Operating a company in Singapore comes with several regulatory obligations, primarily governed by the Companies Act. The Accounting and Corporate Regulatory Authority (ACRA) mandates various filings to ensure transparency and accountability. Understanding these requirements is crucial for all businesses, regardless of size, to maintain compliance and avoid penalties.

 

General Requirements for Company Accounts

 

Every company, along with its directors and managers, is obligated to maintain accurate accounting and other records. These records must sufficiently explain the company’s transactions and financial position, enabling the preparation of true and fair profit and loss accounts, balance sheets, and any other required documents from time to time. It is imperative that these records are kept in a manner that facilitates convenient and proper auditing.

Companies must retain all their records for a period of seven years following the completion of the transactions or operations. While there’s no specific legal requirement for accounts to be kept at the registered office, they must always be accessible for inspection by the directors. This is a critical point, as the responsibility for keeping accounts rests jointly with all directors. Even if one director is primarily entrusted with bookkeeping, this internal arrangement does not absolve other directors of their liability. The Court can even order the inspection of accounting records by an approved auditor acting for a director, especially in cases of disputes concerning the company’s financial affairs. Failure to comply with these provisions can lead to an offence, resulting in a fine or imprisonment for the company and every defaulting officer.

For public listed companies, an audit committee must be appointed by the board, comprising at least three members. A majority of these members must not be executive directors of the company or any related company, family members of executive directors, or persons with relationships that could interfere with independent judgment. The audit committee’s functions include nominating auditors and reviewing various financial matters, such as the audit plan, internal accounting controls, audit report, assistance provided by company officers to the auditor, scope and results of internal audit procedures, and financial statements before submission to the directors. This committee serves as a crucial check on the executive directors regarding the company’s accounts, enhancing scrutiny, particularly for public listed companies where many members may not actively participate in company affairs.

 

Accounts for a Financial Year

 

Companies are required to hold an Annual General Meeting (AGM) at least once a year, with no more than fifteen months between meetings. The first AGM must be held within eighteen months of the company’s incorporation. During the AGM, in addition to the mandatory appointment of auditors, directors must present a profit and loss account and a balance sheet for the period since the last account, known as the company’s financial year or accounting reference period. The interval between the last day of the accounting reference period and the AGM must not exceed six months.

Both the profit and loss account and the balance sheet must provide a true and fair view of the company’s financial position and state of affairs for the accounting reference period. This means they must be prepared under recognized accounting principles. The primary reasons for tabling these accounts are two-fold:

  • Directors’ Fiduciary Duties: Directors owe fiduciary duties to the company and must account for its management. Presenting accounts at the AGM allows members, who have a right to be present, to review the company’s financial performance. A copy of the profit and loss account, balance sheet, and accompanying auditor’s report must be sent to all members at least fourteen days before the meeting. Listed public companies may send a summary financial statement for administrative convenience, but must provide the full accounts upon request.
  • Company’s Accountability to the Public: This is the “price of incorporation”. Unless it is an exempt private company, a company with share capital must attach a copy of its last audited profit and loss account and balance sheet to its annual return. This makes the company’s accounts public, allowing anyone dealing with the company to obtain and analyze them before making commercial decisions.

For exempt private companies, a certification by the company’s officers, rather than the accounts themselves, must be furnished with the annual return. This certification must confirm:

  • The company is and has always been an exempt private company as defined under the Companies Act.
  • A duly audited profit and loss account and balance sheet, made up to the date stated in the annual return, have been laid before the company in general meeting on the stated date.
  • As of the date to which the profit and loss account was made up, the company appeared capable of meeting its liabilities as they fall due.

 

Directors’ Duties in the Preparation of Accounts

 

Before preparing the profit and loss account and balance sheet, directors must take reasonable steps to:

  • Ascertain actions taken regarding the writing off of bad debts and provisions for doubtful debts.
  • Ensure all known bad debts are written off and adequate provision is made for doubtful debts.
  • Ascertain if current assets are unlikely to realize their book value in the ordinary course of business, and if so, write them down or make adequate provision for the difference.
  • Ascertain if any non-current asset is shown at an amount exceeding its recoverable amount over its useful life or upon disposal, and if so, make adequate provision for writing down the asset or include information and explanations to prevent the accounts from being misleading.

 

Auditor’s Report

 

Directors are responsible for ensuring that the company’s profit and loss accounts and balance sheet are properly audited at least fourteen days before the AGM. An auditor’s report must be attached to these audited accounts when presented at the AGM. This report, prepared by the company’s auditors, states their opinion on:

  • Whether accounting and other records and registers have been properly kept.
  • Any defects or irregularities in the accounts or matters not set out as required.
  • Whether all necessary information and explanations have been obtained.
  • The adequacy of returns received from branch offices (if any).
  • Whether the accounts are properly drawn up to give a true and fair view of the company’s profit and loss, and in the case of the balance sheet, a true and fair view of the company’s state of affairs.

