Company Auditor in Singapore

All companies incorporated in Singapore are required to appoint a company auditor except small companies/group and dormant companies as stated under S205B and S205C of the Companies Act (“CA”).

What is a small company or a small group?

Under the Thirteenth schedule of the CA, a company is considered a “small company” if it is a private company throughout the current financial year, and satisfies any 2 of the following 3 criteria for each of the 2 financial years immediately after the current financial year:

  1. Its revenue does not exceed $10 million;
  2. The value of its total assets does not exceed $10 million; and/or
  3. It does not have more than 50 employees.

A group is a small group from a financial year if the group satisfies any 2 of the following 3 criteria for each of the 2 financial years immediately preceding the financial year:

  1. The consolidated revenue of the group does not exceed $10 million;
  2. The value of its total assets does not exceed $10 million; and/or
  3. The group does not have more than 50 employees.

What is a dormant company ? (Click here for more details)

S205B(2) of CA states that a company is considered “dormant” during a period where no accounting transaction occurs. A dormant company ceases to be dormant on the occurrence of such a transaction.

S205B of CA states that a dormant company from the date of incorporation or since the end of the previous financial year shall be exempted from audit requirements.

For the purpose of determining a dormant company, S205B(3) of CA states that the following transactions shall not be regarded as accounting transactions:

  1. The taking of shares in the company by a subscriber to the constitution in pursuance of an undertaking of his in the constitution;
  2. Appointment of a secretary under S171
  3. Appointment of an auditor under S205
  4. Maintenance of a registered office under S142 to S144
  5. Keeping of registers and books under S88, 131, 173, 189 and 191
  6. Payment of any fee or charge (including any fee, penalty or interest for late payment) payable under any written law;
  7. Payment of any composition amount payable under S409B or any other written law
  8. Payment or receipt of such nominal sum and not exceeding such amount as may be prescribed
  9. Such other matter as may be prescribed.

Who is a company auditor ?

A company auditor may be a public accountant or an accounting entity approved by the Accounting and Corporate Regulatory Authority (ACRA).

No company or person shall appoint an accounting entity or a public accountant as an auditor unless prior written consent of the accounting entity or public accountant to act as an auditor is obtained according to S10(3) and S10(4) of the CA.

Appointment and reappointment of a Company Auditor

According to S205(1) of the CA, the directors of a company shall appoint an auditor within 3 months after incorporation of the company and the auditor shall continue to hold office until the conclusion of the first annual general meeting (“AGM”).

The reappointment of the auditor shall be done at each AGM under S205(2) of the CA. The auditor reappointed shall continue to hold office until the conclusion of the next AGM.

According to S205(12A) of the CA, where a company need not hold an AGM for a financial year if all the members pass a resolution to dispense with the holding of the AGM under S175A(1) of the CA, the appointment or reappointment of the auditor may be passed by written agreement to resolutions by the members having the right to vote on that resolution at that general meeting.

S205(17) of CA states that if the above obligations are not complied with, the company and every director of the company will be guilty of a fine of up to $5,000.

Approval of the fee and expenses of a Company Auditor

The fees and expenses of an auditor shall be approved by the members in general meeting or if authorized by the members at the last preceding AGM by the directors.

In the case of the auditors appointed by ACRA or to replace the previous auditors, the fees and expenses of the auditor may be approved by the directors and if not so fixed, be approved by the members in general meeting.

S205(17) of CA states that if the above obligations are not complied with, the company and every director of the company will be guilty of a fine of up to $5,000.

Removal of a Company Auditor

According to S205(4) of the Companies Act, a company auditor may be removed by resolution of the company at a general meeting for which a special notice has been given. The resolution will only be effective if a notice of the intention to move it has been given to the company at least 28 days before the date of the general meeting.

The obligations of the company upon the removal of its auditor

Immediately after the removal of a company auditor, the company must provide the written notice of the same to ACRA.

During the same meeting where a company auditor is removed, the company may appoint another accounting entity nominated at the meeting as auditor, by a resolution passed by the majority (i.e. at least 75% of votes in favour of appointment).

If the new auditor is not appointed during the meeting, the meeting may be adjourned to sometime between 20 to 30 days after the general meeting as allowed under S205(7)(b) of the CA.

A notice of nomination of an accounting entity as a new auditor nominated by any member of the company must be given to the company at least 21 days before the general meeting is called under S205(11) of the CA.

Upon the resumption of the adjourned meeting, the company may appoint another accounting entity as auditor by an ordinary resolution, provided that the company has received notice of the nomination of this new auditor at least 10 days before the date of the resumed meeting.

A copy of the notice of the nomination of the new auditor shall be sent to the new auditor and each person entitled to receive notice of the general meetings of the company at least 7 days before the adjourned meeting under S205(12) of the CA.

The new auditor appointed as a replacement shall continue to hold office until the conclusion of the next AGM.

If the company does not appoint a new auditor during the same meeting, ACRA may appoint an auditor according to S205(10) of the CA.

If the above obligations are not complied with, the company and all its directors will be guilty of an offence and if convicted, may be ordered to pay a fine of up to $5,000.

