Audit Exemption for Small Companies - Accounting and - ACRA

Audit Exemption for Small Companies 

Mr Yeo Boon Chye 

Partner, Assurance and Business Advisory 

Foo Kon Tan Grant Thornton 

© 2010 Foo Kon Tan Grant Thornton LLP

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 

© 2010 Foo Kon Tan Grant Thornton LLP 

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 

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 

– 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. Amongst them, only those with annual 

revenue equal or less than $5.0 million are audit 

exempted 

• of the companies that filed audited financial 

statements with ACRA between 2003 and 2007, 

companies audited by small accounting entities 

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

in 2007 


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 

- agreed upon procedures 

engagement 

In accordance to 

SSRE 2400 (not the auditor of an entity) 

SSRE 2410 (the auditor of an entity) 

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 


Clarity Singapore Standards on 

Auditing (“SSA”) 

- SSAs 200 - 300 

Mr Yeo Boon Chye 

Partner, Assurance and Business Advisory 

Foo Kon Tan Grant Thornton 


Clarity SSAs - Overview 

• the Clarity SSAs are based on the clarity ISAs 

• objective - to significantly advance the process of global convergence 

and enhance the quality and uniformity of practice in audits worldwide 

• one new standard, addressing communication of deficiencies in 

internal control 

• 16 standards containing new and revised requirements (referred to 

as "revised and redrafted SSAs") 

• 20 standards that have been redrafted to apply the new conventions 

and reflect matters of general clarity only (referred to as "redrafted 

SSAs and redrafted SSQC 1") 

• all clarified SSAs will be effective for audits of financial statements for 

periods beginning on or after 15 December 2009 


Clarity SSAs - Overview 

• Benefits are to strengthen practice in a number of areas, 

such as: 

- communication with those charged with governance; 

- the gathering and evaluation of audit evidence in 

relation to accounting estimates, including fair value 

estimates; 

- the auditing of related party relationships and 

transactions; and 

- the use of the work of others, such as an auditor’s 

expert or other auditors in the context of audits of group 

financial statements. 


Clarity SSAs - Key amendments 

• establishing an objective for the auditor with respect to 

the subject matter of each standard; 

• clearly distinguishing requirements from guidance on 

their application; 

• avoiding ambiguity through eliminating the present 

tense to describe actions by the auditor and using 

more imperative language where a requirement was 

intended; and 

• other structural and drafting improvements to enhance 

the overall readability and understandability of the 

standards. 


