Understanding a Company’s Accounts – The Auditors’ Report
As mentioned in our previous guides on the Director’s Report and the Roles and Responsibilities of Company Directors – a director of a company in Singapore will have to undertake the responsibility of ensuring that a company’s accounts are prepared in accordance with the Singapore Financial Reporting Standards (“SFRS”) and contains all the necessary elements that are stipulated under the Companies’ Act. In this article, we provide a comprehensive analysis of the Auditors’ Report and provide guidance to directors who are unfamiliar with this portion of a company’s accounts. However, this article is only a guide and may not address the specific unique issues that your company may have. Hence, it is still advisable to seek professional advice, when in doubt.
Do my accounts need to be audited?
Many entities, such as large, public companies are required by law to have their accounts audited by a professional auditing firm. However, not all companies incorporated in Singapore require an auditors’ report for the company’s accounts.
Under the Companies Act, certain companies in Singapore are exempt from being required to have their accounts audited if they satisfy the following conditions:
- Incorporated as an exempt private limited company
- Annual revenue of less than S$5 million
- 20 individual shareholders or less and no corporate shareholders
- Companies which are dormant
Companies which do not meet the aforementioned criteria are required to appoint an independent auditor within their first three months of incorporation in Singapore. At the completion of each company’s fiscal year, the company will then need to submit their audited accounts to the Accounting and Corporate Regulatory Authority (“ACRA”) on an annual basis.
Do note that even if companies are exempt from submitting unaudited reports, they must still submit a Directors’ Report, which is explained in detail here.
What is an Auditors’ Report?
An Auditors’ Report is a requirement under Section 207 of the Companies’ Act and will state the following:-
- Whether the accounts are in compliance with the SFRS;
- If the accounts give a true and fair view of the company’s affairs as required under Section 201 of the Companies’ Act;
- If the balance sheet provided in the accounts gives a true and fair view of the company’s affairs and its profit or loss;
- Whether the company’s accounting and other records have been properly kept in accordance with the requirements under the Companies’ Act;
- If any defect or irregularity in the accounts has been found; and
- If the auditor has any matter to which he is not satisfied, together with his reasons.
It is mandatory that the auditors’ report is attached to, or forms part of a company’s audited accounts (also known as audit report or financial statements) and will be submitted together with the audited accounts to ACRA, as part of its Annual Returns. For companies in need of consultation for such services, InCorp works closely with various audit partners who are able to assist companies in preparing their accounts.
Notably, for those who have read our guide on the Directors’ Report, it is evident that the information provided by the auditors in their Auditors’ Report is similar, on many points, to that which is written in the Director’s Report. Hence, do ensure that the information presented in both reports is consistent.
What are the elements of an Auditors’ Report?
There are several sections in an Auditors’ Report, each with their own specific purpose. The table below provides a guide on the basic elements of an Auditors’ Report.
| Introduction | Details about the audit engagement – the auditor will state the extent of the audit scope (e.g. for a parent company, it will usually explain that the accounts are consolidated, incorporating consolidated information from its subsidiaries), the financial period or year of the audit, as well as a brief summary of what is in the audit report, e.g. statement of comprehensive income, statement of changes in equity, etc. |
| Management’s Responsibility | The auditor will typically state that preparation of the financial statements and ensuring a good and sound system of internal controls is Management’s responsibility |
| Auditors’ Responsibilities | The auditor will state the auditor’s responsibilities, explain how the audit was conducted and which accounting standards were used in the course of the audit. Where appropriate, the auditor may mention an evaluation of the accounting policies used by management, as well as the reasonableness of the accounting estimates made by management. The auditor will state if sufficient evidence has been obtained to form basis for the audit opinion. |
| Opinion | The auditor will provide an opinion on the financial statements. |
| Report on other legal and regulatory requirements | The auditor will state if the accounting records and other records have been properly kept. |
What should I look out for in an Auditors’ Report?
