For many business owners in Singapore, the word “audit” conjures images of expensive professional fees, lengthy document preparation, and management time diverted from core operations. The good news is that the vast majority of Singapore private companies are fully exempt from having their financial statements audited — provided they qualify as a “small company” under the Companies Act 1967.

Understanding the audit exemption framework is critical for directors and business owners alike. Qualifying incorrectly — or failing to claim an exemption you are entitled to — can cost thousands of dollars annually. This guide explains the criteria, the group implications, and what exempt companies must still do.

What Is Audit Exemption?

Under the Companies Act (Cap. 50), every company incorporated in Singapore must prepare financial statements for each financial year. Historically, those statements had to be audited by an approved company auditor. The audit exemption, introduced progressively since 2014 and substantially expanded in 2015, allows qualifying small companies to skip the statutory audit requirement entirely.

The exemption is found in Section 205B of the Companies Act. A company that qualifies as a “small company” is not required to appoint an auditor and need not have its financial statements audited before laying them before members or filing with ACRA.

The Three-Criteria Test for a Small Company

To qualify as a small company, a private company must satisfy at least two of the following three quantitative criteria for the immediate past two consecutive financial years:

  • Annual revenue does not exceed S$10 million
  • Total assets do not exceed S$10 million
  • Number of employees does not exceed 50

The two-year look-back is important. A company cannot qualify simply because it happens to be small in the current year — it must have met the two-of-three test for both the preceding financial year and the one before that. For newly incorporated companies, special transitional rules apply.

Additionally, the company must be a private company throughout the financial year in question. Public companies and their subsidiaries cannot claim the small company exemption.

Newly Incorporated Companies: The First Two Years

What about a company that has not yet completed two financial years? The Act provides that a company in its first year of incorporation qualifies as a small company if it satisfies two of the three criteria for that first financial year. In its second financial year, it qualifies if it satisfied two criteria in either the first or second financial year.

This means a brand-new company with modest revenues, assets, and headcount can benefit from the exemption from day one — which is particularly useful for sole-proprietor-style Pte Ltd companies or holding vehicles with no employees.

Group Companies: The Small Group Requirement

This is where many directors become unstuck. Even if a company individually satisfies the small company criteria, it cannot claim the exemption if it is a member of a group that does not qualify as a “small group”.

A group qualifies as a small group if the group (comprising the parent and all its subsidiaries) satisfies two of the three criteria on a consolidated basis for the immediate past two consecutive financial years: consolidated annual revenue not exceeding S$10 million, consolidated total assets not exceeding S$10 million, and total employees across the group not exceeding 50.

In practical terms, this means that a subsidiary of a large listed company — even if the subsidiary itself is tiny — cannot claim the audit exemption, because the group as a whole will almost certainly exceed the thresholds. Directors of wholly-owned subsidiaries sometimes overlook this, resulting in unintentional non-compliance.

Losing and Regaining Exemption Status

A company that has been qualifying as a small company does not lose its exemption the moment it exceeds one of the thresholds. Because the test is based on two consecutive financial years, a company that fails to satisfy two of the three criteria in one year retains its exemption for that year — but if it fails again in the next year, it loses the exemption from that second year onward.

Conversely, a company that has lost its exemption can regain it once it satisfies two of the three criteria for two consecutive financial years again. There is no minimum period of disqualification.

What Exempt Companies Still Need to Do

The audit exemption does not mean financial statements are optional or informal. Exempt companies must still prepare financial statements in accordance with Singapore Financial Reporting Standards (SFRS) or SFRS for Small Entities; present financial statements to members at the AGM or by circulation; file financial statements with ACRA as part of the annual return (subject to the SPEC exemption); maintain proper accounting records under Section 199 of the Companies Act; and comply with IRAS income tax filing obligations.

Some companies opt for a voluntary review or compilation engagement from their corporate secretarial or accounting service provider as a cost-effective alternative that provides a degree of independent verification without the full cost of an audit.

Dormant Companies and the Audit Exemption

Dormant companies have a separate, broader exemption under Section 205A of the Companies Act. A company is “dormant” if it has had no accounting transactions during the financial year (other than those arising from the maintenance of a registered office and payment of fees to ACRA). A dormant company is automatically exempt from audit regardless of its size or group status, provided it was dormant throughout the financial year.

Common Mistakes Directors Make

Several recurring errors come up in practice when directors assess their audit exemption status.

Assuming exemption without checking the group test

Directors of subsidiaries often apply the individual company criteria without considering the consolidated group thresholds. If your company is part of a group — even a small family-held group — you must check group-level figures.

Miscounting employees

The headcount of 50 includes all employees — full-time, part-time, and contractual staff on payroll. Directors who are also employees must be counted. Foreign workers on work passes are included. Contractors engaged through a genuine outsourcing arrangement with a third-party agency are typically not counted as the company’s own employees.

Forgetting the two-year look-back on transitions

A company that grew rapidly and exceeded the thresholds in Year 3 but dropped below them again in Year 4 cannot immediately reclaim its exemption in Year 4. It needs to satisfy the two-of-three test for both Year 4 and Year 5 before the exemption is restored from Year 5 onward.

Practical Steps for Directors

Each year, as part of your annual compliance cycle, your corporate secretary or accountant should confirm your company’s audit exemption status. This review should pull the revenue, total assets, and headcount figures for the two most recent completed financial years; obtain consolidated figures if the company is part of a group; apply the two-of-three test at both company and group level; document the outcome; and inform the auditor if there is a change in status.

For companies approaching the thresholds — particularly those close to S$10 million in revenue or assets — monitoring on a half-yearly basis is sensible so that there are no surprises at year-end. You may also wish to review our Singapore Annual Compliance Calendar for a full overview of your statutory deadlines.

How Raffles Corporate Services Can Help

Determining audit exemption eligibility is part of a broader annual compliance assessment that Raffles Corporate Services carries out for all clients. Our team reviews your company’s and group’s financial metrics each year, advises on exemption status, and ensures your financial statements — whether audited or unaudited — are prepared to the required standard.

For personalised advice on your company’s audit obligations, contact us or visit Raffles Corporate Services.

Raffles Corporate Services provides corporate secretarial, accounting, and compliance services to companies in Singapore. This article is for general information only and does not constitute legal or accounting advice. Please consult a qualified professional for advice specific to your circumstances.