Conducting a company audit is an essential process for ensuring compliance with financial regulations, providing transparency, and enhancing trust with stakeholders. In Singapore, businesses, especially those that are private limited companies, must adhere to specific legal requirements regarding audits. Understanding the steps involved in executing a company audit Singapore can help ensure a smooth process, avoid penalties, and improve the overall financial health of your business.
In this guide, we’ll take you through the essential steps required to execute a company audit in Singapore, from understanding the legal obligations to finalizing the audit report.
1. Understand the Legal Requirements for Audits in Singapore
Before you begin the audit process, it’s important to familiarize yourself with the legal framework governing company audits in Singapore. The Singapore Companies Act and regulations set out specific rules regarding audits for different types of businesses.
Key points to note:
- Mandatory Audit Requirements: Singapore companies are generally required to have their financial statements audited unless they qualify for audit exemptions. Exemptions apply to small companies, defined as those meeting at least two of the following criteria for the past two consecutive financial years:
- Revenue of S$10 million or less
- Total assets of S$10 million or less
- 50 or fewer employees
- Public Companies: Public companies, including listed entities, are required to undergo annual audits regardless of their size.
- Audit Exemption: A private limited company that qualifies as a small company can apply for an audit exemption, but it must file a declaration with the Accounting and Corporate Regulatory Authority (ACRA) to claim the exemption.
If your company doesn’t meet the exemption criteria, an audit is mandatory, and you must appoint an external auditor to conduct the audit.
2. Engage an External Auditor
The next step is to engage a qualified external auditor who will be responsible for carrying out the audit. The auditor must be a public accountant registered with the Accounting and Corporate Regulatory Authority (ACRA).
Key things to consider when choosing an auditor:
- Audit Experience: Look for an auditor with experience in auditing businesses of your size and in your industry. Industry-specific knowledge can improve the quality of the audit process.
- Reputation and Credentials: Ensure the auditor or auditing firm is reputable, well-established, and registered with ACRA.
- Fees: Discuss and agree on the fees upfront. Fees for audits vary depending on the complexity of the company’s financials, size, and industry.
The external auditor will be responsible for verifying the company’s financial statements, ensuring compliance with accounting standards, and identifying any discrepancies or issues.
3. Prepare Financial Records and Documents
Before the auditor begins their work, it’s crucial that your company prepares all the necessary financial records and documents for review. This ensures a smooth audit process and reduces the chances of delays or issues arising.
Documents that should be prepared include:
- Balance Sheet: A statement of the company’s assets, liabilities, and equity.
- Income Statement: A summary of the company’s revenues, expenses, and profits over a specific period.
- Cash Flow Statement: A report that outlines the cash inflows and outflows from operating, investing, and financing activities.
- General Ledger: A detailed record of all financial transactions, including debits and credits.
- Bank Statements: Reconciled bank statements for the audit period.
- Tax Filings: Previous tax returns and any correspondence with tax authorities.
Your finance team should ensure that all records are up-to-date and accurate. Any discrepancies or missing information could result in audit delays and additional costs.
4. Conduct the Fieldwork and Audit Procedures
Once the financial documents are ready, the auditor will begin the fieldwork phase. This involves reviewing the company’s financial statements, accounting records, internal controls, and other related information. The auditor will verify the accuracy and completeness of the financial records and perform tests to assess the company’s financial health.
Key audit procedures include:
- Substantive Testing: The auditor tests transactions, balances, and controls to verify the financial statements.
- Verification of Assets and Liabilities: The auditor checks physical assets, inventory, and liabilities, such as loans or accounts payable, to ensure accuracy.
- Internal Controls Review: The auditor assesses the effectiveness of the company’s internal controls to ensure proper financial management and prevent fraud.
- Fraud Detection: If any inconsistencies or red flags are identified, the auditor will investigate further to determine whether fraudulent activities have occurred.
During this stage, the auditor may also request additional information, conduct interviews with management, or perform other procedures to gather sufficient evidence for forming an opinion on the financial statements.
5. Communicate with Management
Throughout the audit process, the external auditor will communicate with the company’s management to clarify any issues, discrepancies, or concerns that arise. This ongoing communication is critical for ensuring the accuracy of the audit and addressing any potential challenges.
Some key points of communication may include:
- Initial Planning: Before the audit begins, the auditor and management should discuss the scope, timeline, and any potential challenges.
- Interim Findings: If the auditor encounters any concerns or issues during the fieldwork, they will notify management and request clarifications.
- Final Review: After completing the fieldwork, the auditor will present the audit findings to management for review and discussion.
This collaborative process ensures that any necessary adjustments are made before the final audit report is issued.
6. Draft and Review the Audit Report
Once the auditor has completed the fieldwork and confirmed the accuracy of the financial records, they will draft the audit report. The audit report provides an opinion on the fairness and accuracy of the company’s financial statements, based on the auditor’s findings.
The auditor may issue one of the following types of audit opinions:
- Unqualified Opinion (Clean Report): This indicates that the financial statements present a true and fair view, in accordance with accounting standards.
- Qualified Opinion: This suggests that there are some exceptions or limitations in the financial statements, but they do not significantly affect the overall fairness.
- Adverse Opinion: This indicates that the financial statements do not present a true and fair view of the company’s financial position.
- Disclaimer of Opinion: This occurs when the auditor is unable to form an opinion due to insufficient information or scope limitations.
Once the audit report is drafted, it should be reviewed by both the auditor and company management. Any discrepancies or issues identified should be addressed before the final report is issued.
7. Finalization and Filing of the Audit Report
After the audit report has been finalized, the auditor will submit it to the company’s board of directors for approval. The report must be signed off by the auditor and delivered to stakeholders, such as shareholders, investors, and the Accounting and Corporate Regulatory Authority (ACRA), if required.
For companies required to file their audited financial statements with ACRA, the audit report must be submitted as part of the annual filing process. Companies must file their financial statements within 30 days after the company’s annual general meeting (AGM).
In addition, companies must ensure compliance with the Singapore Financial Reporting Standards (SFRS) or International Financial Reporting Standards (IFRS), depending on the size and nature of the company.
8. Review the Audit Findings and Implement Improvements
After the audit report is submitted, it’s important for management to review the findings and address any issues or weaknesses identified during the audit. If any internal control weaknesses, fraud risks, or errors were discovered, management should implement corrective actions to strengthen financial management processes.
A post-audit review meeting between management and the auditor is often a good idea to discuss any recommendations and ensure that the company is prepared for future audits.
Conclusion
Executing a company audit in Singapore is a multi-step process that requires careful preparation, collaboration, and adherence to legal requirements. By understanding the process, engaging the right auditor, preparing accurate financial records, and maintaining open communication throughout, you can ensure a smooth and efficient audit. Audits from Koh Lim Audit not only fulfill legal obligations but also provide valuable insights into the financial health of your company, offering opportunities to enhance business operations, improve internal controls, and build trust with stakeholders.
