Audit Exemption : Do You Qualify?

An important change is taking effect in the Companies Act which will greatly impact regulatory costs for your Company.  This change is the new criteria for classification as “small company”, which takes effect for financial periods beginning 1 July 2015.  What this means is that if your Company’s financial year end is 31 December 2015, your Company may potentially be classified as a small company in the financial year beginning 1 January 2016.

This is huge news as the requirement for audit exemption have been lowered.  Previously, audit exemption only applies to exempt private companies with annual revenue of $5m or less.  The new requirement is that a small company is now exempted from audit!
However, to qualify as a small company, a company must be a private company that fulfils at least two of the following three quantitative criteria in each of the immediate past two financial years (FYs):
(a) Total annual revenue of not more than $10 million;
(b) Total assets of not more than $10 million;
(c) Number of employees of not more than 50.
 
Transitional provisions are applicable to companies that are incorporated before the date of the commencement of the new “small company” criteria.  Such a company can qualify as a “small company” if it is a private company and meets the above criteria in the first or second FY commencing on or after the date of commencement of the “small company” criteria, i.e. 1 July 2015.
A company which has qualified as a “small company” in the first or second FY commencing on or after the date of commencement of the “small company” criteria continues to be a “small company” until it is disqualified as a “small company”. Disqualification would occur if it:
a) Ceases to be a private company at any time during the FY, or
b) Does not meet the quantitative criteria for the immediate past two consecutive FYs.

This change not only applies to companies, but applies to group of companies as well if the Group qualifies as a small group.
 
If all this sounds confusing to you, don’t worry! Echtual professionals are on hand to help you figure it all out. Just contact us today!