Audit Exemption

An audit exemption is a provision in company law that allows certain companies to be excused from the statutory requirement of having their financial statements independently audited. This exemption is primarily aimed at reducing the regulatory burden and compliance costs for small and medium-sized enterprises (SMEs).

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Instead of a full audit, these companies typically submit unaudited financial statements to the relevant authorities. While exempt from the audit, they are still required to maintain accurate financial records and prepare financial statements that comply with accounting standards.

Who Qualifies for an Audit Exemption?

The criteria for audit exemption vary by jurisdiction. A common approach, as seen in Singapore, is the “small company” concept. A company qualifies as a small company and is therefore exempt from audit if it meets at least two of the following three criteria for the immediate past two consecutive financial years:

• Total annual revenue is not more than S$10 million.
• Total assets are not more than S$10 million.
• The number of employees is not more than 50.

For a company that is part of a group, to qualify for the audit exemption, the company itself must qualify as a small company, and the entire group must be considered a “small group.” A small group meets at least two of the three criteria mentioned above on a consolidated basis for the immediate past two consecutive financial years.

Additionally, dormant companies, which have had no significant accounting transactions during a financial year, are also typically exempt from audit requirements.