In Singapore, every company carries a responsibility — and that responsibility includes having its financial statements and accounts reviewed by an external auditor at least once every year. This annual audit requirement is not merely a compliance checkbox but also a way to ensure that shareholders have confidence in the reliability of the company’s books.
Audits serve as an independent review, an objective eye looking into whether the financial reporting is fair and accurate. It strengthens transparency and reassures stakeholders. At the same time, companies are expected to maintain proper accounting records, always ready for inspection when auditors come in to carry out their review. Without well-maintained records, the audit process cannot function effectively.
However, Singapore law does recognise that not all entities need to be put through the same level of scrutiny. That’s where audit exemptions come in.
Audit Exemption
There are categories of companies that may be exempted from the audit requirement. These are:
- Dormant companies
- Small companies
- Small group companies
For dormant companies, the exemption applies if the entity has been dormant either from its incorporation or since the end of the previous financial year. A company that records any financial transaction during the prior year, however, loses its dormant status.
It’s worth noting the exception — even if a company qualifies for exemption, the Registrar retains the power to require audited financial statements. This can happen if the Registrar believes that the company has breached laws related to the keeping of accounting records or to the laying of financial statements at its annual general meeting.
What’s important to highlight is that exemption does not mean no reporting. Even companies that are exempt from audit must still prepare a complete set of unaudited financial statements, with explanatory notes and a directors’ statement. These statements should include:
- Statement of comprehensive income
- Statement of financial position (balance sheet)
- Statement of changes in equity
- Statement of cash flows
- Director’s statement
- Notes to the financial documents
And these must be prepared in line with the Singapore Financial Reporting Standards (SFRS).
Small Company
The law allows private limited companies that qualify as a “small company” to be exempt from audit, provided certain quantitative thresholds are met.
A company qualifies as a small company if it meets at least two of the three following criteria for the immediate past two financial years:
- Total revenue does not exceed SGD 10 million per financial year.
- Total assets do not exceed SGD 10 million at the end of the financial year.
- Number of employees is not more than 50 at the end of the financial year.
For newly incorporated entities, the criteria apply to the first and second year of operation.
If the company is part of a group, then the group as a whole must meet the “small company” criteria on a consolidated basis. Even if the parent or subsidiary company is located outside Singapore, its numbers still count towards determining whether the group qualifies.
Disqualifications of Small Company
Once a company becomes a small company, it retains that status until something disqualifies it. The disqualification happens in three main situations:
- The company ceases to be a private company during the financial year.
- The company fails to meet at least two out of the three quantitative criteria for the immediate past two consecutive financial years.
- A group that has obtained small group status will lose it if it fails to meet two of the three criteria for the past two consecutive years.
These disqualifications ensure that the audit exemption is applied fairly and only to genuinely small companies.
Appointment of Auditors
Not every company is exempt. Large companies — especially listed ones — fall firmly under the audit requirement. For listed companies, the framework is stricter. They must form an audit committee composed of at least three directors or members. Importantly, no executive director or anyone directly or indirectly related to an executive director may sit on this committee.
Another requirement is disclosure. If at least 5% of members or shareholders holding at least 5% of issued shares request it, the company must disclose auditor remuneration at a general meeting.
As for the appointment itself, directors must appoint auditors within three months of company incorporation. These auditors remain in office until the company’s first annual general meeting. After that, the auditor continues until the conclusion of the next AGM.
And what if the directors don’t appoint one within the required time? Then, any member of the company may apply to ACRA, which will appoint an auditor on the company’s behalf. This ensures no company slips through without proper oversight.
Final Thoughts
Auditing is central to financial accountability in Singapore. While exemptions provide relief for dormant entities and genuinely small companies, the system has been designed with checks and balances — ensuring that transparency and accuracy are not compromised.
The appointment of auditors, the structure of audit committees, and the possibility of Registrar intervention all reflect the seriousness with which Singapore treats corporate governance. At the same time, by allowing exemptions, the law recognises that smaller or inactive companies should not be burdened with unnecessary compliance costs.
For business owners, the message is clear: know where your company stands. If you qualify as a small company, exemption from audits may ease your administrative load. But if you fall outside, be prepared to meet the audit requirements fully. Either way, maintaining proper records and compliance with the Singapore Financial Reporting Standards is non-negotiable.
In the end, audits are not just about meeting legal obligations — they are about reinforcing trust, both within the company and with those who place their faith in it.
