A company’s financial statement lacks credibility in Singapore without an independent audit by a professional firm.

The audit ensures transparency, accuracy, and compliance with accounting standards and legal regulations, providing investors and stakeholders with confidence in the company’s financial health and operations

Here are detailed reasons to engage an External Financial Auditor for a company:

• Independent Assessment: An external financial auditor provides an independent assessment of a company’s financial statements. This independence ensures objectivity and credibility in evaluating the financial position and performance of the company.
• Credibility and Transparency: Having an external auditor review financial statements enhances their credibility and transparency. Stakeholders such as investors, lenders, and regulators rely on audited financial statements to make informed decisions about the company.
• Compliance: External auditors ensure that the company complies with accounting standards, regulations, and legal requirements. This helps in avoiding penalties, litigation, and reputational damage due to non-compliance.
• Risk Mitigation: Auditors identify and assess financial risks faced by the company. By highlighting potential risks and weaknesses in internal controls, auditors help management take proactive measures to mitigate these risks.
• Stakeholder Confidence: Audited financial statements instill confidence in stakeholders, including investors, creditors, employees, and customers. They provide assurance regarding the accuracy and reliability of financial information presented by the company.
• Management Insights: External auditors provide valuable insights and recommendations to management based on their audit findings. These insights can help improve financial processes, internal controls, and overall business operations.
• Due Diligence: In cases of mergers, acquisitions, or partnerships, external audits facilitate due diligence processes. They provide potential investors or partners with a clear understanding of the company’s financial health and potential risks.
• Regulatory Compliance: Many regulatory bodies require companies to undergo external audits, especially for publicly traded companies and financial institutions. Compliance with these regulatory requirements is essential to avoid legal issues and maintain a good standing in the market.
• Fraud Detection: External auditors play a crucial role in detecting fraud or financial irregularities within the company. Their thorough examination of financial records and transactions helps uncover any discrepancies or fraudulent activities.
• Investor Relations: For publicly listed companies, audited financial statements are vital for maintaining positive investor relations. They demonstrate transparency, accountability, and a commitment to financial integrity, which can attract more investors and support stock performance.

Overall, engaging an external financial auditor brings numerous benefits, ranging from enhanced credibility and compliance to risk management and stakeholder confidence.

The statutory requirements for financial auditing in Singapore are governed by several key regulations and standards. Here are the detailed statutory requirements for financial auditing in Singapore:

• Companies Act (CA): The Companies Act of Singapore mandates that all companies, including private limited companies, public companies, and foreign companies operating in Singapore, must have their financial statements audited annually. The financial statements include the balance sheet, income statement, cash flow statement, and statement of changes in equity.
• Accounting Standards: Singapore’s financial reporting framework is based on the Singapore Financial Reporting Standards (SFRS), which are largely aligned with International Financial Reporting Standards (IFRS). Companies are required to prepare their financial statements in accordance with these accounting standards, ensuring consistency, comparability, and transparency in financial reporting.
• Auditor Appointment: The Companies Act stipulates that an external auditor must be appointed within three months of a company’s incorporation or within the first Annual General Meeting (AGM) after incorporation. The auditor’s appointment must be ratified by the company’s shareholders at each AGM.
• Auditor Qualifications: Auditors in Singapore must be certified public accountants (CPAs) registered with the Accounting and Corporate Regulatory Authority (ACRA). They must possess the necessary expertise, competence, and independence to conduct audits objectively and impartially.
• Audit Independence: External auditors must maintain independence and avoid conflicts of interest when auditing a company’s financial statements. They should not have any financial or personal relationships that could compromise their objectivity or integrity.
• Audit Planning and Procedures: Auditors are required to plan and perform audits in accordance with the Singapore Standards on Auditing (SSAs). This includes assessing the company’s internal controls, risk factors, materiality thresholds, and sampling methods to obtain sufficient and appropriate audit evidence.
• Audit Reporting: Upon completion of the audit, the external auditor is required to issue an audit report expressing an opinion on the fairness and accuracy of the company’s financial statements. The audit report should comply with the requirements of the Companies Act, SSAs, and other relevant auditing standards.
• Fraud and Error Detection: Auditors have a responsibility to detect and report any instances of fraud, errors, or irregularities during the audit process. They must exercise professional skepticism, perform fraud risk assessments, and conduct audit procedures to identify potential fraudulent activities.
• Going Concern Assessment: Auditors must assess the company’s ability to continue operating as a going concern for the foreseeable future. If there are significant doubts about the company’s ability to remain solvent, auditors are required to disclose these concerns in their audit report.
• Audit Documentation: Auditors must maintain comprehensive audit documentation, including work papers, supporting schedules, analytical procedures, and audit findings. These documents serve as evidence of the audit work performed and support the auditor’s conclusions and opinions.
• Ethical Standards: Auditors are bound by ethical standards set by the Singapore Accountancy Commission (SAC) and the Institute of Singapore Chartered Accountants (ISCA). They must adhere to principles of integrity, objectivity, confidentiality, and professional behavior throughout the audit engagement.
• Regulatory Compliance: In addition to the Companies Act and accounting standards, auditors must comply with other regulatory requirements and guidelines issued by ACRA, the Monetary Authority of Singapore (MAS), and other regulatory bodies relevant to specific industries or sectors.