Auditors have continuous access to the company’s accounting and other records and can request information and explanations from any company officer or auditor of a related company.

 

Directors’ Report

 

In addition to the auditor’s report, directors must provide a directors’ report, signed by at least two directors, to be attached to the balance sheet related to the profit and loss accounts for the financial year. This report must include information on:

  • Names of directors in office.
  • Principal activities of the company and any significant changes.
  • Net profit/loss after income tax.
  • Material transfers to or from reserves or provisions.
  • Information on issued shares or debentures (purpose, classes, number/amount, terms).
  • Arrangements enabling directors to acquire benefits via company shares/debentures, including the effect and names of directors/nominees involved.
  • Directors’ interests in shares or debentures of the company or other companies.
  • Recommended and declared dividends.
  • Confirmation of reasonable steps taken regarding bad and doubtful debts and awareness of rendering values misleading.
  • Particulars of charges on company assets securing liabilities of other persons.
  • Contingent liabilities, including maximum amounts.
  • Any material and unusual items, transactions, or events affecting results during the financial year or likely to affect future results.
  • Benefits received by directors from contracts with the company or related companies.

The meaning of “any item, transaction or event of a material and unusual nature” includes changes in accounting principles, material changes in trading stock valuation, and the inclusion or absence of material items not usually found in the accounts.

Furthermore, a statement signed by at least two directors is required, confirming that in their opinion:

  • The profit and loss account provides a true and fair view of the company’s results.
  • The balance sheet exhibits a true and fair view of the company’s state of affairs.
  • There are reasonable grounds to believe the company can pay its debts as they fall due.

For public listed companies, the directors’ report must also describe the nature and extent of the audit committee’s functions. Directors’ duties concerning company accounts are extensive, and while auditors may prepare draft reports, directors must carefully scrutinize the contents before signing. It is good practice to forward a copy of the draft report to the company secretary for analysis and discussion.

 

Holding Companies

 

The Companies Act extends the concept of holding and subsidiary companies based on control, where a holding company controls the composition of the board of directors, more than 50% of the voting power, or owns more than 50% of the issued share capital of another company.

A holding company is generally a separate legal entity and is also required to keep its own accounting records and table its accounts and reports at its AGM, just like any other company. Subsidiaries are subject to the same requirements.

In addition to its own accounts, a holding company must prepare consolidated accounts for the entire group of companies. The directors of a holding company must present consolidated accounts at the AGM, covering the profit and loss of the holding company and its subsidiaries, and their state of affairs. This requirement can be waived if the holding company is itself a wholly-owned subsidiary of another Singapore-incorporated company, in which case the ultimate holding company must comply.

To facilitate consolidated accounts, directors of a non-foreign holding company must ensure the financial years of its subsidiaries coincide within two years of becoming a subsidiary. Consolidated accounts must also be properly audited at least fourteen days before the AGM, with an auditor’s report attached. The auditor’s report on consolidated accounts must include additional details, such as the names of subsidiaries audited, consideration of accounts and reports of unaudited subsidiaries, and satisfaction with the form and content of subsidiary accounts for consolidation purposes. It should also note any qualifications in subsidiary audit reports and confirm the appropriateness of consolidation procedures.

A directors’ report for consolidated accounts is also required, signed by at least two directors, covering information for the entire group. This includes the names of any subsidiaries acquired or disposed of during the financial year. Holding company directors must not prepare consolidated accounts or reports until they have received the respective audited accounts and annexures from all subsidiaries. For foreign subsidiaries, corresponding accounts and reports under their local law are sufficient. Subsidiaries must provide information necessary for the preparation of consolidated accounts and reports upon the holding company’s request.

 

Penalties for Non-Compliance

 

Directors who fail to comply or take reasonable steps to ensure compliance with any of the company’s accounting requirements are guilty of an offence and may face a heavy fine or imprisonment. The penalties are increased if the offence was committed for a fraudulent purpose or with the intent to defraud the company’s creditors.

Navigating these extensive and complex ACRA filing requirements can be a daunting task for any business. If you require assistance or tailored advice for your business, the experienced team at Raffles Corporate Services Pte Ltd is here to help.

For further assistance or inquiries, you can contact the Raffles Corporate Services team via email at [email protected].

Yours sincerely, The editorial team at Raffles Corporate Services