Preparing for a company audit in Singapore does not have to be a stressful experience. For many small and medium-sized enterprises (SMEs), audit difficulties arise not because the business has done anything wrong, but because accounting records, supporting documents and reconciliations have not been properly organised before the auditors begin their work.
Good preparation can make a significant difference.
When financial records are complete, bank accounts are reconciled, supporting documents are readily available and management understands what the auditors require, the audit process can generally proceed much more efficiently.
For companies approaching their first statutory audit, preparation is particularly important. Management may be unfamiliar with audit requests, the documents required or the types of questions auditors are likely to ask.
This guide explains how to prepare for a company audit in Singapore, including the documents businesses should organise, common areas auditors examine and practical steps SMEs can take before audit fieldwork begins.
This article is for general informational purposes and should not be regarded as accounting, audit, tax or legal advice.
What Is a Company Audit?
A statutory audit is an independent examination of a company’s financial statements.
The company’s management is responsible for preparing financial statements and maintaining proper accounting records. The external auditor independently performs audit procedures and obtains evidence to support an opinion on the financial statements.
An audit should therefore not be confused with bookkeeping.
Bookkeeping generally involves recording the company’s financial transactions and maintaining its accounting records.
Auditing involves independently examining financial information that has already been prepared.
Understanding this distinction is important because a company should ideally have its accounting records substantially complete before the external audit begins.
Does Every Company in Singapore Need an Audit?
Not every Singapore company is required to undergo a statutory audit.
Qualifying private companies may be exempt under Singapore’s small-company audit exemption framework.
Generally, a private company may qualify as a small company where it satisfies at least two of the following three quantitative criteria:
- Annual revenue of S$10 million or less
- Total assets of S$10 million or less
- 50 employees or fewer
The applicable assessment period, corporate structure and group requirements must also be considered.
A company belonging to a group should not automatically assess its audit exemption based solely on its own financial figures.
Even where a statutory audit is not required, some companies may voluntarily obtain an audit because it is requested by shareholders, banks, investors, parent companies or other stakeholders.
Why Is Audit Preparation Important?
An auditor requires evidence to support the amounts and disclosures appearing in the company’s financial statements.
Suppose the company’s balance sheet shows S$800,000 of trade receivables.
The auditor cannot simply accept the number because it appears in the accounting software.
Depending on the circumstances, audit procedures may involve examining the receivable listing, testing transactions, reviewing subsequent collections and obtaining other appropriate evidence.
Similar principles apply to bank balances, revenue, expenses, inventory, fixed assets, loans and other financial statement items.
When supporting records are organised, this process is easier.
When records are incomplete, the company may spend considerable time searching for documents, explaining differences and correcting accounting records.
Preparation therefore benefits both management and the audit team.
Step 1: Determine Whether an Audit Is Required
Before preparing for an audit, confirm whether the company actually requires one.
This sounds obvious, but SMEs sometimes assume that every private limited company must be audited.
Others make the opposite mistake and assume that because they previously qualified for audit exemption, they will always remain exempt.
A company’s circumstances can change.
For example, the business may:
Increase its revenue.
Acquire significant assets.
Hire more employees.
Become part of a larger corporate group.
Acquire subsidiaries.
Change its corporate structure.
Management should therefore review the company’s audit status for the relevant financial year.
If there is uncertainty, the company can consult its corporate service provider, accountant or audit professional.
Step 2: Finalise the Company’s Bookkeeping
One of the most important rules for audit preparation is simple:
Complete the accounting records before the audit begins.
The audit should not become the company’s annual bookkeeping exercise.
Before providing the trial balance to the auditor, management or the accounting team should review whether all significant transactions for the financial year have been properly recorded.
These can include:
Sales.
Purchases.
Operating expenses.
Payroll.
CPF contributions.
Rental expenses.
Bank charges.
Interest.
Loans.
Asset purchases.
Asset disposals.
Director transactions.
Related-party transactions.
Accruals.
Prepayments.
Foreign exchange transactions.
Where bookkeeping is several months behind, the company should generally address this before substantial audit fieldwork begins.
Step 3: Prepare the Trial Balance and General Ledger
The trial balance is one of the central documents used during an audit.
It contains the balances of the company’s accounting accounts at a particular date.
Typical accounts include:
Revenue.
Cost of sales.
