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Unaudited vs Audited Financial Statements in Singapore

In the dynamic business environment of Singapore, financial statements serve as a crucial tool for stakeholders to assess the financial health and performance of companies. These documents are pivotal for investors, creditors, and other interested parties in making informed decisions. In Singapore, financial statements can be classified into two main categories: audited and unaudited. Understanding the distinctions between these two types of financial statements is essential for anyone involved in the business sector, from entrepreneurs to investors, as each serves different purposes and carries varying levels of credibility and scrutiny.


Definition and Overview


Audited Financial Statements are financial reports that have been examined and verified by an independent third party, typically an audit firm. The primary purpose of an audit is to provide assurance that the financial statements of a company are free from material misstatement and are presented fairly in all material respects, in accordance with applicable financial reporting frameworks (such as the Singapore Financial Reporting Standards or International Financial Reporting Standards).


Unaudited Financial Statements, on the other hand, have not undergone such an independent verification process. These statements are often prepared internally by the company’s management and may be used for internal purposes or submitted to regulatory bodies in cases where an audit is not mandated.


Legal Requirements in Singapore

In Singapore, the requirement for a company to have its financial statements audited is governed by the Companies Act and the Accounting and Corporate Regulatory Authority (ACRA). Generally, private limited companies that meet at least 2 of the 3 following criteria for the immediate past two consecutive financial years are exempt from having their accounts audited:

  • Total annual revenue of not more than S$10 million;

  • Total assets of not more than S$10 million;

  • No more than 50 employees.

This exemption aims to reduce regulatory burdens on small companies. However, public companies and subsidiaries of public companies are required to have their financial statements audited regardless of their size.


The Audit Process

The audit process involves a series of steps undertaken by the auditors to gather evidence and evaluate the financial statements against the applicable financial reporting framework. This includes understanding the company’s internal controls, testing selected transactions, and making inquiries of management. The outcome is an auditor's report, which provides an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.


Importance of Audited Financial Statements

Audited financial statements are often regarded as more reliable and credible than unaudited ones due to the rigorous examination by independent auditors. This credibility is crucial for attracting investors, securing loans, and maintaining confidence among stakeholders. Furthermore, audited financial statements are typically required in the following scenarios:

  • Regulatory submissions for public companies;

  • Compliance with loan covenants;

  • During the sale of a business or attracting significant investments.


Unaudited Financial Statements: Use and Limitations

Unaudited financial statements are primarily used for internal management purposes, such as budgeting and performance evaluation. They can also be submitted to ACRA by exempt private companies that meet the specific criteria for exemption from audit. While unaudited financial statements can provide valuable insights into a company’s financial position, their lack of independent verification limits their credibility and usefulness in situations where assurance of accuracy is crucial.


The Role of Compilation Reports

For companies that are exempt from audit requirements but still need to present their financial statements to external parties, compilation reports offer a solution. A compilation involves assembling the financial statements based on management’s information without providing any assurance on the accuracy of the data. Although less rigorous than an audit, a compilation report prepared by a professional accountant can add a level of credibility to the financial statements.


Conclusion

In Singapore’s robust business environment, both audited and unaudited financial statements play vital roles. The choice between audited and unaudited financial statements depends on the legal requirements, the needs of the business, and the expectations of its stakeholders. While audited financial statements provide a higher level of assurance and credibility, unaudited financial statements offer a simpler and more cost-effective option for small companies that meet specific criteria. Understanding the nuances between these two types of financial statements is essential for making informed decisions and navigating the complexities of financial reporting in Singapore.


If you require help with unaudited financial report or audited financial report in Singapore, you can speak to us at +65 98638665.


Unaudited vs Audited Financial Statements in Singapore

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