Preparing for an Audit in Singapore: Essential Tips and Checklist for SMEs

Audits are professional examinations of a company’s financial records. Auditors conduct audits through independently examining financial statements and records according to professional auditing standards. Audits are necessary to ascertain if a company’s financial records accurately reflect its financial health. They are important for SMEs as they expedite decision-making, increase investor confidence, improve business credibility, and identify any issues for improvement.

SMEs in Singapore must undergo an audit if they are:

• A public company;
• A private limited company that meets at least two of the following three requirements:

1. Total annual revenue is more than $10 million;
2. Total assets owned are more than $10 million;
3. Total employee headcount is more than 50.

The Audit Process in Singapore

1. Planning

Auditors will notify your business of the audit. They will request documents for preliminary fact-finding, assessment, and audit scope determination. These documents may include previous audit reports, ledgers, and receipts. They will also plan the audit checklist, program, and schedule.

2. Fieldwork

The auditor carries out the fieldwork according to the audit plan. On-site visits are conducted to check if the company follows policies and best practices. Auditors conduct interviews and analyse data to obtain information and documentation. 

3. Review

Auditors document audit findings, activities, and observations. They identify instances of non-conformance and areas for improvement. They discuss these audit findings to develop and draft the final reports.

4. Reporting

Auditors prepare the final report. A first draft is usually passed to the client’s managers for preliminary review. The findings are discussed to highlight any audit issues. A second draft is written and presented to the executive management, along with recommendations for improvement.

Why is Audit Preparedness Crucial?

Being well-prepared for an audit benefits your business in many ways. You avoid incurring penalties, build investor confidence, streamline the audit process, and increase your credibility.

Audits ensure that your company complies with regulatory and legal requirements. Businesses that are found to be non-compliant may face penalties. Ensuring that your business meets all necessary standards helps prevent non-compliance.

Being prepared for audits also increases investor confidence. A well-prepared company with up-to-date and transparent records usually faces fewer audit observations. A clean audit report is easier for investors to interpret and understand. They will be more confident in your business’s sustainability.

Audit-ready businesses are also easier and faster to audit. This streamlines the audit fieldwork, review, and reporting process. An unprepared business tends to experience a longer audit duration as auditors need to spend more time looking through disorganised financial records.

Finally, being well-prepared for an audit increases your business’s credibility to customers and banks. Businesses which undergo regular audits and consistently send out audit reports have a higher business rating, which attracts more investors, lenders, and customers.

Essential Tips to Prepare for an Audit

1. Stay Updated on Regulations

Keep track of the latest legal requirements and regulations that businesses must meet. You can find updates on the accounting standards at the official website of Singapore’s Accounting And Corporate Regulatory Authority.

2. Anticipate Requests and Gather Paperwork

Auditors will usually request for interviews or documentation. Review your financial accounts before the audit and identify potential issues that auditors might flag out. Anticipate questions and requests they may have so you can gather the necessary information and materials in advance. Prepare all the paperwork in advance – including receipts, ledgers, bank statements, electronic transaction records, and property records. Good preparation expedites the audit fieldwork process. 

3. Ensure Financial Records are Updated and Organised

During fieldwork, auditors will check your financial statements to ensure they are up to date. Look through your financial records to ensure transparency and organisation. Compare records in your ledger with receipts and electronic transactions.

4. Review Internal Controls

Review your business’s internal controls and identify any areas where processes fall short of your goals. Propose corrective actions to be taken and be prepared to discuss them with the auditor during the post-audit review.

5. Engage an External Accountant, Bookkeeper, or Use Accounting Software

If you don’t have time to get your financial accounts in order before an audit, hire an external accountant or bookkeeper. Otherwise, consider purchasing accounting software to help organise your records. Find out more about how to choose accounting software for your small business in our previous blog.

Audit Checklist for SMEs

Use this audit checklist to ensure you have prepared everything you need for an upcoming audit.

• Prepare budgets: Include projected revenue and spending for the financial year
• File your invoices and receipts: Organise all your invoices and expense records. Retain digital copies for easier reference.
• Prepare income or profit/loss statement: This summarises your business’s total revenue and expenses to determine profitability. 
• Prepare cash flow statement: This summarises your total cash flow and determines if your business has enough reserves to sustain through future financial years.
• Update all transactions in ledgers: Ensure your transactions are up-to-date.
• Prepare complete inventory records: Account for raw materials and produced goods.
• Prepare balance sheets: These contain information about your business’s assets, liabilities, net worth, and resources. 
• Check payroll records: Ensure employees’ tax benefits and reliefs are recorded. Account for unpaid wages, medical leave earnings, bonuses, and commissions.
• Settle outstanding payments: If you cannot settle outstanding payments before the audit, keep a list for auditors to refer to.

How Correct Counts Accounting Services can Help

Hiring professional accountants can make the audit process smoother and more efficient for busy business owners like yourself. Qualified accountants and bookkeepers help you review your financial records and organise your paperwork for presentation to auditors. 

CorrectCounts Accounting Services provides a range of accounting services for payroll, bookkeeping, and auditing in SMEs. Contact us to find out how we can help you!