Salaries.
Rental expenses.
Professional fees.
Cash and bank balances.
Trade receivables.
Trade payables.
Inventory.
Fixed assets.
Loans.
Share capital.
Retained earnings.
The auditor may also request the general ledger containing the transactions making up these balances.
Before providing the trial balance, management should review it for unusual or obviously incorrect amounts.
For example:
Is a bank account showing an unexpected negative balance?
Are there old balances that have not moved for years?
Are there significant amounts under miscellaneous expenses?
Are director balances properly classified?
Are asset purchases incorrectly recorded as expenses?
Early review can identify problems before they become audit queries.
Step 4: Reconcile Every Bank Account
Bank reconciliation is one of the most important year-end accounting procedures.
The balance recorded in the accounting system should be reconciled to the corresponding bank statement.
Differences may arise because of timing items or accounting errors.
Businesses should investigate unexplained differences before providing the records to the auditor.
The company should prepare records for all relevant financial accounts, potentially including:
Current accounts.
Savings accounts.
Foreign-currency accounts.
Fixed deposits.
Payment accounts.
Other material cash balances.
Where a company maintains many bank accounts, keeping a clear schedule of account names, account numbers, currencies and year-end balances can be useful.
Step 5: Prepare the Trade Receivables Listing
Trade receivables represent amounts owed by customers.
The accounting team should prepare a detailed receivable listing that reconciles to the corresponding general ledger balance.
The listing may show:
Customer name.
Invoice number.
Invoice date.
Outstanding amount.
Age of the debt.
Management should pay particular attention to old balances.
If a customer invoice has remained unpaid for a long period, management should understand why.
Questions may include:
Is the customer disputing the invoice?
Has payment subsequently been received?
Is the customer experiencing financial difficulties?
Is the balance still recoverable?
Should an allowance or impairment be considered?
The appropriate accounting treatment depends on the facts and applicable accounting requirements.
Step 6: Prepare the Trade Payables Listing
The same principle applies to trade payables.
The company should maintain a detailed listing of amounts owed to suppliers and reconcile the total to the general ledger.
Old or unusual balances should be investigated.
For example, a payable outstanding for several years may require an explanation.
Businesses should also consider whether liabilities relating to the financial year have been completely recorded.
Missing supplier invoices or unrecorded liabilities can result in expenses and liabilities being understated.
Step 7: Organise Sales Invoices and Revenue Records
Revenue is an important area in many audits.
The auditor may need to understand:
How the company generates revenue.
When revenue is recognised.
How sales are recorded.
Whether different revenue streams exist.
Whether credit notes are issued.
Whether there are significant year-end transactions.
Businesses should therefore maintain proper sales documentation.
Depending on the business model, this may include:
Sales invoices.
Customer contracts.
Purchase orders.
Delivery orders.
Service agreements.
Sales reports.
Credit notes.
Payment records.
For subscription, construction, project-based or long-term contract businesses, additional documentation may be required.
Step 8: Organise Supplier Invoices and Expense Records
Businesses should maintain appropriate supporting documentation for expenses.
Auditors may select transactions for testing and request the underlying documents.
These could include:
Supplier invoices.
Receipts.
Contracts.
Purchase orders.
Payment records.
Expense claims.
Rental agreements.
Professional service invoices.
Insurance documents.
The documents should ideally be organised systematically rather than stored across multiple email accounts, phones and physical folders.
A proper document management system can save significant time during an audit.
Step 9: Prepare Your Fixed Asset Register
Companies with fixed assets should maintain an updated fixed asset register.
Fixed assets may include:
Computers.
Office equipment.
Furniture.
Machinery.
Vehicles.
Renovations.
Production equipment.
Property.
The register may contain information such as:
Description of asset.
Purchase date.
Original cost.
Depreciation.
Accumulated depreciation.
Net book value.
Disposal date where applicable.
Management should also review whether assets appearing in the register still exist and remain in use.
Assets sold or disposed of during the year should be properly recorded.
Step 10: Prepare Inventory Records
For businesses that carry inventory, stock can be a major audit area.
Examples include:
Retailers.
Wholesalers.
Manufacturers.
Importers.
Distributors.
Food businesses.
E-commerce companies.
Companies should maintain records showing inventory quantities and values.
Management should also identify:
Damaged stock.
