However, with effect from 1st July 2015, the old audit exemption requirement has been replaced by a new audit exemption criteria.
The new criteria applies to companies with financial years beginning on or after the 1st July 2015.
This means that if a new company is incorporated on or after 1st July 2015, it will be under the new audit exemption scheme. For existing companies, the new audit exemption scheme will be effected on the new financial year starting on or after 1st July 2015.
A company qualifies as a small company if:
(a) it is a private company in the financial year in question; and
(b) it meets at least 2 of 3 following criteria (quantitative criteria) for immediate past two consecutive financial years:
(i) total annual revenue ≤ $10m;
(ii) total assets ≤ $10m;
(iii) no. of employees ≤ 50.
The total revenue and total assets of a company would be determined by the accounting standards and what appears as the total revenue or total assets in the financial statements of the company.
The number of employees is based on the number of full-time employees employed by the company at the end of the financial year.
For a company which is part of a group:
(a) the company must qualify as a small company; and
(b) entire group must be a “small group”
to qualify to the audit exemption.
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 financial years.
Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified. A small company is disqualified if:
(a) it ceases to be a private company at any time during a financial year; or
(b) it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Where a group has qualified as a small group, it continues to be a small group for subsequent financial years until it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Transitional Provisions for existing companies
An existing company can qualify as a “small company” if it is a private company and meets the quantitative criteria in the first or second FY commencing on or after the date of commencement of the “small company” criteria.
Application of criteria to new companies incorporated on or after 1 Jul 2015
A new company incorporated on or after 1 Jul 2015 can qualify as a “small company” if it is a private company and meets the quantitative criteria in its first or second FY after incorporation.
Things to Note:
The new criteria allows companies with corporate shareholders to be exempted from audited as long as the whole group is a "small group". The definition of a small group is decided in accordance to the Accounting Standard as per the Companies Act Thirteenth Schedule section (12)(a). In this case, it means a company will be part of a group if it is "controlled" by another entity.
In my opinion, the new exemption will allow more companies to be audit exempted then the previous rule however, it also increases the chance where company do not recognise that they have to be audited as they group or are acquired due to the additional recognition criteria. It is advisable for officers of companies to approach their Company Secretary to understand the new exemption criteria and make sure that their company is exempted.