Statutory Audit for Company 2026

That is the question many Singapore business owners may soon be asking.

On 26 February 2026, ACRA announced that it is reviewing Singapore’s audit exemption framework to reduce compliance costs for small companies, with targeted industry consultations from March 2026. The review is understood to focus on whether the revenue and asset thresholds should be raised, and whether some subsidiaries may qualify for exemption even if the wider group does not meet the exemption thresholds on a consolidated basis.

For many business owners, the immediate question is practical: will my company become exempt from audit?

But the more important question is broader: if fewer small companies are required to undergo statutory audit, where is audit heading – and does it still matter?

What is an audit of financial statements?

An audit is an independent examination of a company’s financial statements. Its purpose is to provide assurance on whether those statements are prepared in accordance with the relevant financial reporting framework.

An audit is not a guarantee that a business is successful or fraud-free. But it helps users – banks, investors, minority shareholders, suppliers, regulators and other stakeholders – place greater confidence in the financial information a company presents.

Why did audit become important in the first place?

Historically, audit became important because of the separation between ownership and management. When shareholders entrust capital to directors, they need confidence that the financial statements reflect reality. Audit provided that independent check.

The same logic extended to creditors, lenders and other parties who relied on a company’s reported financial position. Limited liability meant that if a company failed, outside parties bore real risk. Reliable, independently examined financial statements helped manage that risk. In short, audit existed to support trust, accountability and confidence in financial reporting – particularly where people other than the owners relied on the numbers.

Singapore’s audit exemption journey

Before 2003, all companies in Singapore required a statutory audit regardless of size.

The shift began in stages:

• 2003: Audit exemption was introduced for Exempt Private Companies (EPCs) with annual revenue of $2.5 million or less.
• 2004: The threshold was raised to $5 million for financial periods starting on or after 1 June 2004. The Ministry of Finance explained that this would help more EPCs lower business costs, while still requiring proper accounting records and “true and fair” financial statements.
• 2015: The EPC concept was removed entirely and replaced by the small company concept, with higher thresholds and a broader 2-of-3 test. This applied to financial years beginning on or after 1 July 2015.
• 2026: ACRA is now reviewing whether to raise thresholds further and whether some subsidiaries may qualify for exemption independently of their group.

Seen in that light, the current review is not a sudden change. It is the latest step in a longer journey of recalibrating where statutory audit should begin and end.

What is the current audit exemption test?

A private company qualifies for audit exemption as a small company if it meets at least 2 of 3 criteria for the two immediately preceding financial years:

• Total annual revenue of $10 million or less
• Total assets of $10 million or less
• 50 employees or fewer

If the company is part of a group, the position is stricter. The company itself must qualify as a small company, and the entire group – including foreign entities – must also meet at least 2 of the 3 criteria on a consolidated basis for the two immediately preceding financial years.

This matters in practice. A company may appear small on a standalone basis but still require an audit because it sits within a larger group that does not meet the small group test.

Importantly, even where a company qualifies for exemption, shareholders holding at least 5% of issued shares can still require an audit.

What is ACRA reviewing now?

The 2026 consultation is understood to focus on two main areas:

1. Whether the revenue and asset thresholds should be raised above the current $10 million levels.
2. Whether some subsidiaries may qualify for exemption even if the wider group does not meet the thresholds on a consolidated basis.

Companies will still be required to keep proper accounting records and prepare financial statements in accordance with prescribed standards. Audit exemption is not exemption from accountability.

But wider exemption may come with stronger enforcement expectations

Business owners should note an important parallel development. Even as ACRA moves to reduce compliance costs for smaller companies, it is simultaneously strengthening enforcement against directors who fail to fulfil their statutory obligations.

Under the Companies Act, directors are required at all times to act honestly and use reasonable diligence in the discharge of their duties. This includes ensuring that proper accounting records are maintained and that financial statements are prepared in accordance with prescribed standards.

