For most Singapore private companies, the annual statutory audit is the single largest recurring compliance cost. It is also, for a large slice of the SME landscape, entirely optional. Since 2015, Singapore has operated a “Small Company” audit exemption regime designed to lift the compliance burden off genuinely small businesses. But qualifying is more subtle than most directors realise — the exemption applies at the individual company level and, for groups, at the group level too. Get the test wrong and you may be filing unaudited accounts that ACRA can reject.
This 2026 guide walks through the small company audit exemption criteria, the group-level rules, how “size” is measured, when you lose the exemption, and what the exemption does — and does not — free you from.
Where the Audit Exemption Sits in Law
Audit exemption for Singapore private companies is set out in Section 205C of the Companies Act 1967. The default rule under Section 205 is that every Singapore company must appoint an auditor within three months of incorporation and have its accounts audited annually. Section 205C carves out an exemption for companies that qualify as a “small company”, and Section 205D adds the group-level test.
Public companies, subsidiaries of listed groups, and companies limited by guarantee are handled differently and are outside the scope of this guide.
The “Small Company” Criteria
A private company qualifies as a small company for a financial year if it is a private company throughout that financial year AND satisfies at least two of the three following quantitative criteria for that year:
- Total annual revenue not exceeding S$10 million;
- Total assets at the end of the financial year not exceeding S$10 million;
- Average number of employees during the financial year not exceeding 50.
Two of three. Miss any single criterion and the company can still qualify, provided the other two are met.
How “Revenue” and “Total Assets” Are Measured
Revenue and total assets follow Financial Reporting Standard definitions — the figures that would be reported in the audited or unaudited financial statements prepared in accordance with the Singapore Financial Reporting Standards (SFRS) or SFRS for Small Entities.
Key traps:
- Revenue includes trading revenue but excludes non-operating income like one-off gains on asset disposals unless routinely earned.
- Total assets is the gross balance sheet figure — not net assets.
- Foreign operations of Singapore companies with overseas branches are included in both revenue and assets tests.
“Average Number of Employees”
Average number of employees is the average headcount over the financial year, including full-time, part-time and contract staff. Directors who are not employees (e.g., non-executive directors on fees only) are excluded.
The Two-Year Look-Back Rule
Passing the size test in the current year alone is not enough. Under Section 205C, the small company test must be met for the current financial year and for the immediately preceding financial year. In practical terms:
- A newly incorporated company qualifies from Day One — there is no prior year to test.
- An existing company that grows above thresholds may lose the exemption going forward — but the loss only takes effect after two consecutive years of failing the test.
- A shrinking company that has been previously audited can regain the exemption after two consecutive years of meeting the criteria.
Group Audit Exemption — the “Small Group” Test
Where the Singapore company is part of a group (parent, subsidiary or fellow subsidiary), it must satisfy both:
- The Small Company test for itself, and
- The Small Group test — the entire group taken together satisfies at least two of the three criteria on a consolidated basis.
The group thresholds are the same:
- Consolidated group revenue ≤ S$10 million;
- Consolidated total group assets ≤ S$10 million;
- Group average employees ≤ 50.
A Singapore subsidiary of a small Singapore parent qualifies for exemption. A Singapore subsidiary of a large group — even if the Singapore subsidiary itself is tiny — does not qualify.
What Audit Exemption Does — and Does Not — Free You From
Audit exemption removes the requirement for an independent auditor’s report. It does not remove any of the following:
Still Required Under the Companies Act
- Preparation of financial statements in accordance with SFRS or SFRS for Small Entities.
- Directors’ Statement signed by directors.
- Notes to the accounts.
- Approval of accounts at the AGM (or by written resolution if AGM is dispensed with).
- Filing of Annual Return with ACRA, including financial statements where applicable.
- XBRL filing where applicable. See our XBRL Filing with ACRA 2026 guide.
Still Required for Tax
- ECI filing and Form C-S / C filing with IRAS.
- Capital allowance schedules.
- Section 14A and 14B claims.
See our comprehensive Singapore Corporate Tax 2026 guide.
When the 10% Members’ Right to Demand an Audit Applies
Section 205C(1)(c) preserves the right of members holding at least 5% of shares (in aggregate) or 5% of the total number of members to demand an audit, notwithstanding that the company qualifies for the exemption. The written notice must be given at least one month before the end of the financial year. This is a minority-protection feature that private company shareholders sometimes forget they can exercise.
Situations That Automatically Require an Audit
An audit is required — regardless of size — where:
- The company is a public company or a subsidiary of a listed company.
- The company is a licensed entity under MAS regulation (bank, insurer, fund manager, payment services licensee etc.).
- The company is a limited liability partnership (LLP) or company limited by guarantee above certain thresholds.
- The company’s constitution mandates an audit.
- Members holding 5% or more demand an audit under Section 205C.
- The company applies for or holds a Singapore government grant that requires audited accounts (many EnterpriseSG grants require this).
Practical Situations That Drive Companies Back Into Audit
Even qualifying companies often choose to audit voluntarily. Common triggers:
- Bank financing. Most Singapore banks require at least reviewed accounts, and audited accounts for larger facilities.
- Preparing for exit / M&A. Buyers routinely require audited historicals for at least three years.
- Investor / grant covenants. Series A onwards routinely demand audited accounts.
- Cross-border transactions. Overseas parent companies may require audited local accounts for group consolidation.
- Family disputes / minority protection. Where minority shareholders are uneasy, an audit provides independent assurance.
Documenting Audit Exemption in the Directors’ Statement
Where a company relies on the small company exemption, the Directors’ Statement must state:
- That the company is a small company for the financial year;
- That the accompanying financial statements have been prepared in accordance with SFRS (or SFRS for Small Entities);
- That the directors are not aware of any circumstances requiring an audit.
The statement is signed by two directors (or the sole director) on behalf of the board.
Losing the Exemption — What to Do Next
If the company grows and no longer qualifies, the process is:
- Confirm the loss of exemption by reviewing consecutive-year test results.
- Pass a directors’ resolution to appoint an auditor within three months.
- Notify ACRA of the auditor appointment via BizFile+.
- Set the audit engagement letter early — auditors dislike late engagements at year-end rush.
- Prepare comparatives — the first audit will require the prior year comparative figures to be at least materially checked.
Frequently Asked Questions
Q: Can a dormant Singapore company skip audit and financial statements entirely?
Dormant companies may claim exemption under Section 201A from preparation and lodgment of financial statements, subject to strict conditions. This is a separate exemption from Section 205C.
Q: Our newly incorporated company had big revenue in Year 1 — do we lose exemption in Year 2?
You are still exempt in Year 1 by default. You would need to fail the two-of-three test in Year 1 AND Year 2 before losing exemption from Year 3.
Q: Are director’s fees included in revenue?
No — director’s fees are an expense, not revenue.
Q: Does the audit exemption apply to VCCs?
Variable Capital Companies operate under their own audit rules under the Variable Capital Companies Act. Audit is generally required.
Using Audit Exemption Wisely
The small company audit exemption is one of the most significant compliance cost-savers in Singapore’s corporate law regime. But it is not a licence to lower the bar on accounting quality. Companies that rely on the exemption still need well-prepared financial statements, disciplined bookkeeping, tax computations that survive an IRAS review, and directors who understand what they are signing.
Raffles Corporate Services advises SMEs on when the audit exemption applies, prepares SFRS-compliant unaudited financial statements, and coordinates with independent auditors where an audit is required or voluntarily elected. If you’re not sure which side of the line you’re on, ask before your financial year ends — not after.
— The Editorial Team, Raffles Corporate Services