In 2003, the Companies Act (the Act) was amended allowing exempt private companies to be exempted from audit. Exempt private companies whose accounting year commencing from 15 May 2003 and with an annual revenue of $2.5 million (S$5 million from 1 June 2004) or below, no audit need to be carried out as the company is eligible for audit exemption.
A company is deemed to be an exempt private company if:
Companies are still required to maintain proper accounting records, prepare and present financial statements in compliance with the Act and the Singapore Financial Reporting Standards (FRS). In short you are required to prepare directors’ report, balance sheet, profit and loss account, statement of changes in equity, cash flow statement and notes to financial statements. Everything is the same except for the audit report.
The Inland Revenue Authority of Singapore (IRAS) had also issued a circular advising corporate taxpayers to file their tax returns accompanied by unaudited financial statements that they fully comply with the Singapore Financial Reporting Standards. IRAS may reject the tax returns lodged if it did not comply with FRS. Penalties may be payable if the subsequently reviewed accounts are not prepared on time
The preparation of the financial statement or compilation without any audit report saves both time and money.
Companies which have audit exemption can have their auditors review their financial statements instead. This provides more assurance to other users of the financial statements compared to compilation alone. In the report, the auditors will review the financial statement and a negative opinion. They will specifically state that this does not amount to an audit, and nothing had come to their attention to believe that the financial statement is not presented fairly.
Review provides more assurance for companies with audit exemption compared to compilation. You must evaluate the cost and benefits of compilation with review or audit.