Singapore Companies (Amendment) Act 2014 – Financial Reporting

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Singapore Companies (Amendment) Act 2014 – Financial Reporting

The Selected Key Legislative Amendments in the Singapore Companies (Amendment) Act 2014 – Financial Reporting

1. Small company audit exemption

Previous Requirement

Exempt private companies (EPCs) with annual revenue of $5m or less are exempted from audit.

Changes

New “small company” criteria for audit exemption:

• Small company is defined as a private company which meets at least 2 of 3 criteria for immediate past two financial years:

i) total annual revenue ≤ $10m,

ii) total assets ≤ $10m,

iii) no. of employees ≤ 50.

• For a company which is part of a group:

i) company must qualify as a small company; and

ii) entire group must be a “small group”.

• For a group to be a small group, it must meet at least 2 of the 3 quantitative criteria on a consolidated basis for the immediate past two consecutive FYs.

• Company qualified as a small company continues until disqualified i.e.:

i) ceases to be a private company at any time during the FY; or

ii) does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive FYs.

• Small group status continues until it does not meet at least 2 of the 3 the quantitative criteria on a consolidated basis for the immediate past two consecutive FYs.

Timing for application of new exemption:

• FYs commencing on or after 1 Jul 2015.

• Transitional provisions for first 2 FYs after 1 Jul 2015: Must be private company and meets 2 of the 3 quantitative criteria in either the 1st or 2nd year after the commencement of the amendments.

• New companies may qualify in their 1st or 2nd FY: Must be private company and meets 2 of the 3 quantitative criteria in either its 1st or 2nd year.

Illustration Example (General)

• To determine whether a company qualifies as a small co. in 2020:

i) determine if the company is a private company in 2020;

ii) whether it meets 2 out of the 3 quantitative criteria in 2018 and 2019.

• If company qualifies as a small company in 2020, it continues to be a small company until disqualified:

i) co. ceases to be a private company during the FY;

ii) it fails to meets 2 out of the 3 quantitative criteria in the immediate past 2 consecutive FYs.

Illustration Example (Transitional for first FY after 1 Jul 2015)

• To determine whether a company qualifies as a small co. in 2016:

i) determine if the company is a private company in 2016;

ii) whether it meets 2 out of the 3 quantitative criteria in FY2016.

• If company qualifies as a small co. in 2016, it continues as a small company until disqualified. It does not need to fulfill criteria again in 2017.

• If company does not qualify in 2016, it may qualify in 2017 if quantitative criteria is met in 2017 (the 2nd transitional year).

• Assuming in 2016 that company meets criteria, qualifies as small co.

• In 2017 – It does not meet criteria, but continues to be qualified as small co. [Because it has already qualified in 2016.]

• (i) If in 2018 – It meets criteria, still qualified as small co.

• (ii) If in 2018 – Does not meet criteria, still qualified as small co. [Because it has not yet fulfilled the criteria for disqualification.]

• In 2019 – It ceases to be a small company in 2019 (assuming (ii)) [Because it fails to meet the criteria for 2 consecutive years prior to the FY in question.]

Declaration by Directors Required

Declaration by directors Directors must state:

(i) that the company qualifies as a small company under section 205C read with the Thirteenth Schedule;

(ii) that no request to have the financial statements audited has been made by member in relation to the financial year; and

(iii) the accounting and other records required by the Companies Act to be kept by the company have been kept in accordance with section 199.

Note:

  • Applies from financial years starting on or after 1 Jul 2015.
  • The small company audit exemption does not abolish the concept of exempt private company (EPC), which is still relevant (e.g. for exemption from filing of financial statements where the EPC is solvent).
  • More information available on ACRA website: https://www.acra.gov.sg/details_on_small_company_concept_ for_audit_exemption.aspx

2. Dormant company financial reporting

Previous Requirement

Dormant company exempted from statutory audit requirements but is still required to prepare accounts.

Changes

• Dormant non-listed companies (other than subsidiaries of listed companies) are exempt from requirement to prepare accounts.

• Exemption from preparation of accounts is subject to a substantial assets threshold test (i.e. company’s total assets must be not more than S$500,000). Companies with assets more than the threshold are treated the same as listed companies.

• No change for listed companies and their subsidiaries (i.e. exempt from audit but must prepare accounts).

Declaration by Directors Required

Declaration by directors Directors must state:

(i) that the company has been dormant for the period from the time of its formation or since the end of the previous financial year, as the case may be;

(ii) that no request to prepare financial statements has been made by member/ Registrar in relation to the financial year; and

(iii) the accounting and other records required by the Companies Act to be kept by the company have been kept in accordance with section 199.

Note:

  • Exemption from preparation of financial statements applies from financial years ending on or after 3 Jan 2016.
  • The test for dormancy is provided for in the Companies Act, i.e. that there is no accounting transaction during that financial year.
  • The Companies Act also states the transactions which will are to be disregarded when determining dormancy:

(a) the taking of shares in the company by a subscriber to the memorandum in pursuance of an undertaking of his in the memorandum;

(b) the appointment of a secretary of the company;

(c) the appointment of an auditor;

(d) the maintenance of a registered office;

(e) the keeping of registers and books;

(f) the payment of any fee and charges payable under written law;

(g) the payment of any composition amount payable under written law;

(h) the payment or receipt by the company of a nominal sum not exceeding $5,000.

3. Resignation of auditors

Previous Requirement

An auditor can resign if he is not the sole auditor, or at a general meeting, and where a replacement auditor is appointed.

Changes

• An auditor of a non-public interest company (other than a subsidiary of a public interest company) may resign before the end of the term of his appointment by giving written notice to the company.

• Auditors of public interest companies and their subsidiaries will be required to obtain ACRA’s consent for resignation before the end of the term of their appointment.

Definition of public interest company (relevant sections s205AA(4) CA and Reg 89A of the Companies Regulations):

• Company which is listed or in the process of issuing its debt or equity instruments for trading on a securities exchange in or outside Singapore;

• Company which is a relevant financial institution regulated by MAS (as listed in Regulations);

• Company — (a) which is a charitable company or an institution of a public character under the Charities Act; and (b) where gross annual receipts in each of the immediately preceding 2 financial years is not less than $10 million.

Note:

  • For guidance on how to apply to ACRA’s consent – Refer to PRACTICE DIRECTION NO. 4 OF 2015 on ACRA’s website.
  • Does not apply to resignation at the end of auditor’s term or change of auditor at an AGM.
  • Does not apply to removal of auditor by company, unless the auditor agrees and initiates the resignation.
  • There is a requirement for company to appoint a replacement auditor within 3 months.

ACRA has announced a 2-phase implementation approach to the legislative amendments to Singapore Companies Act, where about 40% of the over 200 legislative amendments will take effect in the first phase on 1 July 2015, while the second phase encompassing the rest of the legislative amendments is expected to take effect in the first quarter of 2016.

For more information on the Key Legislative Amendments of Phase 1 Implementation of the Companies (Amendment) Act 2014, please click here.

For more information on the Key Legislative Amendments of Phase 2 Implementation of the Companies (Amendment) Act 2014, please click here.

For Frequently Asked Questions (FAQs) to the Implementation of the Companies (Amendment) Act 2014, please click here.

For more information, please refer to ACRA at www.acra.gov.sg.

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