In Singapore, statutory audits are a crucial aspect of financial and corporate compliance, mandated under the Companies Act. Whether you are a business owner, finance manager, or startup founder, understanding what a statutory audit entails and why it matters can help you maintain good governance, ensure regulatory compliance, and build stakeholder confidence.
This article provides an in-depth overview of what a statutory audit is in Singapore, who needs one, what it involves, and why it is important for the sustainability and credibility of a business.
What Is a Statutory Audit?
A statutory audit is an independent examination of a company’s financial statements to ensure accuracy, reliability, and compliance with applicable laws, particularly the Singapore Financial Reporting Standards (SFRS) and Companies Act 1967.
The purpose of a statutory audit is to provide assurance to shareholders, regulators, and other stakeholders that the financial statements present a true and fair view of the company’s financial performance and position.
Unlike internal audits or special-purpose audits (like due diligence or forensic audits), statutory audits are legally required for companies that exceed certain thresholds in Singapore.
Who Is Required to Conduct a Statutory Audit in Singapore?
Under Section 205 of the Companies Act, a company incorporated in Singapore must appoint an auditor within 3 months of incorporation unless it qualifies as a small company.
To be exempt from statutory audits, a company must meet the following “small company” criteria:
-
It must be a private company throughout the financial year.
-
It must meet at least two out of three of the following:
-
Total annual revenue ≤ S$10 million
-
Total assets ≤ S$10 million
-
Number of employees ≤ 50
-
For group companies, the entire group must qualify as a small group by meeting the same criteria on a consolidated basis.
If the company or group does not qualify as a small company, a statutory audit is mandatory.
What Does a Statutory Audit Involve?
The statutory audit process is rigorous and follows clearly defined phases:
1. Planning and Risk Assessment
Auditors begin by understanding your business, its operations, accounting systems, and internal controls. This phase helps identify key areas of financial and operational risk.
2. Fieldwork
During fieldwork, auditors review your company’s financial records, accounting entries, invoices, bank statements, contracts, and other relevant documents. They may also interview key personnel.
3. Testing and Verification
Auditors perform sampling tests and apply procedures to verify that the financial data is accurate and compliant with SFRS. This includes vouching for income and expenses, confirming receivables and payables, and checking inventory.
4. Preparation of Audit Report
After completing the audit work, the auditors issue an audit report which states whether the financial statements give a true and fair view of the company’s financial health.
This report is then submitted to the company and filed with the Accounting and Corporate Regulatory Authority (ACRA) along with the company’s annual return.
Why Is a Statutory Audit Important?
✅ 1. Legal Compliance
For companies that do not qualify as a small company, a statutory audit is compulsory. Failing to comply with this requirement can lead to penalties and enforcement actions by ACRA.
✅ 2. Financial Transparency
A statutory audit ensures your company’s financial statements are credible, accurate, and reflect the true state of affairs. This enhances trust among stakeholders including investors, suppliers, creditors, and banks.
✅ 3. Investor and Lender Confidence
Audited financial statements are often a prerequisite when seeking investment, applying for grants, or securing bank loans. Lenders and investors want assurance that your financials are not misstated.
✅ 4. Detection of Errors or Fraud
Through independent verification, auditors may uncover internal control weaknesses, unrecorded liabilities, fraudulent activities, or accounting mistakes that might otherwise go unnoticed.
✅ 5. Facilitates Better Decision-Making
With reliable audited financials, business owners and directors can make more informed decisions regarding budgeting, growth strategy, resource allocation, and risk management.
Common Challenges in Statutory Audits
Even though statutory audits add immense value, many companies face challenges such as:
-
Lack of preparedness (missing or incomplete documents)
-
Unreconciled accounts
-
Complex group structures
-
Late submissions and filings
-
Poor documentation of internal controls
To overcome these, it’s advisable to maintain proper bookkeeping throughout the year and engage auditors early to align expectations and timelines.
Choosing the Right Statutory Auditor
When appointing an auditor, companies should select an Audit Firm registered with ACRA, such as a Public Accounting Corporation (PAC) or Public Accountant.
Consider factors like:
-
Auditor’s reputation and track record
-
Industry experience (especially if your company operates in a regulated industry)
-
Fee structure
-
Responsiveness and communication
-
Timeliness and reliability
A good audit firm will not only ensure compliance but also offer constructive insights to help improve your financial reporting and internal controls.
Filing Obligations After a Statutory Audit
Once the audit is complete, the company must:
-
Hold an AGM (Annual General Meeting) to present the audited financial statements to shareholders (unless exempt).
-
File the Annual Return with ACRA, including the audited financial statements (in XBRL format for most companies).
-
Retain records for at least 5 years for audit trail and regulatory purposes.
Non-compliance may result in fines or even prosecution under the Companies Act.
Conclusion
In Singapore’s tightly regulated business environment, statutory audits are not just a formality — they are a vital tool for ensuring financial accountability and business sustainability.
Whether your company is scaling up, attracting investors, or planning for future growth, a statutory audit gives your stakeholders confidence in your financial reporting and helps you meet regulatory obligations with integrity.
If your business has crossed the audit exemption threshold, it’s time to consult a licensed audit firm in Singapore and begin your audit preparation early. The benefits of transparency, trust, and compliance far outweigh the effort involved.
