Frequently asked questions
Frequently asked questions
Auditing and Assurance (FAQ)
Q: Why do companies have audits ?
There are a few reasons for companies to do an audit. Larger companies are required to do so by law, but many would do so even if there were no statutory obligations. An independent audit is crucial to good corporate governance and essential to an effective internal financial control function.
More importantly, audit adds credibility to information provided to stakeholders. It provides assurance to investors and other providers of finance who are able to make their decisions in a safe environment, with confidence. Safety and confidence reduce cost of capital which make companies more competitive and more profitable.
Purposes for companies to have audits are, to :
Q: Does my company require an annual audit ?
Under Singapore Law, if an Exempt Private Company (EPC) satisfies any one of the following criteria, it will be exempted from audit requirement :
However, all companies are required to maintain proper accounting records and prepare “true and fair” financial statements that comply with the requirement of Financial Reporting Standards (FRS) that are prescribed by the Council on Corporate Disclosure and Governance (CCDG).
Q: Must my company adhere to certain accounting standards for compliance purposes?
Generally, all companies incorporated in Singapore must follow the Singapore Accounting Standards. However, depending on the nature of the company’s business, not every standard needs to be adhered to.
Q: My company’s transactions are few or none, is there a need for an annual audit?
Under the Companies Act, except for Exempt Private Companies (EPC) whose annual revenue is less than S$5million and dormant EPCs, all limited companies in Singapore need to be audited annually. However, you may wish to note that audit fees are generally lower for companies that have fewer transactions.
Q: Can I do a review instead of an audit?
Review engagements are becoming more common. Many companies see a review as a cost-effective alternative to an audit.
There is a significant difference between an audit and a review; the level of assurance provided by a review engagement is substantially lower than the level of assurance provided by an audit engagement.
A review engagement differs from an audit engagement in the following aspects :
The level of assurance provided by a review engagement depends on the amount of work performed by the reviewer, which may not be clear to those seeking to rely on the review. And review engagements are less likely to detect material fraud and error than audit engagements.
It is important that companies understand the limitations of review engagements, as compared to a full audit.
Q: Why should smaller companies invest in a voluntary audit ?
Audits add value to the company. Smaller companies invest in audits for the same reasons as larger companies, and there are particular issues that make smaller companies invest in an audit worthwhile :
Smaller companies may believe, for example, that because there is no longer any statutory audit requirement, there will no longer be any external checking of the books and records. The power and resources of the Inland Revenue Authority of Singapore and the Department of Customs and Excise are not to be undermined, they are in actual fact ever increasing. This means that there are likely to be more investigations in the future, and that the checking will be more thorough and detailed.
Q: Can all small companies take advantage of audit exemption ?
In accordance with Singapore Companies Act, only dormant companies and exempt private companies with annual turnover of less than S$5 million are exempted from audit. Companies that are entitled to take advantage of audit exemption include the following :
The constitutions of many small companies and entities, including clubs and societies, also require the production of an auditors’ report.It is recommended that, in view of the amended provision of the Companies Act Cap 50 ( ie. S.205A to S.205C), companies continue to have their accounts audited.
Q: Are audit fees regulated and is there a scale for fees?
Audit fees are not regulated by the Public Accountants Board and there is no scale reference for auditors. Auditors generally charge fees according to time spent on the audit assignment. Fees also reflect the level of skill and experience required and the level of responsibility and complexity involved in the audit work. Alternatively, fees are also charged on an agreed amount between the auditor and the client.