Audit Exemption - Does Your Company Make the Cut? (Part 2 of 2)
- wupeicong11
- 7 hours ago
- 4 min read
Updated: 14 minutes ago
This article illustrates the applicability of the “small company concept” for audit exemption for a company which is part of a group.
Group’s Perspective
To be exempted from audit requirements, a parent company or subsidiary must be a “small company” and be part of a “small group”.
From a previous article, we know what is a “small company”. Now, the question is: What is a “small group”?
Quantitative Criteria
A group is considered small if for the immediate past 2 consecutive financial years, at least 2 of the following 3 criteria are met:
Consolidated annual revenue ≤ S$10 million
Consolidated total assets ≤ S$10 million
Number of full-time employees (Group) as at the end of the financial year ≤ 50
If the current financial year is FY2X23, the immediate past 2 consecutive financial years are FY2X21 and FY2X22.
Quantitative Criteria – Continuing Qualification
Where a group has qualified as a small group, it continues to be a small group until it is disqualified. A group is disqualified and not considered small if it fails to meet the Quantitative Criteria for the immediate past 2 consecutive financial years.
Computation of Consolidated Figures
You would notice that the above Quantitative Criteria are quite similar to the quantitative criteria used to assess whether a single company is small and whether the single company continues to qualify as small company.
While it is easy to identify or derive revenue and total assets of a single company, the manner to derive the consolidated revenue and consolidated total assets can differ depending on whether the ultimate parent company prepared the consolidated financial statements.
Before we explore this difference (i.e. Ultimate parent company: Prepared consolidated FS vs Did not prepare consolidated FS), let’s consider the following:
Foreign entities
Although the audit exemption only applies to Singapore incorporated companies, for the purposes of determining whether the group to which a company belongs is a small group, all entities within that group, including foreign entities, are taken into account when computing the consolidated revenue, total assets and number of employees.
Associates and joint ventures ("JVs")
According to SFRS 110, associates and JVs are not part of a group and are not taken into account when computing the consolidated revenue, assets and number of employees.
Associates and JVs are not consolidated into the group accounts line-by-line. Under SRFS 28, cost of investment is recognised at cost in ‘Investment in associate and joint venture’ (balance sheet) and this carrying amount is then increased or decreased to recognise the parent company’s share of profit or loss and dividends received in subsequent years. ‘Investment in associate and joint venture’ need not be excluded from the computation of total assets.
Ultimate parent level
Apply the assessment criteria at the ultimate parent level, not just at the immediate parent or intermediary level. Also, when deciding how the consolidated figures are computed, we first look at whether the ultimate parent company prepared or did not prepare the consolidated financial statements.
Illustration
Let’s consider the following group entities:
Ultimate parent | Immediate parent | Subsidiary | Associate | |
Revenue (S$'000) | 3,000 | 3,500 | 6,000 | 1,000 |
Total assets (S$'000) | 4,500 | 5,000 | 1,000 | 100 |
Number of full-time employees | 5 | 18 | 23 | 10 |
Ultimate parent company – Consolidated FS Prepared
Where the ultimate parent company has prepared consolidated financial statements, the “consolidated revenue” and “consolidated assets” per financial statements (which would be after intragroup elimination) shall be used.
Ultimate parent company – Consolidated FS Not Prepared
Where the consolidated financial statements of the ultimate parent company is not prepared, the consolidated revenue and assets shall be the aggregation of revenue and assets of all group entities.
Easy As 1, 2, 3: Steps to derive the consolidated revenue and assets
Identify the ultimate parent company
Check whether consolidated financial statements of the ultimate parent company are prepared.
Yes, consolidated FS prepared >>> Derive consolidated figures from consolidated FS
No, consolidated FS not prepared >>>>
Identify group entities (Including foreign entities and excluding associates and JVs)
Aggregate/ Add across revenue and assets of all group entities (without eliminating intragroup transactions and balances)