By adhering to these statutory requirements and professional standards, external auditors play a crucial role in ensuring the accuracy, reliability, and transparency of financial reporting in Singapore’s business environment.

If a company is privately owned and meets exemption requirements, including annual revenue of not more than 5 million SGD, it is not obligated to conduct annual financial audits.

However, ACRA’s new small company status has become the standard for determining exemption eligibility, where the company must be privately owned in the financial year applying, have met at least two of these three requirements in the last two consecutive years:

• Total employees numbering fifty or fewer,
• Annual revenue of 10 million SGD or less,
• Assets worth 10 million SGD or less.

Additionally, a group company qualifies for exemption if the entire group meets the “small company” requirements and fulfills at least two of the three specified criteria.

Once qualified, a company retains small company status for subsequent financial years unless disqualified due to reasons such as transitioning from private to public or failing to meet two of the mentioned requirements.

There are three types of audits:

• Internal,
• External,
• Inland Revenue Authority of Singapore (IRAS).

The key difference between internal and external financial audits is that internal audits are conducted by in-house or contracted auditors, with the report submitted directly to the board of directors or management.

In contrast, external audits are requested by stakeholders in a public company and are conducted by an independent audit firm, with the findings’ report submitted to shareholders, enhancing the credibility of a company’s financial statements.

Additionally, IRAS conducts routine audits on companies or individuals suspected of non-compliance with tax returns or other obligations.

The process for financial auditing in Singapore typically follows these steps:

• Engagement: The auditor is engaged by the company’s management or board of directors to conduct the audit. This involves discussing the scope, objectives, and timelines of the audit, as well as any specific areas of focus.
• Planning: The auditor plans the audit by understanding the business operations, identifying key risks, and designing audit procedures to address those risks. This includes determining the materiality threshold for detecting errors or fraud.
• Risk Assessment: The auditor assesses the internal controls of the company to understand the risk of material misstatement in the financial statements. This involves evaluating the design and implementation of controls related to financial reporting.
• Testing: The auditor performs substantive tests and tests of controls to gather evidence about the accuracy and completeness of the financial statements. This includes sampling transactions, verifying account balances, and testing compliance with accounting standards and regulations.
• Reporting: Once the testing is complete, the auditor prepares a report that includes the audit opinion. The audit opinion states whether the financial statements are presented fairly, in all material respects, and in accordance with the applicable accounting standards and regulations.
• Communication: The auditor communicates the audit findings and recommendations to the company’s management or board of directors. This may include discussing any weaknesses in internal controls, areas for improvement, or instances of non-compliance.
• Follow-Up: After the audit, the auditor may follow up on any outstanding issues or recommendations from previous audits. This ensures that corrective actions are taken and that the company’s financial reporting processes are continuously improved.

It’s important to note that the specific process may vary depending on the size and complexity of the company, as well as any regulatory requirements or industry standards that apply.