How Do I Know If My Company is Exempt From Audit
With the new amendments to the Companies Act effective 1 July 2015, the rules on how to assess if a company is exempt from audit has changed significantly. Previously, a company is exempt from audit if the company has less than 20 shareholders, does not have any corporate shareholder, and has annual turnover below S$5M. With the law amendments, a private company is now classified as a Small Company if the company can meet any TWO of the following THREE critieria (“Qualifying Conditions”) in each of the immediate past two financial years:
- Total annual revenue not exceeding S$10 million
- Total assets not exceeding S$10 million
- Number of employees of not more than 50
Once classified as a Small Company, the company will remain as a Small Company unless it has been DISQUALIFIED as a Small Company.
A Company will be disqualified as a Small Company if it DOES NOT MEET the above 2 out of 3 criteria in each of the immediate past two financial years.
In a nutshell, a Company is CLASSIFIED as a Small Company if it meets the Qualifying Conditions for both of the last 2 financial years and will remain as a Small Company until it is disqualified because it cannot meet the Qualifying Conditions for both of the last 2 financial years.
FOR NEW COMPANIES INCORPORATED AFTER 1 JUL 2015
A new company incorporated on or after 1 Jul 2015 can qualify as a “small company” if it is a private company and meets the quantitative criteria in its first or second FY after incorporation.
You may refer to the Scenarios During Transition Period below for determining if a Newly Incorporated Company can be considered a Small Company.
TRANSITIONAL PROVISIONS
An existing company can qualify as a “small company” if it is a private company and meets the quantitative criteria in the first or second FY commencing on or after the date of commencement of the “small company” criteria (1 July 2015).
The following illustrations will explain whether a Company is exempt from audit of its accounts over the years.
Scenarios During Transition Period
| Transitional Provisions
Scenario 1 |
FY2015 |
FY2016 | FY2017 | FY2018 | FY2019 |
FY2020 |
| Meets quantitative criteria |
Yes
|
No
|
Yes
|
No
|
No
|
Yes
|
| Qualifies as a “small company” |
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
No
|
| Remarks |
FY 2015 is the first FY after the commencement of the “small company” criteria. The company qualifies as a “small company” as it is a private company and meets the quantitative criteria in FY 2015. |
As the company already qualified as a “small company” in FY 2015, it continues to be a “small company” despite not meeting the quantitative criteria in FY 2016. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding FY 2016. | The company already qualified as a “small company” in FY 2015 and is not disqualified. It is not disqualified as it has only failed to meet the quantitative criteria for one of the two preceding FYs (that is, FY 2016) /td> | As the company already qualified as a “small company” in FY 2015, it continues to be a “small company” despite not meeting the quantitative criteria in the current FY and for one of the two preceding FYs.. | As the company already qualified as a “small company” in FY 2015, it continues to be a “small company” despite not meeting the quantitative criteria in the current FY and for one of the two preceding FYs.. |
Although the company meets the quantitative criteria in the current FY, it is disqualified because it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY (that is, FY 2018 and FY 2019). |
| Transitional Provisions
Scenario 2 |
FY2015 |
FY2016 | FY2017 | FY2018 | FY2019 |
FY2020 |
| Meets quantitative criteria |
No
|
Yes
|
Yes
|
No
|
No
|
Yes
|
| Qualifies as a “small company” |
No
|
Yes
|
Yes
|
Yes
|
Yes
|
No
|
| Remarks |
FY 2015 is the first FY after the commencement of the “small company” criteria. The company does not qualify as a “small company” as it does not meet the quantitative criteria in FY 2015. |
FY 2016 is the second FY after the commencement of the “small company” criteria. The company qualifies as a “small company” as it is a private company and meets the quantitative criteria in FY 2016 (that is, FY 2015 is not taken into consideration). | The company continues to be a “small company” as it qualified as a “small company” in FY 2016 and is not disqualified. It is not disqualified as it has only failed to meet the quantitative criteria for one of the two preceding FYs. | As the company already qualified as a “small company” in FY 2016, it continues to be a “small company” despite not meeting the quantitative criteria in the current FY. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY. | As the company already qualified as a “small company” in FY 2016, it continues to be a “small company” despite not meeting the quantitative criteria in the current FY and for one of the two preceding FYs. |
Although the company meets the quantitative criteria in the current FY, the company is disqualified because it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY (that is, FY 2018 and FY 2019). |
Three scenarios to explain the applicability of the new “small company” criteria (After Transition Period)
First Scenario:
(i) Company meets the quantitative criteria in FY 2015 and FY 2016;
(ii) Company is a “small company” in FY 2016.