Obsolete inventory.
Slow-moving items.
Expired products.
Goods held at third-party locations.
Goods in transit.
Depending on the nature and significance of inventory, auditors may need to perform procedures relating to physical inventory counts.
Companies should therefore discuss year-end inventory arrangements with their auditor in advance rather than only after the financial year has ended.
Step 11: Review Payroll Records
Employee expenses can represent a substantial portion of an SME’s costs.
Companies should maintain proper payroll information, which may include:
Employee listings.
Employment contracts.
Salary records.
Bonus information.
CPF records.
Payroll reports.
Leave-related information where relevant.
Expense reimbursements.
The payroll amounts recorded in the accounting system should reconcile with the company’s payroll records.
Unexplained differences should be investigated.
Step 12: Review Director and Shareholder Transactions
Owner-managed SMEs frequently have transactions involving directors and shareholders.
Examples include:
Directors paying company expenses personally.
Companies paying expenses on behalf of directors.
Shareholder loans.
Director loans.
Capital contributions.
Dividends.
Expense reimbursements.
These transactions should be properly recorded and supported.
The accounting team should prepare schedules showing relevant amounts due from or due to directors, shareholders and related parties.
Unexplained balances should be investigated before the audit.
Step 13: Prepare Related-Party Schedules
Related-party transactions may involve:
Holding companies.
Subsidiaries.
Sister companies.
Directors.
Shareholders.
Other related entities.
The company should identify these relationships and maintain clear records of material transactions and balances.
Examples include:
Intercompany loans.
Management fees.
Shared expenses.
Sales between related companies.
Purchases between related companies.
Rental arrangements.
Cost reimbursements.
Related-party accounting can become particularly complicated where several companies share expenses or regularly transfer funds between one another.
Maintaining separate and properly reconciled intercompany accounts can reduce confusion.
Step 14: Gather Loan and Financing Documents
If the company has borrowings, prepare the relevant agreements and schedules.
These might include:
Bank loan agreements.
Hire-purchase agreements.
Shareholder loan agreements.
Director loan documentation.
Other financing arrangements.
Management should ensure that the accounting records properly reflect relevant loan balances and transactions.
Where loans contain specific terms or conditions relevant to financial reporting, the auditor may need to examine the underlying agreements.
Step 15: Prepare Corporate Documents
Auditors may require relevant corporate information as part of their understanding of the company.
Depending on the circumstances, these records may include:
Company constitution.
Corporate profile.
Information on directors.
Information on shareholders.
Share capital records.
Board resolutions.
Shareholder resolutions.
Major contracts.
Information regarding subsidiaries.
Changes in ownership.
Significant corporate events during the year.
Keeping corporate records organised can therefore assist with the audit.
Step 16: Review GST Records Where Applicable
GST-registered businesses should ensure their accounting records reconcile appropriately with GST reporting.
The company should maintain supporting information for GST transactions and returns.
Differences between accounting records and GST filings should be understood and, where necessary, investigated.
Companies should not wait until the statutory audit to discover that their GST records have not been reconciled for the entire year.
Regular reconciliation can identify issues much earlier.
Step 17: Review Significant Contracts
Significant agreements can affect accounting and financial statement disclosures.
Businesses should prepare copies of material contracts such as:
Major customer agreements.
Supplier contracts.
Rental agreements.
Loan agreements.
Franchise agreements.
Licensing agreements.
Shareholder agreements where relevant.
Acquisition agreements.
Major service contracts.
The auditor may need to understand important contractual terms when assessing the accounting treatment of transactions.
Step 18: Identify Unusual Transactions
Management should identify significant or unusual events that occurred during the financial year.
Examples might include:
Acquisition of another company.
Sale of a business.
Major new financing.
Large asset purchases.
Major asset disposals.
Significant legal disputes.
Restructuring.
Changes in shareholders.
New subsidiaries.
Closure of business locations.
Major bad debts.
Unusual related-party transactions.
Informing the auditor early allows these matters to be considered during audit planning rather than discovered unexpectedly near completion.
Step 19: Review Events After the Financial Year-End
Financial reporting does not necessarily stop at midnight on the company’s financial year-end date.
Certain events occurring after year-end may be relevant to the financial statements.
Management should therefore inform the auditor about significant subsequent developments.
Examples could include:
Major customer insolvency.