Resignation of a Company Auditor 

There is a difference in the process involving the resignation of a company auditor of a public interest company versus a non-public interest company.

S205AA(4) of CA defines a public interest companies as those:

  • Listed or in the process of issuing its debt or equity instruments for trading on the Singapore Exchange or a securities exchange outside of Singapore;
  • Such other company as the Minister may prescribe such as selected financial institutions (E.g. bank licensed under the Banking Act) and large charities or institutions of public character.

Procedure for auditors of a non-public interest company 

A non-public interest company is defined under S205AA(4) as a company other than a public interest company.

S205AA of CA states that an auditor of a non-public interest company may resign by simply providing the company with a written notice of resignation.

Upon which, S205AA of CA states that the auditor’s term of office officially ends either

  1. At the end of the day on which notice is given, or
  2. At a specific time provided in the notice (if any).

The company is then required to lodge a notification of this resignation with ACRA within 14 days beginning on the date on which a company receives a notice of resignation.

Procedure for auditors of a public interest company 

An auditor of a public interest company or a subsidiary of a public interest company may only resign before the end of their term of office if the auditor has obtained consent from ACRA for the resignation.

The relevant application form to seek ACRA’s consent to resign may be submitted to ACRA, together with supporting documents (e.g. evidence of health conditions etc), and a fee of $200 via cheque made payable to ACRA.

In particular, S205AB of CA states that the application for consent must contain a written statement of reasons for resignation. In addition, the application must also state whether the auditor has any disputes with the company’s management, and any other matters which may affect the independence of the audit process.

S205AB of CA states that when this application is made, the auditor must provide the company with written notice of the application, together with the same written statement of reasons for resignation.

If everything is in order, ACRA endeavours to provide the applicant with an outcome within 2 weeks.

Consent will generally only be granted in exceptional circumstances where the auditor is unable to continue performing an audit competently, or where it is impractical or inappropriate for the auditor to perform his job. This is due to the public interest implications that come with auditors resigning from a public interest company.

Some examples which may be acceptable to ACRA would be the failing health of a sole proprietor auditor, loss of independence, or change in auditor stipulated by the company’s parent entity which is audited by another auditor. However, these examples are guidelines and the grant of consent is still up to ACRA’s discretion.

If consent is granted, the auditor would have to give the company a written notice of resignation. If consent is not granted, the auditor is required to continue to hold office as the company auditor.

The resignation of an auditor of a public interest company or a subsidiary of a public interest company takes effect under S205AB(5) of CA on one of the following days, whichever occurs last:

  • The day specified in the notice of resignation (if any)
  • The day when ACRA notifies the auditor and the company of its consent to the resignation
  • The day fixed by ACRA for the auditor’s resignation (if any).

The obligations of the company upon the resignation of its auditor

According to S205AC(1) of the CA, upon receiving the notice of resignation from the auditor of a public interest company, the company must disseminate within 14 days to every member of the company a copy of the notice of resignation and the written statement of the auditors’ reasons. Failure to comply with this subsection, the company and every director may be ordered to pay a fine of up to $5,000.

Copies of the written statement of the auditor need not be sent out to the members if a court application is made within 14 days beginning on the date of receipt by the company by either the company or any other person who claims to be aggrieved by the written statement, for a determination that the auditor has abused the use of the written statement or is using the provisions of S205AC to secure needless publicity for defamatory matter.

In case the court application is made by:

  1. The company, the company must give notice of the application to the auditor
  2. Any other person, that person must give notice of the application to the company and the auditor.

If the auditor is found to be guilty by the Court under S205AD(2) of the CA, he may be ordered to pay the applicant’s costs in whole or in part. The company must send a notice setting out the effects of the directions by the Court to every member of the company and the auditor (unless already named as a party to the proceedings).

If the Court grants the application in favour of the auditor on his written statement, the company must give notice of the decision to the auditor and send a copy of the written statement given by the auditor to every member of the company within 14 days from the date of decision of the Court.

Failure to follow the Court’s directions to provide notice or to give a copy of the written statement of the auditor to every member of the company may subject the company and every director each to pay a fine of up to $5,000.

For both public interest and non-public interest companies, upon the successful resignation of a company auditor, the directors of the company are required to call a general meeting within 3 months to appoint a new auditor as required under S205AF(i) of CA. Upon appointment of this new auditor, the directors must lodge a notification of the appointment to ACRA within 14 days under S205AF(ii) of CA.

The new auditor appointed to replace the resigned auditor shall continue to hold office until the conclusion of the next AGM of the company unless he is removed or resigns as auditor of the company.

If the directors fail to appoint a new auditor, any member of the company may write to ACRA to apply for the appointment of a new auditor under S205AF(2) of CA.

S205AF(5) of CA states that if the above obligations are not complied with, the company and every director of the company will be guilty of an offence and if convicted, may be ordered to pay a fine of up to $5,000.

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If you intend to remove your company auditor, or if your company auditor has resigned, it is important to be familiar with the relevant requirements to ensure compliance.

 

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