Audit Exemption for Exempt Private Companies with Revenue of $5 Million and Below

1. All exempt private companies (EPCs)^[1] annual revenue of $5 million and below will now be granted statutory audit exemption for financial periods starting on or after 1 June 2004. This means that EPCs with annual revenue of $5 million and below will no longer be required by law to have their accounts audited, for financial periods starting on or after 1 June 2004. The previous threshold for statutory audit exemption was set at $2.5 million of annual revenue.

2. The increase in the threshold will help more EPCs to lower the business costs. These companies can now decide based on their business requirements whether it is necessary to carry out audits on their financial statements. The law continues to require all companies to maintain proper accounting records and prepare "true and fair" financial statements that comply with prescribed accounting standards.

3. The increase in annual revenue threshold from $2.5 million to $5 million for the audit exemption for EPCs marks the second phase of the implementation of the recommendation by the private sector - led committee, the Company Legislation and Regulatory Framework Committee (CLRFC)^[2] in relation to the removal of statutory audit requirement for EPCs. The CLRFC submitted its final report to the government in October 2002 with a set of 77 recommendations. The government accepted all its recommendations.

4. The increase in the threshold is also in keeping with what was announced in 2003 at the Second Reading of the Companies (Amendment) Bill 2003 on 24 April 2003. At the Second Reading, Deputy Prime Minister and Minister for Finance Lee Hsien Loong announced that the removal of the statutory audit requirement would be done in two phases in order to give the business community and audit firms some time to adjust to the new arrangement, i.e. to set the revenue threshold at $2.5 million when the Amendment Bill became operational and to raise it to $5 million one year later.

Other Highlights of Companies (Amendments) Act 2004

5. To continue to foster Singapore as a best place for business, several other amendments in the Companies (Amendment) Act 2004 were brought into operation on 1 April 2004:

(a) One shareholder/one director companies - The Companies Act now allows for a single person to incorporate and maintain the company. Previously, the Act requires all companies to have a minimum of two directors and two shareholders, with a proviso that one of the directors must be locally resident. Under the new arrangement, where the same person is both the director and shareholder, the person must be locally resident. This amendment applies to all types of companies.

(b) Corporate personality - The legal requirements to expressly provide for objects clauses in the Memorandum of Association have also been removed. Under the new arrangement, a company will have full capacity to carry out any lawful business or activity, with full rights, powers and privileges for such purposes. This gives the company greater flexibility to decide what activities the company wishes to engage in.

^[1] An exempt private company is a private company with no corporate shareholders and not more than 20 shareholders.

^[2] The CLRFC, chaired by Dr Philip Pillai, Senior Partner of Shook Lin & Bok, was a private sector led committee set up in December 1999 to review company law and securities regulation.

Annex : Companies (Amendment No. 2) Regulations 2004

MINISTRY OF FINANCE