For decades, every Singapore private company was statutorily required to appoint an auditor. The 2015 amendments to the Companies Act changed that with the introduction of the “small company” concept — and audit became optional for the vast majority of Singapore private companies. Yet many directors are still uncertain whether their company qualifies, what counts as a “small group” for consolidation purposes, and what happens when the company grows beyond the thresholds.
This 2026 guide explains the audit exemption rules under Section 205B and 205C of the Companies Act 1967, walks through the two-of-three test, addresses the small-group consolidation rules, and covers the practical decision of whether to audit voluntarily even when exempt.
Why Audit Exemption Was Introduced
The Companies (Amendment) Act 2014 — effective for financial years beginning on or after 1 July 2015 — aligned Singapore with international practice in OECD economies. The policy goal was to reduce compliance costs for small private companies that did not have public-interest stakeholders demanding an audit. The audit-exempt status remains a private decision: members can still pass an ordinary resolution requiring an audit, and creditors or banks can demand audited accounts as a condition of credit.
The “Small Company” Test (Section 205B)
A private company qualifies as a “small company” — and is exempt from audit — if it satisfies at least two of the following three criteria in both of the immediately preceding two financial years:
- Total annual revenue not exceeding S$10 million;
- Total assets at the end of the financial year not exceeding S$10 million; and
- Number of employees not exceeding 50.
The two-of-three structure gives flexibility. A property-rich SME (high assets, low revenue) can still qualify if it meets the revenue and employee tests. A high-growth tech start-up that has not yet generated revenue can qualify on revenue + assets even if it has 60 staff.
Newly incorporated companies
A company in its first or second financial year qualifies as a small company if it would meet the two-of-three test for the current financial year alone — there is no two-year track record yet. This means new companies automatically enjoy audit exemption from day one (assuming they meet the criteria for their first FY).
“Immediately preceding two financial years” — worked example
Company A has a FYE of 31 December. For FY 2026, it tests its “small company” status by reference to FY 2024 and FY 2025:
| Metric | FY 2024 | FY 2025 | Meets criterion? |
|---|---|---|---|
| Revenue | S$8m | S$9m | Yes (both years) |
| Total assets | S$11m | S$12m | No (both years) |
| Employees | 40 | 45 | Yes (both years) |
Two of three criteria met in both years → Company A qualifies as a small company for FY 2026 and is exempt from audit.
The “Small Group” Test (Section 205C)
If a private company is part of a group — i.e. it has subsidiaries or is itself a subsidiary — exemption requires both:
- The company itself qualifies as a small company; AND
- The group (on a consolidated basis) qualifies as a “small group”.
A small group must satisfy at least two of the same three criteria — revenue, assets, employees — on a consolidated basis, in both of the immediately preceding two FYs. The thresholds are the same S$10m / S$10m / 50 employees.
This is the most commonly missed step. A holding company that is small on its standalone numbers may still need to audit if the group as a whole exceeds the thresholds. Conversely, a stand-alone subsidiary that is small can still be required to audit if its parent group exceeds the small-group thresholds.
Group definition
“Group” for Section 205C purposes means the company plus all its subsidiaries — including foreign subsidiaries. Branch operations of the company are not separate group members, but a foreign branch’s revenue, assets, and headcount are consolidated into the company’s own numbers.
What “Revenue”, “Total Assets”, and “Employees” Mean
Revenue
Revenue is determined in accordance with the accounting standards applied in preparing the financial statements. For most Singapore companies, this means revenue under SFRS / SFRS for Small Entities. It includes revenue from sale of goods, services, and licensing — but excludes other income such as interest, dividends, and gains on disposal of fixed assets.
Total assets
Total assets is the gross balance sheet figure at the FYE — current plus non-current — before deducting any liabilities. It is a balance-sheet snapshot, not an average.
Number of employees
Number of employees is determined as the total number of full-time employees as at the end of the financial year. Part-time employees and contractors are typically not included, though companies should be consistent in their methodology across years. Directors who are not also employees are not counted.
