Date Published: 31 March 2021
Authors: Quek Li Fei and Sean Tan.
The Companies Act (Cap. 50) (“CA”) requires directors of a newly incorporated company to appoint an auditor for the company within 3 months of the company’s incorporation. However, for owners of a new company, the statutory obligation to appoint an auditor may not be practicable if, for instance, a company has been incorporated far in advance, before the commencement of its operations and the requirement to appoint auditors within that time frame would incur higher compliance costs. This article summarises an option available in such circumstances.
Update
The Companies (Amendment) Act 2014 introduced key reforms to the criteria for audit obligations under the CA. The concepts of a small company and a small group were enacted and provide an exemption to general audit regulatory obligations.
In order to qualify as a small company, a private company needs to fulfil at least two of the following three quantitative criteria in each of its immediate past two consecutive financial years, or if the company is newly incorporated, for its first financial year after incorporation:
- its total annual revenue does not exceed S$10 million;
- its total assets do not exceed S$10 million; or
- it has, at the end of each financial year, not more than 50 employees.
There is, separately, also an overarching requirement for the company to remain a private company.
However, if a company seeking to rely on this audit exemption is part of a group of companies, the entire group will also have to qualify as a small group in order for the company to avail itself of the audit exemption.
In order to qualify as a small group, the group needs to fulfil similar criteria, aggregated across the group. Specifically, the group needs to satisfy any two of the following three quantitative criteria in each of its past two consecutive financial years, or if the group is newly formed, for its first financial year after formation:
- the group’s consolidated revenue does not exceed S$10 million;
- the group’s consolidated total assets do not exceed S$10 million; or
- the group has, at the end of each financial year, an aggregate number of not more than 50 employees.
In this regard, the total revenue and total assets of a company are determined according to the Accounting and Corporate Regulatory Authority’s fiscal reporting standards.
Should a company cease to be eligible for the audit exemption at any time after the last date of the three-month window after incorporation for a company to appoint an auditor, the company will be required under section 205A(2) of the CA to appoint an auditor before the next annual general meeting and the said auditor shall hold office until the conclusion of that annual general meeting.
In addition, a company that does not comply with its audit obligations under the CA without meeting the relevant exemption will, together with its directors, be guilty of an offence and shall be liable on conviction to a fine not exceeding S$5,000.
Disclaimer: This update is provided to you for general information and should not be relied upon as legal advice. The editor and the contributing authors do not guarantee the accuracy of the contents and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents.
Every business involves an amalgam of various stakeholders, such as investors, shareholders and directors. Ideally, each of these stakeholders should have a common vision of what is best for the company. However, this is rarely the case when individual interests are factored into the equation.
Stakeholder conflicts (regarding issues such as breaches of fiduciary duties, derivative actions, shareholder oppression, management deadlocks, management compensation, dividend payments and buy-outs) can be a thorny issue and can leave a company crippled if not addressed promptly.
Given the diversity of interests at play, we appreciate that a multi-faceted approach is usually the most cost-efficient method of resolving stakeholder conflicts. Therefore, we provide clients with ready access to an integrated team of lawyers (combining the experience of our corporate, dispute resolution and employment law practices where applicable) who will effectively engage the relevant stakeholders in discussions on how best to resolve their differences amicably.
More often than not, clients are able to avoid costly protracted court proceedings and resolve stakeholder conflicts with discretion and expediency.
We advise both private and public (whether listed or non-listed) companies on corporate governance and compliance issues to help them acclimatise and thrive in a regulatory landscape that is becoming increasingly complex.
Besides providing general advice on director duties and corporate secretarial matters, we help our clients better appreciate the licensing and compliance regimes applicable to the industries that they operate in and review our clients’ administrative and operational procedures for consistency with industry standards.