| Application of Law
Scenario 1 |
FY2017 |
FY2018 | FY2019 | FY2020 | FY2021 |
FY2022 |
| Meets quantitative criteria |
Yes
|
No
|
Yes
|
No
|
No
|
Yes
|
| Qualifies as a “small company” |
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
No
|
| Remarks |
The company already qualified as a “small company” and is not disqualified. |
As the company already qualified as a “small company”, it continues to be a “small company” despite not meeting the quantitative criteria in the current FY. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY. | The company is not disqualified as it has only failed to meet the quantitative criteria for one of the two preceding FYs (that is, FY 2018) | Although the company does not meet the quantitative criteria in the current FY, it continues to be a “small company” as it is not disqualified. It is not disqualified as it has only failed to meet the quantitative criteria for one of the two preceding FYs. | Although the company does not meet the quantitative criteria in the current FY, it continues to be a “small company” as it is not disqualified. It is not disqualified as it has only failed to meet the quantitative criteria for one of the two preceding FYs. |
Although the company meets the quantitative criteria in the current FY, it is disqualified because it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY (that is, FY 2020 and FY 2021). |
Second Scenario:
(i) Company does not meet the quantitative criteria in FY 2015 and FY 2016;
(ii) Company is NOT a “small company” in FY 2016.
| Application of Law
Scenario 2 |
FY2017 |
FY2018 | FY2019 | FY2020 | FY2021 |
FY2022 |
| Meets quantitative criteria |
Yes
|
Yes
|
Yes
|
No
|
No
|
Yes
|
| Qualifies as a “small company” |
No
|
No
|
Yes
|
Yes
|
Yes
|
No
|
| Remarks |
As the company does not meet the quantitative criteria in the two consecutive preceding FYs (that is, FY 2015 and FY 2016), it does not qualify as a “small company” in FY 2017 even though it meets the quantitative criteria in the current FY. |
As the company only meets the quantitative criteria in one of the two preceding FYs, it does not qualify as a “small company” in FY 2018. | The company qualifies as a “small company” as it meets the quantitative criteria in the two consecutive FYs preceding the current FY (that is, FY 2017 and FY 2018). | As the company already qualified as a “small company”, it continues to be a “small company” despite not meeting quantitative criteria in the current FY. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY. | As the company already qualified as a “small company”, it continues to be a “small company” despite not meeting quantitative criteria in the current FY. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY. |
Although the company meets the quantitative criteria in the current FY, it is disqualified because it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY (that is, FY 2020 and FY 2021). |
Third Scenario:
(i) Company meets the quantitative criteria in FY 2015 and FY 2016;
(ii) Company is a “small company” in FY 2016.
| Application of Law
Scenario 3 |
FY2017 |
FY2018 | FY2019 | FY2020 | FY2021 |
FY2022 |
| Meets quantitative criteria |
No
|
No
|
Yes
|
Yes
|
Yes
|
Yes
|
| Qualifies as a “small company” |
Yes
|
Yes
|
No
|
No
|
Yes
|
Yes
|
| Remarks |
As the company already qualified as a “small company”, it continues to be a “small company” despite not meeting quantitative criteria in the current FY. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY. |
As the company already qualified as a “small company”, it continues to be a “small company” despite not meeting quantitative criteria in the current FY. It will only be disqualified when it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY. | The company is disqualified because it fails to meet the quantitative criteria for two consecutive FYs preceding the current FY (that is, FY 2017 and FY 2018). | As the company does not meet the quantitative criteria in the immediate past two consecutive FYs (that is, FY 2018 and FY 2019), it does not qualify as a “small company” in FY 2020. | The company qualifies as a “small company” as it meets the quantitative criteria in the immediate past two consecutive FYs (that is, FY 2019 and FY 2020). |
continues to be a “small company” as it qualified as a “small company” in FY 2021 and is not disqualified. |
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