Audit Exemption for Small Companies - ACRA
Audit Exemption for Small Companies - ACRA
Audit Exemption for Small Companies - ACRA
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<strong>Audit</strong> <strong>Exemption</strong> <strong>for</strong> <strong>Small</strong> <strong>Companies</strong><br />
Mr Yeo Boon Chye<br />
Partner, Assurance and Business Advisory<br />
Foo Kon Tan Grant Thornton<br />
2008 Foo Kon Tan Grant Thornton
Agenda<br />
• Users of financial statements<br />
• Purpose and reason <strong>for</strong> a statutory audit<br />
• Value of an audit <strong>for</strong> <strong>Small</strong> Medium Enterprises<br />
(“SMEs”)<br />
• <strong>Audit</strong> exemption<br />
• Exempt Private <strong>Companies</strong> (“EPCs”)<br />
• Statistics<br />
• Services small companies can get from<br />
professional firms<br />
2008 Foo Kon Tan Grant Thornton
Users of financial statements<br />
suppliers and trade<br />
creditors<br />
customers<br />
employees<br />
existing and<br />
potential investors<br />
government and<br />
its agencies<br />
Users of<br />
financial statements<br />
- satisfy different needs <strong>for</strong> in<strong>for</strong>mation<br />
lenders and<br />
financial<br />
institutions<br />
shareholders<br />
2008 Foo Kon Tan Grant Thornton
Purpose and reason <strong>for</strong> a statutory audit<br />
• a statutory audit provides benefits to companies,<br />
regulators, shareholders and other stakeholders<br />
– a deterrent to fraud and money laundering<br />
– a stimulus to openness and transparency<br />
– a highly effective driver <strong>for</strong> the promotion of<br />
good corporate governance<br />
– Increase in the reliability of accounts and thus<br />
their value to all users<br />
– protection of the wider public interest<br />
2008 Foo Kon Tan Grant Thornton
Purpose and reason <strong>for</strong> a statutory audit (cont’d)<br />
• regulatory requirements; the <strong>Companies</strong> Act, Cap.<br />
50 (“the Act”) requires<br />
– the directors of the company to lay be<strong>for</strong>e the<br />
company at its AGM a duly audited profit and<br />
loss accounts and balance sheet made up to a<br />
date not more than six months be<strong>for</strong>e the date of<br />
the AGM<br />
– an auditor to examine the company’s accounting<br />
records and financial statements and to obtain all<br />
the in<strong>for</strong>mation and explanations needed so as to<br />
enable him to <strong>for</strong>m an opinion<br />
2008 Foo Kon Tan Grant Thornton
Value of an audit <strong>for</strong> <strong>Small</strong> and Medium Enterprises<br />
(“SMEs”)<br />
• provides credibility of published in<strong>for</strong>mation to users of<br />
financial statements, eg.<br />
– to facilitate the payment of taxes on time and accurately,<br />
thereby avoiding penalties, interest and investigations<br />
– improvements to the funding of businesses<br />
– play a key role in the raising of finance and capital<br />
• improve controls, deter and detect material fraud and error<br />
• demonstrate good corporate citizenship<br />
• other spin-off benefits of an audit such as advice on the<br />
structure and operations of systems<br />
2008 Foo Kon Tan Grant Thornton
<strong>Audit</strong> exemption<br />
• audit exemption applicable to<br />
– dormant companies<br />
– small exempt private companies (“EPCs”)<br />
2008 Foo Kon Tan Grant Thornton
Dormant companies<br />
- definition<br />
• a company that has no accounting transactions <strong>for</strong><br />
the financial year in question or has not started<br />
business since its corporation<br />
2008 Foo Kon Tan Grant Thornton
Exempt Private <strong>Companies</strong> (“EPCs”)<br />
- definition<br />
• a private company in the shares of which no<br />
beneficial interest is held directly or indirectly by<br />
any corporation and which has not more than 20<br />
members<br />
OR<br />
• any private company, being a private company that<br />
is wholly-owned by the Government, which the<br />
Minister, in the national interest, declares by<br />
notification in the Gazette to be an exempt private<br />
company<br />
2008 Foo Kon Tan Grant Thornton<br />
Ref: <strong>Companies</strong> Act Section 4(1)
<strong>Audit</strong> exemption<br />
- criteria <strong>for</strong> EPCs to be exempted from audit<br />