Disqualifications: When Audit Exemption Does Not Apply
Even if the small-company / small-group tests are met, audit exemption does not apply to:
- Public companies (limited by shares or by guarantee);
- Companies limited by guarantee (audit-exempt under a separate regime — see Section 205A);
- Companies registered under specific regulatory regimes that require audited accounts (e.g. MAS-licensed entities); and
- Any company where members holding at least 5% of total voting rights have requested an audit under Section 205B(4).
The 5% members’ request is a key minority-protection feature. Even a single qualifying shareholder can compel an audit by notice in writing not later than three months before the end of the financial year.
Companies Limited by Guarantee (Section 205A)
Companies limited by guarantee — typically charities, professional bodies, and clubs — have their own audit-exemption regime under Section 205A. They are exempt if their gross income or expenditure does not exceed S$500,000 (substantially lower than the trading-company threshold). The S$500,000 threshold reflects the public-interest nature of guarantee companies, particularly charities funded by donations.
What an Audit-Exempt Company Still Has to Do
Audit exemption is not “accounting exemption”. An audit-exempt company must still:
- Prepare full annual financial statements in accordance with applicable SFRS or SFRS for Small Entities;
- Have the directors sign the directors’ statement;
- Lay the financial statements before the AGM (unless AGMs have been dispensed with);
- File the financial statements with ACRA as part of the annual return (in XBRL or PDF, depending on the company’s profile — see our XBRL guide);
- Keep proper accounting records for at least five years (Section 199); and
- File ECI and Form C/C-S with IRAS based on those financial statements.
What changes is the absence of an external auditor’s opinion. The financial statements are still “true and fair” — the directors say so under Section 201 — but no independent verification.
When to Audit Voluntarily Anyway
Even when exempt, many companies choose to be audited because:
- Banking covenants: trade finance lines, business loans, and overdraft facilities frequently require audited accounts;
- Investor reporting: VC-backed and PE-backed companies are typically required by shareholders’ agreements to audit;
- Government grants: some grant programmes require audited accounts as part of post-claim audit (see our grant claims guide);
- Buyer due diligence: M&A transactions are smoother when the target has been audited;
- Tax confidence: an audit can support the company’s tax positions in an IRAS review;
- Public credibility: customers and suppliers often see “audited accounts” as a hallmark of seriousness.
The trade-off is the cost — typically S$3,000 to S$15,000 a year for SMEs — and management time.
Losing Audit Exemption
A company loses audit exemption when it fails the two-of-three test in either of the two immediately preceding FYs. The change is mechanical — there is no grace period beyond the existing rule structure, and the company must appoint an auditor for the next FY in accordance with Section 205.
In practice, growing companies should monitor the thresholds quarterly. If revenue trends suggest crossing S$10m by FYE, brief the audit firm early — Public Accountants are busy in the AGM season and securing a slot late can mean missing the AGM deadline.
Frequently Asked Questions
Q1: Our revenue is S$15m but assets are S$5m and we have 30 staff. Are we exempt?
You meet two of three (assets, employees). Provided you met the same two-of-three in the prior FY as well, you are audit-exempt.
Q2: We just incorporated this year. Audited or not?
If you meet two-of-three for the current FY, exempt. New companies typically have nil revenue, low assets, and few staff — so most qualify automatically.
Q3: Can we revert to exemption after auditing for a few years?
Yes — if you again meet two-of-three in the two immediately preceding FYs.
Final Thoughts
The small-company and small-group audit exemption framework remains one of Singapore’s most business-friendly compliance reforms. For SMEs, it eliminates an annual cost that did little for shareholders who already know how the business is performing. For growing companies, the thresholds are generous enough that audit is needed only when the business is genuinely scaling.
If you are unsure whether your company qualifies — or whether you should opt in to audit despite being exempt — Raffles Corporate Services can run the analysis and coordinate the audit appointment if needed.
— The Editorial Team, Raffles Corporate Services