Compilation of Financial Statements

An exempt private company with annual revenue of $5m or less for the financial year is exempt from auditing its financial statements.

An exempt private company is a company which has not more than 20 members and in which no corporation holds any beneficial interest in its shares.

A new small company concept will be introduced for exemption from statutory audit.

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 for immediate past two financial years:

(i) total annual revenue ≤ $10m;
(ii) total assets ≤ $10m;
(iii) no. of employees ≤ 50.

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.

Existing safeguards will remain, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts.

Background

• The small company criteria recognises broader group of stakeholders (e.g. creditors, employees, customers) who may have an interest in the financial statements, other than just shareholders.
• It would reduce regulatory costs for smaller companies that do not have wide market impact.
• Similar criteria are used for differentiated financial reporting in other countries (e.g. UK, Australia).