• financial period commences on or after 15 May 2003 but<br />
be<strong>for</strong>e 1 June 2004 and the company’s revenue is not more<br />
than S$2.5 million<br />
OR<br />
• financial period commences on or after 1 June 2004 and<br />
the company’s revenue is not more than S$5.0 million<br />
OR<br />
• *any company including an EPC that is dormant <strong>for</strong> the<br />
financial year commencing on or after 15 May 2003<br />
* not subsidiaries of listed companies<br />
Ref:<br />
2008 Foo Kon Tan Grant Thornton
<strong>Audit</strong> exemption<br />
- criteria <strong>for</strong> EPCs to be exempted from audit<br />
• proper accounting records are maintained<br />
• the financial statements are prepared according to<br />
Singapore Financial Reporting Standards (FRS) <strong>for</strong><br />
submission to IRAS<br />
• an audit is not requested by<br />
– shareholders holding not less than 5% interest<br />
in the company’s share capital; or<br />
– <strong>ACRA</strong>; or<br />
– other government authorities/financial<br />
institutions/creditors<br />
2008 Foo Kon Tan Grant Thornton
<strong>Audit</strong> exemption<br />
• audit exemption<br />
– remove the statutory burdens and costs on<br />
smaller businesses<br />
– provide an efficient and pro-business<br />
environment <strong>for</strong> small businesses<br />
• the profit and loss accounts or consolidated<br />
accounts and balance sheet DO NOT have to be<br />
audited<br />
• copies of an auditor’s report DO NOT have to be<br />
presented at the AGM<br />
2008 Foo Kon Tan Grant Thornton
<strong>Audit</strong> exemption<br />
• however, the Registrar may require the company<br />
to submit audited accounts and the auditor’s<br />
report, to the Authority if<br />
– the Authority believes that there has been a<br />
breach of s199 (relating to accounting records<br />
and system of control) and s201 (relating to the<br />
accounts and director’s reports) of the Act; or<br />
– it is otherwise in the public interest to do so<br />
2008 Foo Kon Tan Grant Thornton<br />
S205(d) of the Act
Annual Return (AR) filing by EPC<br />
• need not attach EPC certificate or the Statement by EPC<br />
exempting them from audit requirements<br />
• professional firms filing on behalf of companies may<br />
continue to require hardcopies certificates as evidence of<br />
compliance and keep these <strong>for</strong> records purposes<br />
• insolvent EPCs and EPCs that are required by law to file<br />
audited financial statements with <strong>ACRA</strong> will file in<br />
Extensible Business Reporting Language (“XBRL”)<br />
<strong>for</strong>mat<br />
• solvent EPCs are exempted from filing their financial<br />
statements with <strong>ACRA</strong><br />
2008 Foo Kon Tan Grant Thornton
Annual Return (AR) filing by EPC (cont’d)<br />
• full set of financial statements (applicable if the company is<br />
insolvent)<br />
– report and statement of the directors<br />
– balance sheet and profit and loss account<br />
– notes to the accounts<br />
• statement by the directors<br />
– confirming that the company is either dormant or a small<br />
exempt private company<br />
– confirming that no notice has been received from the<br />
members to require an audit to be done<br />
– confirming that the accounting and other records have<br />
been kept in accordance with the <strong>Companies</strong> Act<br />
2008 Foo Kon Tan Grant Thornton
<strong>ACRA</strong> Research Report<br />
- Key facts and trend of Singapore’s Public Accountancy<br />
Profession and Market, July 2008<br />
2008 Foo Kon Tan Grant Thornton
<strong>ACRA</strong> Research Report<br />
- Key facts and trend of Singapore’s Public Accountancy<br />
Profession and Market, July 2008<br />
• 70% of the private companies in Singapore are<br />
EPCs, with annual revenue < $5.0 million<br />
• companies audited by small accounting entities<br />
dropped from over 75,000 in 2004 to about 41,000<br />
in 2007 mainly due to the introduction of audit<br />
exemptions <strong>for</strong> small businesses<br />
2008 Foo Kon Tan Grant Thornton
<strong>ACRA</strong> Bizfile<br />
- Number of EPCs that submitted audited accounts<br />
Exempt Private <strong>Companies</strong><br />
250,000<br />
200,000<br />
150,000<br />
100,000<br />
50,000<br />
-<br />
2003 2004 2005 2006 2007<br />
2008 Foo Kon Tan Grant Thornton<br />
