After incorporation, companies always aim to give confidence to their shareholders to ensure continuous support, to do so, companies audit their financial statements as required by Singapore’s Companies Act. An audit can be defined as an independent and systematic assessment of statutory records, books of accounts, and financial documents of an organisation.

Why Company Audits Are Important

Audits are primarily performed or conducted to determine to what extent the financial statements of the company as well as all of its non-financial disclosures present a proper representation of the company’s financial status.

Some of the benefits of audits include:

  • Provides credibility to a set of financial statements
  • Gives confidence to shareholders that the accounts are true and fair
  • Improves a company’s internal controls and systems
  • Ensures that the books of accounts are properly maintained according to the laws of the country

Analysis of Material Misstatement Risks

Audits involve the analysis of the company’s financial reports and the material misstatement risks present within them. Here are some of the differences between audited and unaudited companies are listed below.

Audited CompaniesUnaudited Companies
  • Able to create reliable financial reports, for internal or external purposes
  • Able to determine the proper allocation of its resources or the different levels of productivity of each product sold by the company
  • Able to manage financial affairs because they would not be able to analyse the status of their assets and liabilities
  • Reliable in the marketplace due to an inability to consistently produce and distribute high-quality goods and services
  • Unable to create reliable financial reports, for internal or external purposes
  • Unable to determine the proper allocation of its resources or the different levels of productivity of each product sold by the company
  • Unable to manage financial affairs because they would not be able to analyse the status of their assets and liabilities
  • Unreliable in the marketplace due to an inability to consistently produce and distribute high-quality goods and services

The unreliability of companies that are unaudited stems from the fact that the company would have no way to ensure that there are no misstatements in its reports and records.

Fraud Prevention and Detection

Audits assists companies in the prevention and detection of fraud.

The recurring analysis of a company’s operations and maintenance of internal control systems can prevent and detect various forms of fraud as well as other accounting irregularities.

A company which has undergone the auditing process in the appropriate manner will be able to facilitate fraud prevention. A company with the reputation of being frequently and properly audited will be less likely to have an employee or vendor attempt a scheme to defraud the company.

How Can Audits Reduce Risks

Proper audits can also reduce the risks associated with a company.

Investments with more risks require a higher rate of return for the purposes of investment. Auditing can reduce various forms of risks in a company including

  • Those related to information
  • Material misstatement in financial reporting
  • Fraud
  • Misappropriation of assets
  • Mismanagement caused by insufficient information on the part of those in charge of the company

Which Companies in Singapore Must Be Audited

Companies in Singapore are audited based on the Companies Act which was amended in 2014.

It introduced the concept of small companies, where these small companies are exempted from audit. A company is considered to be a small company if it is a private company in the financial year in question or it meets at least 2 out of 3 of the following criteria:

  • Total annual revenue is S$10 million or less
  • Total assets over a specific financial year are S$10 million or less
  • Does not have more than 50 full-time employees at the end of a specific financial year

The small company will remain a small company for subsequent financial years until it is disqualified. A small company is disqualified when:

  • It ceases to be a private company at any time during a financial year
  • It no longer meets 2 out of 3 of the requirements for the immediate past two consecutive years

Consequences of a Lack of Auditing

There are consequences for companies who did not conduct their audits – whether internal, which is conducted by their employees, or external, which is conducted by third-party auditors.

These include:

  • Reduced business performance as there is no identification of underperforming areas
  • Lack of action taken to solve the underlying issues within the company
  • Lack of initiation of new policies to address process-driven issues
  • Possible loss of income due to legal issues
  • May experience lawsuits or press criminal charges
Eric - Chief Executive Officer
RECOMMENDATION: It is always good to outsource and engage a third-party auditor like Paul Hype Page to ensure all risks are well noted and addressed from a fresh perspective.

How to Respond to an Audit

There are a few ways for companies to respond to audits:

1. Address concerns

Not every business must comply with the recommendations provided by the auditing team. However, a company must always ensure that it remains legally compliant and it can do this through the use of information provided by audits.

2. Appeal to the authorities

If your company lacks the necessary resources required to fulfil the recommendations, you can proceed to appeal this recommendation and request for an extension if necessary. Failure to comply with the recommendations may be regarded as a breach of conduct protocol and companies can face severe penalties.

3. Open audits

Companies which are subject to open audits are especially recommended to comply with proposals stated in the audit report because the general public will know more about the details of the company in question.

Thinking of setting up a company in Singapore and would like an auditor? Reach out to us for a free consultation for your incorporation or auditing needs today!

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FAQs

Does my company still have to submit financial statements if the company is exempted from audit?2021-09-21T14:59:05+08:00

Yes, your company will still be required to file your annual financial statements even if your company is exempted. However, they do not need to be officially audited.

Do foreign companies in Singapore have to be audited?2020-07-03T12:10:37+08:00

Only the Singapore-based companies which have fulfilled the criteria for audit exemptions are allowed to remain unaudited. This is also true of all foreign companies based in Singapore.

Must private companies in Singapore be audited?2020-07-03T12:10:11+08:00

The Singapore Companies Act states that every company, including a private company, must have its financial statements and accounting records audited at least once every year. Only companies which fulfill the criteria for audit exemptions do not have to be audited.

Which Singapore-based companies are not required to be audited?2021-09-21T14:57:35+08:00

Small companies in Singapore do not have to be audited. Small companies are defined as private limited companies which have

  • less than S$10 million worth of total annual revenue,
  • less than S$10 million worth of total assets over a specific financial year, and
  • fewer than 50 employees at the conclusion of a specific financial year.

Companies which are part of group companies are also exempt if the entire group fulfills a minimum of two of the preceding criteria and has done so over the immediately preceding two financial years.

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