Company audits are the way of ensuring that the financial statements of an entity are true and fair. The Audits are done according to the requirements laid out in the Companies Act (CA), such as Appointment of Auditors, Role of Auditors, Auditor Remuneration, and Companies Exempt from Auditing.
Appointment of Auditors
Within 3 months of the company’s incorporation, the directors of the company are required to appoint at least one accounting entity as the company’s official Auditor. Only public accountants or accounting firms approved by the Accounting and Corporate Regulatory Authority (ACRA) can act as company auditors.
Auditors hold office from the time of appointment till the company’s next Annual General Meeting (AGM). If the company is newly incorporated, the first auditor will hold office till the conclusion of the first AGM.
During the first AGM, the company will have to appoint a new accounting entity or can even appoint the same auditor to act as the company’s auditor till the next AGM. The cycle continues every AGM.
If the directors fail to appoint an auditor during an AGM, any company member can appeal to the registrar to have an auditor appointed.
Role of Auditors
The basic role of Auditors is to:
- Check if the company is complying with financial reporting standards and
- Provide a true and fair view of the company’s financial position and performance.
The report by the auditors should be attached to the financial statements and laid before the company’s AGM.
Auditors should be given access to the company’s books of accounts, or provide any information required by the auditors for audit purposes.
A Company has to disclose the Auditor’s Remuneration in a general meeting with necessary details if the request is made by:
- At least 5% of the total number of members of the company, or
- The shareholders who hold at least 5% of the total number of issued company shares.
Who decides the Auditor’s fees?
Generally, it is the party that appoints the auditor fixes the auditor’s fees. For e.g., if the directors appoint the auditor, then the directors would be able to fix the auditor’s fees.
Alternatively, if the auditor has been appointed at a General Meeting, then the company must fix the auditor’s fees in a general meeting. However, the members of the company can also authorize the directors to fix the fees at the most recent AGM.
Singapore Law’s do not advice on the amount of fees to be paid or when the payment should be made. These issues are left for negotiation when appointing of auditors.
Exemption from Audit Requirements
Companies considered as “Small Company” for a particular financial year or a dormant company are exempt from audit requirements. These companies, therefore, need not appoint auditors.
Small Company Exemption
A company will be regarded as a “Small Company”, if it has been a private company throughout the current financial year, and satisfies any 2 of the following criteria for each of the 2 previous financial years before the current financial year:
- The company’s revenue does not exceed $10 million,
- The value of the company’s total assets does not exceed $10 million,
- The company does not have more than 50 employees.
Refer to the https://sso.agc.gov.sg/Act/CoA1967#Sc13- for the criteria that companies incorporated for less than 3 years or incorporated before 1st July 2015, have to meet in order to be considered a “small company”.
A Company will be exempt from audit requirements, if:
- It has been dormant since the formation of the company, or
- It has been dormant since the end of the previous financial year.
A company is considered dormant if no accounting transactions have occurred during a financial year and will cease to be considered a dormant company once an accounting transaction has occurred.
The following pointers are not to be considered as accounting transactions (for full list check here)
- The appointment of Company Secretary
- The appointment of an auditor
- The keeping of company books and registers
- The payment of fees or charges that the law requires to be paid.
Exception to exempt from audit requirements
Even if a company is exempt from audit requirements, the registrar may still require the company to audit and submit auditor’s report if the registrar believes the company to have breached laws relating to:
- Keeping of accounting records (https://sso.agc.gov.sg/Act/CoA1967#pr205B-) or
- Laying of its financial statements at its AGM (https://sso.agc.gov.sg/Act/CoA1967#pr201-)
If you require any advice on the appointment of auditors or anything related to it, please contact us.