Naturally, dependent on your company’s specific circumstances, an Auditors’ Report will differ in substance. For those who are completely unfamiliar with accounts, the most important thing to note is whether the auditors’ opinion is qualified or unqualified.
Generally speaking, an unqualified report is one in which the auditors have concluded that the financial statements of your company’s business present a true and fair view of the company’s affairs; and the auditor is satisfied with the accounting principles and estimates used by management. This should not be confused with how well a company is performing. An unqualified report only indicates that the company’s report is compliant with the SFRS and there are no issues of transparency or compliance that the auditor wishes to highlight.
On the other hand, an Auditors’ Report may be qualified for several reasons, as follows:-
- Limitation of scope in the auditors’ work;
- Disagreement with management regarding the application or adequacy of accounting policies; or
- The auditor has identified an issue that is material or of financial consideration.
More often than not, these issues can be ironed out with the auditors, particularly when a company is able to retrieve and produce all the necessary information and the audit commences early, instead of being rushed on an expedited basis. Given that an Auditors’ Report will be submitted annually as part of the company’s Annual Return, companies should take note of when it should instruct its auditors to commence the audit, to ensure that everything is completed on a timely basis. With its established network, InCorp works closely with various audit partners and is able to liaise with them regularly regarding a company’s audit matters.
In the worst case scenario, the auditors may issue an adverse opinion or an emphasis of matter. An adverse opinion is fairly uncommon and occurs only in situations where the auditor perceives that there are issues that have resulted is a misrepresentation of the company’s financial position. An emphasis of matter typically indicates that the auditor has a strong concern to highlight, such as the company’s insolvency.
How can an Auditors’ Report impact the company?
As explained in our article on the Director’s Report, directors are held responsible for the entire set of accounts of the company. Hence, in situations where the auditor expresses a qualified or adverse opinion on the accounts, the directors will be held responsible by ACRA.
ACRA has published a Practice Direction for directors with regards to the director’s duties in relation to financial reporting, which notes that under ACRA’s Financial Reporting Surveillance Programme (“FRSP”) established since 2011, ACRA will impose sanctions on directors when a financial reporting breach is detected. In particular, ACRA will scrutinise and prioritise financial statements that have qualified audit opinions and any emphasis of matter.
In the case where ACRA deems an investigation is necessary, it will send a formal enquiry letter to each individual director who authorised the financial statements, which will request for more explanations, supporting documents and other records, as deemed necessary. This has to be provided to ACRA within two to three weeks from the date of the enquiry letters. Subsequently, sanctions may be imposed upon the directors in the form of an advisory letter, warning letter, a fine, or prosecution leading to fines and/or imprisonment.
Another important thing to note is that the Auditors’ Report, together with the Director’s Report and the rest of the accounts, is retained by ACRA and is publicly available for purchase. Hence, potential business partners, suppliers, customers and investors can purchase this from ACRA. The company will not be notified when a purchase is made. Especially in situations where an investor or business partner wishes to come on board, it is essential that the company has an unqualified report that represents that its practices and internal controls are sound and transparent. Otherwise, the company may find that it may have to invest further in fixing its existing issues, resolving issues with management, forensic accounting or an extensive due diligence exercise.
What is the difference between a Director’s Report or an Auditor’s Report?
Essentially, as their names imply, a Director’s Report is signed off by the directors (at least two directors, or in the case where a company has a sole director, the sole director), while the Auditor’s Report is signed off by the Auditors. In addition, a Director’s Report represents the opinion of the directors on the accounts and whether it, in the directors’ opinion, represents a true and fair view of the company’s state of affairs. In contrast, the Auditors’ Report summarises the audit process and presents the auditors’ view of the financial statements prepared by management.
Can InCorp assist me with drafting of an Auditor’s Report?
InCorp has an established network of specialized auditors who we partner with to provide audited reports. If your accounts require auditing, we will liaise with the auditors to ensure the auditor’s report meets the requisite requirements to be submitted with the director’s report.
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