The small company differs from the exempt private company in that it is defined by a broader set of criteria, reflecting the fact that audit is of value to a broader group of stakeholders (e.g. creditors, employees and customers) than shareholders. With the introduction of this new set of criteria, more companies will qualify for audit exemption, thus reducing compliance costs and creating a more business-friendly environment overall.

Paragraph 2 of the Thirteenth Schedule of the amended Companies Act (Cap 50, 2006 Rev Ed) (hereafter the “Thirteenth Schedule? states that a company is a small company from a particular financial year if:

2.   Small group

3.   Transitional provisions

As the new regime takes effect only in respect of a financial year commencing on or after 1 July 2015, transitional arrangements are made for companies formed before that date. Such a company will qualify as a small company from the first or second financial year commencing on or after that date if it is a private company throughout that financial year and also meets the quantitative criteria for that particular financial year (see paragraph 4 of the Thirteenth Schedule). Likewise, a group that was formed before 1 July 2015 will qualify as a small group in the first or second financial year commencing after that date if it meets the quantitative criteria for that year on a consolidated basis (see paragraph 9 of the Thirteenth Schedule).

Illustration:

(1)   Kaizen Pte Ltd was incorporated on 31 July 2005. Its financial year ends on 30 September of each year.
(2)   In financial year 2015 ?2016, it meets the quantitative criteria.
(3)   It qualifies as a small company and is exempt from audit from financial year 2015?016 even if it did not satisfy the quantitative criteria in the last two financial years.

4.   New companies

Illustration:

(1)   Kaizen Pte Ltd was incorporated on 31 July 2015. Its first financial year ends on 30 September 2016.
(2)   It does not satisfy the quantitative criteria for financial year 2015 ?2016 but meets those criteria in financial year 2016 ?2017.
(3)   Kaizen qualifies as a small company and is exempt from audit from financial year 2016?017 even though it has not met the quantitative criteria for two immediate past financial years.

5.   Cessation of Being a Small Company

Illustration:

(1)   Kaizen Pte Ltd has qualified as a small company since financial year 2015 - 2016.
(2)   In financial year 2016 ?2017, Kaien fails to satisfy the quantitative criteria but this has no effect on its “small company?status.
(3)   Kaizen satisfies the quantitative criteria in financial year 2017 ?2018.
(4)   Between financial years 2018 ?2020, however, Kaizen fails to meet the quantitative criteria for two consecutive financial years.
(5)   Kaizen ceases to qualify as a small company from financial year 2021 ?2022.