New financing.
Sale of significant assets.
Major legal claims.
Business closures.
Acquisitions.
Significant changes affecting the company’s operations.
The appropriate accounting or disclosure implications depend on the facts and applicable financial reporting requirements.
Step 20: Prepare an Audit Request File
A practical way to organise the process is to create a dedicated audit folder.
It can contain separate sections for:
Corporate documents.
Trial balance.
General ledger.
Bank accounts.
Revenue.
Expenses.
Receivables.
Payables.
Inventory.
Fixed assets.
Payroll.
Loans.
Related parties.
GST.
Tax.
Contracts.
Other supporting information.
If documents are being shared electronically, clear filenames can make a major difference.
For example:
DBS_SGD_Bank_Statement_December.pdf
is far more useful than:
scan001.pdf
Good organisation saves time for both the company and the auditor.
Common Documents Requested During a Singapore Company Audit
Although every audit is different, SMEs may commonly be asked to provide documents such as:
- Trial balance
- General ledger
- Financial statements or management accounts
- Bank statements
- Bank reconciliations
- Trade receivable ageing
- Trade payable ageing
- Sales invoices
- Supplier invoices
- Fixed asset register
- Inventory listing
- Payroll records
- CPF records
- Loan agreements
- Lease agreements
- Related-party schedules
- Director balance schedules
- GST information where applicable
- Tax information
- Major contracts
- Corporate documents
The exact audit request list will depend on the company’s circumstances.
What Is an Audit Request List?
Before audit fieldwork begins, an audit firm may provide the company with a list of schedules and documents it needs.
This may sometimes be referred to as a prepared-by-client list, or PBC list.
Companies should review this list as early as possible.
Instead of waiting for the auditor to repeatedly follow up for individual items, management can assign responsibility for each document.
For example:
The accountant prepares the trial balance.
The finance executive prepares bank reconciliations.
HR provides payroll records.
Management provides major contracts.
The corporate secretary provides relevant corporate documents.
This makes the process considerably more organised.
Common Mistakes That Can Delay an Audit
Certain problems frequently create unnecessary delays.
Starting Before Accounts Are Ready
Sending an incomplete trial balance and repeatedly changing the numbers during the audit can create additional work.
Unreconciled Bank Accounts
Bank differences should ideally be investigated before fieldwork.
Missing Supporting Documents
If invoices, contracts or payment evidence cannot be located, additional questions may arise.
Old Receivable Balances
Management should understand why customers have not paid longstanding amounts.
Unexplained Director Accounts
Transactions involving directors should be clearly identified and documented.
Poor Inventory Records
Businesses holding material inventory should maintain accurate quantity and valuation information.
Ignoring Audit Requests
Audit progress can slow significantly when queries remain unanswered for long periods.
How to Make Your Audit More Efficient
The best approach is to treat audit readiness as a year-round process rather than a once-a-year emergency.
Maintain accounting records regularly.
Perform monthly bank reconciliations.
Review receivables.
Review payables.
Update the fixed asset register.
Maintain inventory records.
Document major transactions.
Reconcile intercompany balances.
Keep contracts organised.
Review director accounts.
When these tasks are performed consistently, year-end preparation becomes considerably easier.
Who Should Coordinate With the Auditor?
Ideally, the company should appoint one primary contact person.
For an SME, this could be:
Finance manager.
Accountant.
Financial controller.
Director.
External accountant.
The coordinator should understand where financial documents are stored and be able to direct questions to the appropriate person.
Having several employees separately communicating with the audit team without coordination can sometimes create confusion or duplicated responses.
How Long Should You Prepare Before an Audit?
There is no fixed preparation period.
A company with straightforward operations and excellent records may require relatively little preparation.
A company with incomplete bookkeeping, multiple bank accounts, substantial inventory and numerous related-party transactions may require considerably more work.
The important point is not to wait until the filing deadline is approaching.
Companies expecting a statutory audit should communicate with their auditor sufficiently early to understand the timetable and information requirements.
Preparing for Your First Company Audit
First-time audits deserve particular attention.
A business may have operated for several years without requiring a statutory audit before growing beyond the applicable exemption criteria.
Its accounting processes may therefore have been designed for a much smaller operation.
Before the first audit, management should review whether the company has adequate processes for:
Monthly bookkeeping.