In April 2026, ACRA’s Amendment Bill introduced significantly heavier penalties for non-compliance — including steeper compound fines for late filing of Annual Returns and failure to hold Annual General Meetings. Directors convicted of serious offences may now face disqualification from holding directorship positions. And ACRA has made clear that where non-compliance impugns the integrity or accuracy of its register, or where the nature of the breach is particularly serious, it will investigate and take enforcement action.

The message is clear: if your company becomes audit-exempt, the responsibility for maintaining proper books, preparing accurate financial statements, and meeting filing obligations does not disappear. It falls more squarely on the directors themselves.

Why this makes the role of an audit firm even more relevant

For many SME directors, this creates a practical governance question. If there is no statutory auditor reviewing the books annually, who provides the independent check that records are in order, that financial statements are properly prepared, and that filing obligations are being met?

Engaging an audit firm – even where audit is not legally required – can provide an additional layer of protection for directors. It helps ensure that:

• Accounting records are maintained to the standard required by law
• Financial statements are prepared on a proper basis
• Filing deadlines are tracked and met
• Potential issues are identified early, before they escalate into regulatory exposure

Late filings and accounting lapses are often treated as minor administrative issues – until penalties escalate or directors face personal exposure. An audit firm’s involvement can reduce that risk significantly.

In short: as ACRA widens exemption with one hand, it is tightening director accountability with the other. Directors who assume that exemption means less responsibility may find themselves exposed. Those who maintain proper professional support – whether through audit, accounting, or compliance engagement – are better protected.

For more on director obligations and ACRA enforcement risks, see our insights on ACRA non-compliance and what directors should know.

Why broader exemption may make sense for some SMEs

There is a reasonable policy case for wider audit exemption in parts of the SME sector. For some owner-managed businesses – particularly those with limited external reliance on their financial statements – a compulsory annual statutory audit may not always be the most proportionate approach.

Where ownership and management are closely aligned, and where there are few outside users of the accounts, the question becomes: who is the audit protecting?

That is not a new question. It has been asked in every jurisdiction that has widened audit exemption. And across major economies, the direction is consistent: governments are reducing mandatory audit requirements for smaller companies. Audit is increasingly becoming demand-driven – retained where stakeholders need it, rather than imposed as a blanket obligation.

Singapore is not moving alone. ACRA has referenced jurisdictions such as Australia, the United Kingdom, New Zealand and Malaysia as having raised audit exemption thresholds in recent years. The global trend is clear.

Why audit can still matter even when it is no longer mandatory

This is where business owners should pause before assuming that exemption automatically means audit no longer has value.

1. Audit can support access to financing

For SMEs seeking bank facilities or other forms of credit, audited financial statements may remain commercially useful even where they are not legally required. Lenders often place greater weight on independently examined accounts. Research has also suggested that voluntary audit choices can send signals to lenders about a company’s transparency and creditworthiness.

2. Audit benefits parties beyond those who pay for it

The benefits of reliable audited financial statements are not restricted to the persons who pay for the audit. Potential shareholders, financial institutions, suppliers and other parties may all rely on audited accounts in making decisions about the company.

That point is especially relevant to growing SMEs. Even if the owners themselves are comfortable without an audit, outside parties may value the assurance it provides.

3. Voluntary audit can itself send a positive signal

Where audit is voluntary, a company’s decision to retain an audit may itself signal seriousness, discipline and credibility. Research on small private companies in the UK has reported that companies which voluntarily retained audits experienced improved credit ratings, while those that opted out experienced deterioration.

The broader message is clear: an audit can do more than satisfy a legal requirement.

4. Audit can still matter for investors, tenders and minority shareholders

Potential investors and buyers often place more weight on financial statements that have been independently examined. Tender submissions may be strengthened where the business can present audited financial information. And where there are minority shareholders not involved in daily management, audit provides reassurance that the numbers have been independently reviewed.