Number of EPC<br />
EPC that submitted audited accounts<br />
EPC that submitted audited accounts and have revenue less than S$5 million
<strong>Audit</strong> exemption<br />
Benefits<br />
Costs<br />
2008 Foo Kon Tan Grant Thornton
Costs vs benefits<br />
Consider:<br />
• business needs<br />
• the users of financial statements eg.<br />
financial institutions, creditors<br />
• other professional services eg.<br />
review of financial statements,<br />
agreed upon procedures<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional<br />
firms<br />
Other services<br />
- review engagements /<br />
interim review engagements<br />
In accordance to<br />
SSRE 2400 (not the auditor of an entity)<br />
SSRE 2410 (the auditor of an entity)<br />
- agreed upon procedures<br />
engagement<br />
SSRS 4400<br />
- compiling financial<br />
in<strong>for</strong>mation<br />
SSRS 4410<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- review engagement<br />
• review engagement (SSRE 2400)<br />
– obtain sufficient appropriate evidence primarily<br />
through inquiry and analytical procedures to be<br />
able to draw conclusions<br />
– document matters which are important in<br />
providing evidence to support the review report<br />
– it provides a moderate level of assurance<br />
– expressed in the <strong>for</strong>m of negative assurance<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- review engagement report<br />
• a review engagement report<br />
– comprises a complete set of financial statements<br />
in accordance with FRS (balance sheet, income<br />
statement, statement of changes in equity,<br />
cashflow statement)<br />
– the preparation of the financial statements are<br />
the responsibility of the company's management<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- review engagement report (cont’d)<br />
• provides moderate assurance as opposed to an<br />
opinion ie. “…nothing has come to our attention<br />
that causes us to believe that the accompanying<br />
financial statements are not presented fairly, in all<br />
material respects, in accordance with Financial<br />
Reporting Standards.”<br />
• inquiry procedures with analytics<br />
• no test of transactions unless warrant<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- interim review engagement<br />
• interim review engagement (SSRE 2410)<br />
– enable the auditor to express a conclusion whether<br />
anything has come to the auditor’s attention that<br />
causes the auditor to believe that the interim financial<br />
in<strong>for</strong>mation is not prepared, in all material respects, in<br />
accordance with an applicable financial reporting<br />
framework<br />
– may bring significant matters affecting the interim<br />
financial in<strong>for</strong>mation to the auditor’s attention, but it<br />
does not provide all of the evidence that would be<br />
required in an audit<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- interim review engagement report<br />
• an interim review engagement report<br />
– comprises financial statements as per that of a<br />
review engagement report (balance sheet,<br />
income statement, statement of changes in<br />
equity, cashflow statement)<br />
– the preparation of the financial statements are<br />
the responsibility of the company's management<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- interim review engagement report (cont’d)<br />
“A review of interim financial in<strong>for</strong>mation consists of<br />
making inquiries, primarily of persons responsible <strong>for</strong><br />
financial and accounting matters, and applying<br />
analytical and other review procedures. A review is<br />
substantially less in scope than an audit conducted in<br />
accordance with Singapore Standards on <strong>Audit</strong>ing<br />
and consequently does not enable us to obtain<br />
assurance that we would become aware of all<br />
significant matters that might be identified in an audit.<br />
Accordingly, we do not express an audit opinion.”<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- agreed upon procedures engagement<br />
• agreed upon procedures engagement (SSRS 4400)<br />
– per<strong>for</strong>m certain procedures on individual items of<br />
financial data (eg. accounts payable/receivable,<br />
purchases from related parties), a financial statement<br />
