ACRA’s New Practice Direction on Private Capital in Accounting Firms: What Singapore Directors Need to Know

On 6 April 2026, the Accounting and Corporate Regulatory Authority (ACRA) issued Practice Direction No. 1 of 2026 on External Private Capital Arrangements in Accounting Entities. This is the first time ACRA has issued formal regulatory guidance specifically addressing private equity (PE), venture capital (VC), and family office investment into Singapore’s accounting and audit firms.

For most business owners, this might sound like an internal accounting industry matter. It is not. If your company has an external auditor — and most Singapore private companies with annual revenue above S$10 million do — this Practice Direction directly affects how you should think about the independence and quality of the audit opinion your company receives each year.

This guide explains what the Practice Direction covers, why it was issued, and what questions directors and audit committees of Singapore companies should now be asking their external auditors.

Why ACRA Issued This Practice Direction

Globally, private capital has been flowing into professional services firms at an accelerating pace. Law firms, accounting firms, and audit practices have increasingly attracted PE and VC investment as a source of capital to fund technology upgrades, geographic expansion, and talent acquisition.

Singapore has not been immune to this trend. ACRA’s Practice Direction acknowledges that such arrangements “may provide access to capital to expand services, invest in technology and pursue strategic acquisitions.” However, the regulator is equally clear that they “may also create commercial pressures and conflicts of interest if not properly managed.”

The concern is fundamental: audit independence is the bedrock of Singapore’s trusted business environment. An auditor who owes obligations to a PE firm — which may itself have investments in audit clients, competitors, or related industries — faces structural conflicts that could compromise the rigour and objectivity of their audit work. ACRA’s response is to set clear expectations before these arrangements become entrenched.

What the Practice Direction Covers

The Practice Direction sets out ACRA’s key considerations and regulatory expectations for accounting entities — which include audit firms and corporate service providers — that are considering, implementing, or already operating under external private capital arrangements. These are arrangements that affect their ownership, governance, or control structures.

Ownership and Governance

ACRA’s concern is not simply who owns shares in an accounting entity, but who controls it. The Practice Direction makes clear that “control and management” includes day-to-day operational management, supervision and direction of audit work, implementation of quality control systems and processes, and ultimate decision-making authority over matters relating to the provision of public accountancy services.

In short, if a PE firm’s investment gives it influence over how an audit firm runs its audit engagements — directly or indirectly — ACRA wants to know about it, and expects the accounting entity to have robust safeguards in place.

Audit Independence Safeguards

The Practice Direction requires accounting entities to ensure that external private capital arrangements do not compromise the independence requirements that Singapore’s audit framework demands. This includes compliance with the Accountants Act, the Code of Professional Conduct and Ethics, and ACRA’s existing audit regulation framework.

Accounting entities considering PE investments are encouraged to engage ACRA early — a collaborative approach ACRA believes “supports market evolution while safeguarding audit quality.”

Interaction with CALA 2025 Audit Changes

The Practice Direction does not exist in isolation. It sits alongside the significant audit accountability changes introduced by the Corporate and Accounting Laws Amendment Act 2025 (CALA 2025), which commenced on 6 May 2026.

One of the key CALA 2025 changes is that audit reports must now name the individual public accountant primarily responsible for the engagement — not just the audit firm. This increases personal accountability for audit quality and makes it easier for ACRA to trace responsibility when audit failures occur.

Taken together, CALA 2025 and the Practice Direction signal a clear regulatory direction: ACRA is tightening individual and structural accountability across the entire audit ecosystem. Directors who rely on audit opinions as part of their governance and compliance obligations should take note.

Why This Matters to Singapore Company Directors

Under Singapore company law, directors have an overarching duty under Section 157 of the Companies Act to act honestly and use reasonable diligence in managing the company. Part of that duty — particularly for directors of companies required to have statutory audits — involves engaging with the audit process in good faith and taking reasonable steps to ensure the audit is genuinely independent.

If your external auditor is part of a PE-backed group, or if the audit firm’s ownership has recently changed, you now have a regulatory signal from ACRA that this is a matter deserving board-level attention. A director who rubber-stamps an audit committee recommendation without any inquiry into the auditor’s independence framework is increasingly at risk of being found to have failed to use reasonable diligence.

This is particularly relevant for companies subject to the statutory audit requirement — those that do not qualify for the small company audit exemption under the updated 2026 thresholds (revenue ≤ S$10 million, total assets ≤ S$10 million, and employees ≤ 50; at least two of the three criteria must be met for two consecutive financial years).

Questions Directors and Audit Committees Should Ask

ACRA’s Practice Direction is a prompt for boards and audit committees to be more proactive. Here is a practical checklist of questions every audit committee should now consider putting to their external auditor:

1. Has your firm recently received, or is it considering, any investment from a PE firm, VC firm, family office, or other external private capital source? If so, what governance safeguards have been put in place to protect audit independence?
2. Does any investor in your firm hold investments in our company, our competitors, or our suppliers? If so, how is the conflict managed?
3. Has your firm engaged with ACRA regarding any external private capital arrangement? ACRA’s Practice Direction encourages early engagement — failure to engage ACRA proactively may itself be a red flag.
4. Who is the named public accountant responsible for our engagement under the CALA 2025 audit report requirements? What is their direct involvement in our audit?
5. What quality control system is in place at your firm, and has it been assessed independently?
6. Have there been any ownership, governance, or management changes at your firm in the last 12 months?

If your auditor is unable or unwilling to answer these questions clearly and completely, that itself is information the audit committee should document and escalate to the full board.

What This Means for Audit Committee Governance

For companies with audit committees, the Practice Direction should prompt a review of the audit committee’s terms of reference and its periodic assessment of auditor independence. The Singapore Code of Corporate Governance — while primarily directed at listed companies — provides a useful benchmark: audit committees should review the independence and objectivity of the external auditor annually, taking into account all relationships between the auditor and the company.

Even for private companies where a formal audit committee is not mandatory, it is good governance practice for the board to conduct an annual review of auditor independence, particularly in light of ACRA’s Practice Direction. This review should be documented in board minutes or resolutions to demonstrate that the directors exercised reasonable diligence.

The AGM is also a natural moment to address auditor reappointment. Shareholders have the right under Section 205 of the Companies Act to re-appoint or change auditors at each AGM. A board that has conducted a thorough independence review — and documented it — is better positioned to make a confident recommendation to shareholders on auditor reappointment.

Practical Director Checklist

Conclusion

ACRA’s Practice Direction No. 1 of 2026 is a forward-looking regulatory signal. It does not mean that every PE-backed audit firm is compromised, or that directors need to change their auditors immediately. What it does mean is that audit independence is now an area where ACRA expects directors to be informed, to ask the right questions, and to hold their audit firms accountable.

In a regulatory environment where director duties and penalties have been significantly strengthened under CALA 2025, the cost of passive governance is rising. Directors who stay informed and take a proactive approach to audit oversight are far better placed to meet their statutory obligations — and to protect the companies and shareholders they serve.

Beyond compliance, sound financial management and investment decisions always rest on the quality of the financial information underlying them. A genuinely independent audit is not a box-ticking exercise — it is a critical assurance mechanism for every stakeholder in the company.

If you need legal advice on your corporate governance obligations in the context of the new Practice Direction or CALA 2025, we can help point you in the right direction.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

— The Editorial Team, Raffles Corporate Services