Bank reconciliations.
Document retention.
Inventory management.
Fixed asset tracking.
Receivable management.
Payable management.
Payroll.
Related-party transactions.
Financial reporting.
This can also be an opportunity to improve the company’s broader finance function.
Frequently Asked Questions About Preparing for an Audit
What should I prepare first for an audit?
Start by ensuring that the company’s bookkeeping is complete and that the trial balance is reasonably finalised.
From there, prepare supporting schedules for major balance-sheet and income-statement accounts.
Will the auditor check every transaction?
An audit does not ordinarily involve checking every single transaction. Auditors design procedures based on factors including materiality, risk and professional judgement.
Do I need to keep every invoice?
Companies are subject to applicable accounting and record-keeping requirements. Proper supporting records should be maintained according to the relevant requirements.
Can my accountant communicate directly with the auditor?
In many cases, yes, subject to the company’s arrangements and the respective professional roles involved. This can help resolve accounting questions efficiently.
What if I cannot find a document requested by the auditor?
Inform the auditor rather than ignoring the request. The auditor can determine what further information or alternative evidence may be relevant.
Should I clean up my accounts before the audit?
The company’s accounts should be properly prepared and reconciled before audit fieldwork. This does not mean concealing problems. Errors and unusual balances should instead be investigated and appropriately addressed.
How can I reduce audit delays?
Complete the accounts early, prepare requested schedules, maintain supporting documents and respond promptly to audit questions.
Choosing an Audit Firm in Singapore
Preparing properly is only one side of an efficient audit process.
Companies should also consider whether their audit firm has suitable experience for the engagement.
Factors SMEs may consider include:
Relevant industry experience.
Experience with companies of similar size.
Communication.
Availability.
Professionalism.
Understanding of SME accounting environments.
Ability to meet required deadlines.
Clarity of the audit process.
Audit fees are naturally important, but choosing solely on price may not always provide the best outcome.
A responsive audit team that clearly communicates its requirements can make the process much easier for management.
A Simple Pre-Audit Checklist for SMEs
Before the audit starts, ask whether the company has completed the following:
Bookkeeping is up to date.
Trial balance is prepared.
General ledger is available.
All bank accounts are reconciled.
Receivable listing agrees with the ledger.
Payable listing agrees with the ledger.
Fixed asset register is updated.
Inventory records are complete.
Payroll records are organised.
Director balances are reviewed.
Related-party balances are reconciled.
Loan documents are available.
Major contracts are organised.
GST records are reconciled where applicable.
Significant unusual transactions have been identified.
Audit supporting documents are stored systematically.
The person coordinating with the auditor has been appointed.
If most of these items are ready before fieldwork begins, the company is generally in a much stronger position for an efficient audit.
Conclusion
Knowing how to prepare for a company audit in Singapore can significantly reduce unnecessary delays and administrative work.
The key is preparation.
Companies should not view the audit as the point at which their annual accounts are finally assembled. Ideally, accounting records should already be complete and reconciled before substantial audit work begins.
Start by determining whether the company requires a statutory audit. If an audit is required, finalise the bookkeeping and prepare a reliable trial balance.
Next, focus on the major areas auditors are likely to examine, including bank balances, revenue, expenses, trade receivables, trade payables, inventory, fixed assets, payroll, loans and related-party transactions.
Supporting documents should be organised and readily available.
Companies should also identify significant or unusual transactions and discuss them with the auditor early.
Perhaps most importantly, audit preparation should not happen only once a year.
An SME that maintains accurate monthly accounts, reconciles its banks, reviews outstanding balances and keeps supporting documents organised throughout the year will generally be much better prepared when the annual audit begins.
For businesses undergoing their first statutory audit in Singapore, early preparation is especially valuable. Understanding the auditor’s requirements, assigning a person to coordinate audit requests and preparing the necessary schedules in advance can make the experience substantially more manageable.
Ultimately, an efficient company audit depends on cooperation between management, the accounting team and the independent auditor.
Businesses looking for audit services in Singapore should consider engaging an audit firm sufficiently early, particularly where the company has complex operations, significant inventory, multiple related companies or a tight reporting deadline. Early communication gives both the company and the auditor more time to plan the engagement and address potential issues before statutory deadlines approach.
Find out more at Koh & Lim Audit PAC