Singapore recently broke ground on some of the most noteworthy changes to its corporate law in 60 years. New changes in Singaporean corporate law are making some things easier for small companies. Chiefly, this comes in the form of fewer burdensome financial regulations, such as annual financial audits. This is big news for small companies because these audits can be expensive in more ways than one.

Here we want to examine what these changes are and how they differ from the previous legislation.

A major point of differentiation that comes to the forefront is that of the exemption benchmark. Before the present canon was established, the Accounting and Corporate Regulatory Authority (ACRA) considered each holding company, associate, or subsidiary independently, that is, as its own independent legal entity. Under the new exemption rule, the group is perceived jointly, that is, as a group.

The Companies Act included the Exempt Private Companies designation in an amendment promulgated back in 2003. The idea was to foster a more business-friendly environment by cutting down on red tape for small and medium sized ventures. Most importantly, this involved regulations surrounding the annual financial audit mandate.

Up until July 1st, 2015, the rule affecting exempt private companies, according to Singapore's legal exemption standard, provided exemption from statutory audits if they met the following criteria:

• Less than 20 stakeholders
• No corporate stakeholders
• Annual revenue under 5 million SGD, or 3.61 million USD.

The other possible exemption mandated that the company be inactive either since its inception or the prior annum for financial reporting.

Since the introduction of newer benchmarks, however, the new regulation stipulates that a company which is a constituent of a small corporate group must meet the qualification for a small company, and the group as a whole must be considered a small group in order to be considered for an audit exemption.

To better visualize this, the rules of the Prior Standard are allowed for an EPC if they met the following criteria:

• No Corporate Stakeholders
• Fewer than 20 Stakeholders
• Annual revenue below SGD 5 million (USD 3.61 million)
• Company is Latent

Under the Present Standard, the qualifying threshold has been increased, and a small company must meet at least two of the following quantitative criteria:

• Gross assets  under SGD 10 million
• Total annual revenue under SGD 10 million
• Number of employees under 50
• Company is Latent
• Small company must be part of a small group

A group would qualify as small in relative to its parent venture's first financial year if it meets at least two out of these three conditions:

• Its total aggregate turnover of all the Companies under that group in that year is not more than SGD 10 million (gross revenue);
• Its total aggregate gross assets of all the Companies under that group in that year is not more than SGD 10 million gross; or
• The total aggregate average number of employees of all the Companies under that group is not more than 50.

Frequently Asked Questions

Q:  So why change the new audit exemption rule for small companies and groups?

A:  These changes were developed and implemented in order to abate burdensome regulations and costs of compliance, which also includes the audit. This applies to smaller companies which feature a limited amount of third party interest, a small market share, and a limited budget. In 2003 and 2005, similar such exemption rules were promulgated.

Q:  When will the new small company audit exemption standards commence?

A:  The new audit exemption rules apply to fiscal years beginning with the changes introduced on July 1st, 2015.

Q:  How does a company assess their gross revenue and assets?

A:  The company perceives its total amount of assets and revenue in accordance with the fiscal statements which it issues. Therefore, the company must be in compliance with the relevant fiscal reporting standards of Singapore when performing this assessment.

Q:  How does a company enumerate its total number of employees?

A:  The total number of employees considered for this purpose is the number of employees employed and compensated on a full time basis. This number is figured at the end of each fiscal year.

Q:  Can a company with a corporate shareholder be considered a small company eligible for an audit exemption?  

A:  The concept of an exempt private company has been eliminated under the new rules in the Singapore Companies Act. The previous mandate was that companies with corporate shareholders were not eligible for such a designation. Under the new standard, a private company with a corporate shareholder can be eligible for the audit exemption as a small company if it meets the proper criteria.

Q:  Would a subsidiary be required to audit its fiscal statements when a holding company has audited consolidated financial statements, even if it can be considered a small company?

A:  To qualify for the small company exemption, the entire group to which the subsidiary is a constituent member, must qualify as a small group and must together meet its minimum criteria. In other words, the criteria for whether a company can be exempted from audit for a small group is founded on the aggregate revenue, assets, and number of employees at the end of the fiscal year. 

Therefore, even though the subsidiary might itself qualify as a small company, if the group of which it is member is not a small group, and the holding company must audit the total financial statements of all of these members, it would not be able to take advantage of an audit exemption provision.

Q:  Does the provision for a small company audit exemption apply to companies incorporated outside of Singapore?

A: The audit exemption for small companies can only be applied to a company domestic to Singapore. For a group, in ascertaining whether it is considered small or not, each individual entity is considered, together with foreign corporate entities, in order to assess whether the gross aggregate revenue and assets of the group satisfy the small group criteria.

Q:  How are foreign assets considered when determining if a company is small? 

A:  In a circumstance wherein the holding company is incorporated outside of Singapore, the domestic subsidiary must assess whether the group of which it is member constituent qualifies as a small group in order to ascertain whether or not the domestic subsidiary satisfies the criteria mandated for the small company audit exemption provision.

Q:  Does the provision for a small company audit exemption apply to companies incorporated outside of Singapore?

A:  The audit exemption for small companies can only be applied to a company domestic to Singapore.

For a group, in ascertaining whether it is considered small or not, each individual entity is considered, together with foreign corporate entities, in order to assess whether the gross aggregate revenue and assets of the group satisfy the small group criteria.

Q:  How are the consolidated assets and revenue assessed in consideration of whether a foreign holding company can be called a small group?

A:  In a circumstance wherein the holding company is incorporated outside of Singapore, the domestic subsidiary must assess whether the group of which it is member constituent qualifies as a small group in order to ascertain whether or not the domestic subsidiary satisfies the criteria mandated for the small company audit exemption provision.

When the holding company has prepared consolidated fiscal statements, the “consolidated total assets” and “consolidated revenue” of the group is considered with reference to whether the group may qualify as a small group for the purpose of audit exemption.

When the holdings company has not prepared consolidated fiscal statements, however, the gross assets and revenue are determined through the consideration of the aggregated totals of each member constituent, relevant to qualification standards.

For further reading on the above, you can visit ACRA or alternatively contact your auditors for further clarification.