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 :

  • Satisfy stakeholders such as investors, employees, customers and suppliers as to the credibility of published information
  • Facilitate computation of corporate tax, goods and services tax, and other taxes accurately and payment on time, thereby avoiding queries and possible investigations and penalties
  • Enable companies to comply with banking covenants
  • Help deter and detect material frauds and errors
  • Facilitate the purchase and sale of businesses
  • Take advantage of the spin-off benefits such as advice on the structure, internal control and operations of systems
  • Demonstrate good corporate governance

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 :

  • Revenue not more than S$5 million for the financial year starting on or after 1 June 2004
  • The company is dormant for the financial year starting on or after 15 May 2003

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 :

  • Audit engagements provide a high level of positive assurance, often expressed in ‘true and fair” terms; review engagements only provide a moderate level of assurance, often expressed as ‘negative’ assurance and reviewers commonly state that nothing has come to their attention to indicate that the information reported on has not been ‘properly prepared’.
  • Audit engagements require the auditor to assess the accounting and internal control systems, to perform detailed tests of control and substantive procedures, and to corroborate explanations received; review engagements rely substantially on analytical procedures and reviewers are not required to assess the accounting and internal control system or to corroborate explanations received.

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 :

  • Cost of the audit is often marginal for small companies, particularly where the auditor is involved in the preparation of the statutory accounts.
  • Small companies who prepare their own accounts often need help in arriving at adjustments, such as those for obsolete stocks, bad debts and other provisions.
  • Small companies may find themselves subject to a statutory audit requirement when their business grow. The first year and the subsequent years of an audit can be very trying if the accounts are not prepared in good order.
  • An audit is essential in financing negotiations, take-over and buy-out.
  • The close involvement of the auditor provides companies with comfort when faced with tax and regulatory investigations.

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 :

  • Public companies, banks, insurance companies.
  • Companies regulated under the financial services legislation.
  • Trade unions and employers associations.
  • Certain charitable companies and other charitable entities.

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.