(eg, a balance sheet) or even a complete set of financial<br />
statements<br />
– provides a report of factual findings<br />
– no opinion is expressed<br />
– report is restricted to those parties that have agreed to<br />
the procedures<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- agreed upon procedures engagement report<br />
• states the list of the specific procedures per<strong>for</strong>med<br />
eg.<br />
“The procedures were per<strong>for</strong>med solely to assist you in evaluating the<br />
validity of the accounts payable and are summarised as follows:<br />
1. We obtained and checked the addition of the trial balance of accounts<br />
payable as at 31 December 2008 prepared by ABC Pte Ltd, and we<br />
compared the total to the balance in the related general ledger<br />
account.<br />
2. We compared the attached list (not shown in this example) of major<br />
suppliers and the amounts owing at 31 December 2008 to the related<br />
names and amounts in the trial balance.<br />
3. We obtained suppliers' statements or requested suppliers to confirm<br />
balances owing at 31 December 2008.”<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- agreed upon procedures engagement report (cont’d)<br />
• provides a report of factual findings<br />
eg.<br />
We report our findings below:<br />
(a) With respect to item 1 we found the addition to be correct<br />
and the total amount to be in agreement.<br />
(b) With respect to item 2 we found the amounts compared to<br />
be in agreement.<br />
(c) With respect to item 3 we found there were suppliers'<br />
statements <strong>for</strong> all such suppliers.<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- agreed upon procedures engagement report (cont’d)<br />
“… Because the above procedures do not<br />
constitute either an audit or a review made in<br />
accordance with Singapore Standards on<br />
<strong>Audit</strong>ing or Singapore Standards on Review<br />
Engagements, we do not express any<br />
assurance on the accounts payable as at 31<br />
December 2008.”<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- compiling financial in<strong>for</strong>mation engagement<br />
• compiling financial in<strong>for</strong>mation engagement (SSRS<br />
4410)<br />
– to use accounting expertise, as opposed to<br />
auditing expertise, to collect, classify and<br />
summarise financial in<strong>for</strong>mation<br />
– procedures employed are not designed and do<br />
not enable the accountant to express any<br />
assurance on the financial in<strong>for</strong>mation<br />
– users will benefit as the service has been<br />
per<strong>for</strong>med with professional competence and<br />
due care<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- compiling financial in<strong>for</strong>mation engagement<br />
• management of the company is responsible<br />
– <strong>for</strong> the financial in<strong>for</strong>mation provided including<br />
accuracy and completeness of the in<strong>for</strong>mation<br />
– to users <strong>for</strong> the financial in<strong>for</strong>mation compiled by<br />
auditors; maintenance of adequate accounting<br />
records and internal controls and the selection<br />
and application of appropriate accounting<br />
policies<br />
2008 Foo Kon Tan Grant Thornton
Services small companies can get from professional firms<br />
- compiling financial in<strong>for</strong>mation engagement report (cont’d)<br />
“On the basis of in<strong>for</strong>mation provided by<br />
management we have compiled, in accordance<br />
with the Singapore Standard on Related Services<br />
applicable to compilation engagements, the<br />
balance sheet of ABC Pte Ltd at 31 December<br />
2008 and statements of income and cash flows <strong>for</strong><br />
the year ended on that date. Management is<br />
responsible <strong>for</strong> these financial statements. We<br />
have not audited or reviewed these financial<br />
statements and accordingly express no assurance<br />
thereon.”<br />
2008 Foo Kon Tan Grant Thornton
Other services<br />
• non-audit financial reporting services<br />
• book-keeping services<br />
• payroll services<br />
• preparation and submission of GST returns<br />
• accounting software implementation<br />
2008 Foo Kon Tan Grant Thornton
2008 Foo Kon Tan Grant Thornton<br />
Thank you