A major amendment has just been announced by ACRA effective from 1 July 2015 relating to the requirement of audit exemption for small companies.
Currently, one of the major consideration for companies that are considered an exempt private company from audit are companies with annual revenue of $5 million or less for the financial year. However, as mentioned above, effective from 1 July 2015, there was a major revamp on the actual definition of exempt private companies. Now comes the term of “small company” concept.
What is exactly deemed a small company? The qualification criteria is as follows :-
(a) it is a private company in the financial year in question; and
(b) it meets at least 2 of 3 following criteria for immediate past two financial years:
(i) total annual revenue ≤ $10m;
(ii) total assets ≤ $10m;
(iii) no. of employees ≤ 50.
For a company which is part of a group:
(a) the company must qualify as a small company; and
(b) entire group must be a “small group”
to qualify to the audit exemption.
For a group to be a small group, it must meet at least 2 of the 3 quantitative criteria on a consolidated basis for the immediate past two consecutive financial years.
Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified. A small company is disqualified if:
(a) it ceases to be a private company at any time during a financial year; or
(b) it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Where a group has qualified as a small group, it continues to be a small group for subsequent financial years until it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Existing safeguards will remain, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts
While it is a good intention by the regulatory body to attempt to reduce costs for smaller companies, I can only envision chaos in the subsequent implementation especially in the first few years. I can’t possibly imagine companies having to do audit one year and the next none and perhaps the following year after next going back to audit. The amount of opening balance checks alone by auditors that is required for such see-saw scenarios can only be chaotic and costly for these companies.
This does not account for the danger of the rice bowls of existing smaller audit firms that generally feeds on scraps thrown off the table by the bigger boys. The existing market share which are already very competitive would dwindle down further due to the implementation of the new legislation. I foresee a lot of half retired audit partners will go into full retirement. Smaller firms will either merge or totally go out of business. Perhaps an industry consolidation will eventually push the audit firms to operate even more efficiently? Or a standout firm somewhere will introduce a disruptive innovation to the audit industry?
Only time will tell.
But, all in all, if you are still looking for an audit firm to cater to your audit needs, look for me, and we’ll sort you out.. literally. Call +65 9648 1937 and let Bob deal with your needs.