For companies that tender – particularly for government contracts – audited financial statements may not just be useful. They may be required. Many government agencies and statutory boards in Singapore require tenderers to submit audited accounts as part of the evaluation process. This is used to assess the financial health, stability and credibility of the tendering company before awarding a contract. A company that is audit-exempt but actively tendering may therefore find that it still needs an audit in practice – not because the Companies Act requires it, but because the procuring body does. Even for private-sector tenders, presenting audited financial statements can strengthen a submission by demonstrating transparency, financial discipline and independent verification of the company’s reported position.

In short: if your company tenders for work – especially government work – audit exemption on paper may not translate to audit exemption in practice.

5. Audit can strengthen internal discipline

A company that knows its records will be examined externally is more likely to keep proper documentation, resolve accounting issues early, and maintain a higher standard of financial reporting. That practical benefit should not be overlooked – especially for businesses that want to grow with sound governance.

So where is audit heading?

The more interesting question is not whether audit is disappearing, but how its role is changing.

If Singapore widens audit exemption, statutory audit may become less universal at the lower end of the market. But that does not mean audit becomes irrelevant. Rather, audit may become more targeted and more stakeholder-driven – remaining particularly relevant where there are lenders, investors, minority shareholders, tender requirements, group reporting needs, or other forms of external reliance on the financial statements.

The future of audit may be less about blanket compliance and more about where independent assurance adds real value.

A possible impact on the audit profession

This policy shift may also have consequences for the profession. If the number of mandatory small-company audits declines, firms that depend heavily on this segment may face pressure to adapt – whether through diversification into tax, accounting, special-purpose assurance, grant certifications and regulated-sector work, or through mergers and closer alliances. The result could be a more concentrated audit market over time, with fewer firms focused on routine small-company statutory audits and more firms moving toward specialised assurance and advisory work. We will explore the implications for audit firms and the profession in a separate article.

A note for graduates considering audit as a career

If you are a graduate exploring audit as a career path, this shift does not mean fewer opportunities. It means the profession is evolving. Demand remains strong for professionals who understand assurance, risk, internal controls, and stakeholder trust. Many sectors still require audits, certifications, and regulated assurance work – from charities and MAS-regulated entities to government grants and tourism licence renewals – well beyond routine statutory SME audits. We will discuss this in more detail in a future article.

What should business owners ask now?

For SME owners, the practical question is not only whether the law may soon allow you to avoid an audit. The better question is whether your business would still benefit from one.

Some useful questions:

• Do we have minority shareholders?
• Are we seeking bank facilities or investor funding?
• Do we submit tenders?
• Are we part of a larger group?
• Do suppliers, customers, regulators or grant bodies rely on our financial statements?
• Would an audit improve our reporting discipline and governance?
• Are we planning to bring in investors or sell the business in the next few years?
• If there is no auditor reviewing our books, are we confident our directors are meeting their statutory obligations on accounting records and financial statements?

A company may become audit-exempt on paper and yet still find that audited financial statements remain commercially useful – and that professional support remains important for director protection.

Final thoughts

Singapore’s review of the audit exemption framework is timely. Thresholds do not remain appropriate forever, and business regulation should evolve with economic reality. The current review may be a sensible step in reducing compliance costs for some smaller businesses.

But the wider lesson is equally important. Reliable financial information still matters. And as ACRA strengthens enforcement expectations on directors, the removal of a mandatory audit does not remove the need for proper books, proper financial statements, and proper governance.

For some owner-managed companies, mandatory audit may matter less than before. For businesses with lenders, investors, minority shareholders, tender activity, regulatory exposure or group reporting needs, audit may continue to play a meaningful role. And for all directors, understanding that exemption from audit is not exemption from responsibility is essential.

So perhaps the future of audit is not smaller. Perhaps it is simply clearer.

If your company is assessing whether an audit remains beneficial – or how possible audit exemption changes may affect your financing, group structure, tenders or governance needs – speak with us at S C Mohan PAC.

We will be glad to help you evaluate both the legal position and the commercial value of audit for your business.

📞 +65 9144 1840 📧 admin@scmohan.com.sg | audit@scmohan.com.sg

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