Clarity SSAs: 200 - 300 series 

ICPAS IFAC/IAASB Subjects/Titles Revised and 

redrafted, or 

Redrafted, or 

new 

SSA 200 ISA 200 Overall Objectives of the Independent 

Auditor and the Conduct of an Audit in 

accordance with International Standards 

on Auditing 

SSA 210 ISA 210 Agreeing the Terms of Audit 

Engagements 

Revised and 

Redrafted 

Redrafted 

SSA 220 ISA 220 Quality Control for an Audit of Financial 

Statements 

Redrafted 

SSA 230 ISA 230 Audit Documentation Redrafted 




redrafted, or 

Redrafted, or 

new 

SSA 240 ISA 240 The Auditor’s Responsibilities Relating to 

Fraud in an Audit of Financial Statements 

Redrafted 

SSA 250 ISA 250 Consideration of Laws and Regulations in 

an Audit of Financial Statements 

SSA 260 ISA 260 Communications with those Charged with 

Governance 

SSA 265 ISA 265 Communicating Deficiencies in Internal 

Control to those Charged with 

Governance and Management 

Redrafted 


Redrafted 

New 




redrafted, or 

Redrafted, or 

new 

SSA 300 ISA 300 Planning an Audit of Financial Statements Redrafted 

SSA 315 ISA 315 Identifying and Assessing the Risks of 

Material Misstatement through 

Understanding the Entity and its 

Environment 

SSA 320 ISA 320 Materiality in Planning and Performing an 

Audit 

SSA 330 ISA 330 The Auditors’ Responses to Assessed 

Risks 

Redrafted 


Redrafted 

Redrafted 


Clarity SSA 200 Overall Objectives of the 

Independent Auditor and the Conduct of an Audit in 

Accordance with Singapore Standards on Auditing 

• deals with the independent auditor's overall responsibilities 

when conducting an audit of financial statements in 

accordance with SSAs 

• sets out the overall objectives of the independent auditor, 

and explains the nature and scope of an audit designed to 

enable the independent auditor to meet those objectives 

• explains the scope, authority and structure of the SSAs, and 

includes requirements establishing the general 

responsibilities of the independent auditor applicable in all 

audits, including the obligation to comply with the SSAs 


Clarity SSA 210 Agreeing the Terms of 

Audit Engagements 

• deals with the auditor's responsibilities in agreeing 

the terms of the audit engagement with 

management and, where appropriate, those 

charged with governance 

• includes establishing that certain preconditions for 

an audit, responsibility for which rests with 

management and, where appropriate, those 

charged with governance, are present 

• SSA 220 deals with those aspects of engagement 

acceptance that are within the control of the auditor 


Clarity SSA 220 Quality Control for an Audit 

of Financial Statements 

• deals with the specific responsibilities of the 

auditor regarding quality control procedures for 

an audit of financial statements 

• addresses, where applicable, the responsibilities 

of the engagement quality control reviewer 

• this SSA is to be read in conjunction with 

relevant ethical requirements 


Clarity SSA 230 Audit Documentation 

•deals with the auditor's responsibility to prepare audit 

documentation for an audit of financial statements 

•the Appendix to this SSA lists other SSAs that contain 

specific documentation requirements and guidance 

•the specific documentation requirements of other 

SSAs do not limit the application of this SSA 

•law or regulation may establish additional 

documentation requirements. 


Clarity SSA 240 The Auditor’s Responsibilities 

Relating to Fraud in an Audit of Financial Statements 

• deals with the auditor's responsibilities relating to 

fraud in an audit of financial statements 

• specifically, it expands on how SSA 315 and SSA 330 

are to be applied in relation to risks of material 

misstatement due to fraud 


Clarity SSA 250 Consideration of Laws and 

Regulations in an Audit of Financial Statements 

• deals with the auditor's responsibility to consider 

laws and regulations in an audit of financial 

statements 

• does not apply to other assurance engagements in 

which the auditor is specifically engaged to test and 

report separately on compliance with specific laws 

or regulations 


Clarity SSA 260 Communication with Those 

Charged with Governance 

•deals with the auditor's responsibility to communicate 

with those charged with governance in an audit of 

financial statements 

•although this SSA applies irrespective of an entity's 

governance structure or size, particular considerations 

apply where all of those charged with governance are 

involved in managing an entity, and for listed entities 

• does not establish requirements regarding the auditor's 

communication with an entity's management or owners 

unless they are also charged with a governance role 


Clarity SSA 265 Communicating Deficiencies in 

Internal Control to Those Charged with Governance 

and Management 

•deals with the auditor's responsibility to communicate 

appropriately to those charged with governance and 

management deficiencies in internal control that the auditor 

has identified in an audit of financial statements 

•does not impose additional responsibilities on the auditor 

regarding obtaining an understanding of internal control and 

designing and performing tests of controls over and above the 

requirements of SSA 315 and SSA 330 

•SSA 260 establishes further requirements and provides 

guidance regarding the auditor's responsibility to communicate 

with those charged with governance in relation to the audit 


Clarity SSA 300 Planning an Audit of Financial 

Statements 

•deals with the auditor's responsibility to plan an audit 

of financial statements 

•SSA is written in the context of recurring audits 

•additional considerations in an initial audit 

engagement are separately identified 


Clarity SSA 315 Identifying and Assessing the Risks 

of Material Misstatement through Understanding the 

Entity and Its Environment 

•deals with the auditor's responsibility to identify and 

assess the risks of material misstatement in the 

financial statements, through understanding the entity 

and its environment, including the entity's internal 

control 


Clarity SSA 320 Materiality in Planning and 

Performing an Audit 

•deals with the auditor's responsibility to apply the 

concept of materiality in planning and performing an 

audit of financial statements 

•SSA 450 explains how materiality is applied in 

evaluating the effect of identified misstatements on 

the audit and of uncorrected misstatements, if any, on 

the financial statements 


Clarity SSA 330 The Auditor’s Responses to 

Assessed Risks 

•deals with the auditor's responsibility to design and 

implement responses to the risks of material 

misstatement identified and assessed by the auditor in 

accordance with SSA 315 in an audit of financial 

statements 


Thank you

Audit Exemption for Small Companies - Accounting and - ACRA

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