not attach EPC certificate or the Statement by EPC 

exempting them from audit requirements 

• professional firms filing on behalf of companies may 

continue to require hardcopies certificates as evidence of 

compliance and keep these for records purposes 

• insolvent EPCs and EPCs that are required by law to file 

audited financial statements with ACRA will file in 

Extensible Business Reporting Language (“XBRL”) 

format 

• solvent EPCs are exempted from filing their financial 

statements with ACRA 


Annual Return (AR) filing by EPC (cont’d) 

• full set of financial statements (applicable if the company is 

insolvent) 

– report and statement of the directors 

– balance sheet and profit and loss account 

– notes to the accounts 

• statement by the directors 

– confirming that the company is either dormant or a small 

exempt private company 

– confirming that no notice has been received from the 

members to require an audit to be done 

– confirming that the accounting and other records have 

been kept in accordance with the Companies Act 


ACRA Research Report 

- Key facts and trend of Singapore’s Public Accountancy 

Profession and Market, July 2008 


ACRA Research Report 

- Key facts and trend of Singapore’s Public Accountancy 

Profession and Market, July 2008 

• 70% of the private companies in Singapore are 

EPCs, with annual revenue < $5.0 million 

• companies audited by small accounting entities 

dropped from over 75,000 in 2004 to about 41,000 

in 2007 mainly due to the introduction of audit 

exemptions for small businesses 


ACRA Bizfile 

- Number of EPCs that submitted audited accounts 

Exempt Private Companies 

250,000 

200,000 

150,000 

100,000 

50,000 

- 

2003 2004 2005 2006 2007 


Number of EPC 

EPC that submitted audited accounts 

EPC that submitted audited accounts and have revenue less than S$5 million


Benefits 

Costs 


Costs vs benefits 

Consider: 

• business needs 

• the users of financial statements eg. 

financial institutions, creditors 

• other professional services eg. 

review of financial statements, 

agreed upon procedures 


Services small companies can get from professional 

firms 

Other services 

- review engagements / 

interim review engagements 

In accordance to 

SSRE 2400 (not the auditor of an entity) 

SSRE 2410 (the auditor of an entity) 

- agreed upon procedures 

engagement 

SSRS 4400 

- compiling financial 

information 

SSRS 4410 


Services small companies can get from professional firms 

- review engagement 

• review engagement (SSRE 2400) 

– obtain sufficient appropriate evidence primarily 

through inquiry and analytical procedures to be 

able to draw conclusions 

– document matters which are important in 

providing evidence to support the review report 

– it provides a moderate level of assurance 

– expressed in the form of negative assurance 



- review engagement report 

• a review engagement report 

– comprises a complete set of financial statements 

in accordance with FRS (balance sheet, income 

statement, statement of changes in equity, 

cashflow statement) 

– the preparation of the financial statements are 

the responsibility of the company's management 



- review engagement report (cont’d) 

• provides moderate assurance as opposed to an 

opinion ie. “…nothing has come to our attention 

that causes us to believe that the accompanying 

financial statements are not presented fairly, in all 

material respects, in accordance with Financial 

Reporting Standards.” 

• inquiry procedures with analytics 

• no test of transactions unless warrant 



- interim review engagement 

• interim review engagement (SSRE 2410) 

– enable the auditor to express a conclusion whether 

anything has come to the auditor’s attention that 

causes the auditor to believe that the interim financial 

information is not prepared, in all material respects, in 

accordance with an applicable financial reporting 

framework 

– may bring significant matters affecting the interim 

financial information to the auditor’s attention, but it 

does not provide all of the evidence that would be 

required in an audit 



- interim review engagement report 

• an interim review engagement report 

– comprises financial statements as per that of a 

review engagement report (balance sheet, 

income statement, statement of changes in 

equity, cashflow statement) 

– the preparation of the financial statements are 

the responsibility of the company's management 



- interim review engagement report (cont’d) 

“A review of interim financial information consists of 

making inquiries, primarily of persons responsible for 

financial and accounting matters, and applying 

analytical and other review procedures. A review is 

substantially less in scope than an audit conducted in 

accordance with Singapore Standards on Auditing 

and consequently does not enable us to obtain 

assurance that we would become aware of all 

significant matters that might be identified in an audit. 

Accordingly, we do not express an audit opinion.” 



- agreed upon procedures engagement 

• agreed upon procedures engagement (SSRS 4400) 

– perform certain procedures on individual items of 

financial data (eg. accounts payable/receivable, 

purchases from related parties), a financial statement 

(eg, a balance sheet) or even a complete set of financial 

statements 

– provides a report of factual findings 

– no opinion is expressed 

– report is restricted to those parties that have agreed to 

the procedures 



- agreed upon procedures engagement report 

• states the list of the specific procedures performed 

eg. 

“The procedures were performed solely to assist you in evaluating the 

validity of the accounts payable and are summarised as follows: 

1. We obtained and checked the addition of the trial balance of accounts 

payable as at 31 December 2008 prepared by ABC Pte Ltd, and we 

compared the total to the balance in the related general ledger 

account. 

2. We compared the attached list (not shown in this example) of major 

suppliers and the amounts owing at 31 December 2008 to the related 

names and amounts in the trial balance. 

3. We obtained suppliers' statements or requested suppliers to confirm 

balances owing at 31 December 2008.” 



- agreed upon procedures engagement report (cont’d) 

• provides a report of factual findings 

eg. 

We report our findings below: 

(a) With respect to item 1 we found the addition to be correct 

and the total amount to be in agreement. 

(b) With respect to item 2 we found the amounts compared to 

be in agreement. 

(c) With respect to item 3 we found there were suppliers' 

statements for all such suppliers. 



- agreed upon procedures engagement report (cont’d) 

“… Because the above procedures do not 

constitute either an audit or a review made in 

accordance with Singapore Standards on 

Auditing or Singapore Standards on Review 

Engagements, we do not express any 

assurance on the accounts payable as at 31 

December 2008.” 



- compiling financial information engagement 

• compiling financial information engagement (SSRS 

4410) 

– to use accounting expertise, as opposed to 

auditing expertise, to collect, classify and 

summarise financial information 

– procedures employed are not designed and do 

not enable the accountant to express any 

assurance on the financial information 

– users will benefit as the service has been 

performed with professional competence and 

due care 



- compiling financial information engagement 

• management of the company is responsible 

– for the financial information provided including 

accuracy and completeness of the information 

– to users for the financial information compiled by 

auditors; maintenance of adequate accounting 

records and internal controls and the selection 

and application of appropriate accounting 

policies 



- compiling financial information engagement report (cont’d) 

“On the basis of information provided by 

management we have compiled, in accordance 

with the Singapore Standard on Related Services 

applicable to compilation engagements, the 

balance sheet of ABC Pte Ltd at 31 December 

2008 and statements of income and cash flows for 

the year ended on that date. Management is 

responsible for these financial statements. We 

have not audited or reviewed these financial 

statements and accordingly express no assurance 

thereon.” 


Other services 

• non-audit financial reporting services 

• book-keeping services 

• payroll services 

• preparation and submission of GST returns 

• accounting software implementation 



Thank you

Audit Exemption for Small Companies - ACRA

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