How Do You Decide When a Business Needs to Be Audited?

Auditing plays a critical role in strengthening the financial credibility of a business. It promotes transparency, ensures regulatory compliance, uncovers inefficiencies, and enhances stakeholder trust. But not every business requires an audit at all times — so how do you decide when a business needs to be audited?

The decision depends on a variety of factors including regulatory requirements, size and structure of the business, stakeholder expectations, funding plans, internal governance, and industry-specific considerations. In this article, we explore these factors in detail and provide guidance for business owners, directors, and finance managers on when and why to initiate an audit.

1. Statutory Requirements

The most common reason a business undergoes an audit is because the law requires it.

In Singapore, a company must be audited if:

It does not qualify as a small company under the Companies Act. To qualify as a small company, a private company must meet at least two out of the following three criteria for the past two consecutive financial years:

  • Total revenue of not more than S$10 million

  • Total assets of not more than S$10 million

  • Not more than 50 employees

If a company does not meet these criteria, an annual statutory audit is mandatory, and the audited financial statements must be submitted to ACRA (Accounting and Corporate Regulatory Authority).

Other statutory triggers for audit:

  • If the company is publicly listed or preparing for an IPO

  • If it is a subsidiary or associate of a listed company

  • If it is a charity, Institution of a Public Character (IPC), or non-profit receiving public funds or grants

  • If it is part of a group of companies required to submit consolidated audited accounts

In these cases, the decision to audit is not optional—it is legally required.

2. Stakeholder Expectations

Even if a business is not required to be audited by law, its stakeholders may demand audited financial statements.

Common stakeholders who may request audits include:

  • Investors and shareholders: to assess financial health and risk before injecting capital

  • Banks and lenders: to evaluate creditworthiness and approve loans

  • Government agencies: for grant eligibility, regulatory oversight, or tax incentives

  • Business partners or franchisees: for transparency in financial dealings

If your company is raising funds, applying for loans, or entering into joint ventures, an audit provides third-party assurance that your numbers are reliable. In such cases, it is wise to conduct a voluntary audit, even if it’s not mandatory.

3. Preparing for Business Growth or Exit

There are strategic moments in a business lifecycle when an audit becomes necessary to support growth or change.

a) Preparing for IPO or Listing

Companies that plan to go public need to demonstrate audit readiness for at least a few years prior to listing. Regulators and potential investors will want to review consistent, audited financials.

b) Mergers, Acquisitions, or Sale

When a business is being acquired, audited accounts become essential for due diligence. They give potential buyers confidence in the business’s financial position and help in valuation.

c) Expanding Internationally

Multinational operations often require group consolidation audits. If your business is expanding beyond borders, you may need an audit to meet the reporting requirements of other jurisdictions.

d) Pursuing Government Grants

In Singapore, many Enterprise Singapore or EDG grants require the submission of audited accounts to demonstrate financial eligibility and sustainability.

4. Internal Governance and Risk Management

Sometimes, a company initiates an audit not because it is legally required but because it is a sound business practice that helps improve internal processes.

Benefits of an audit from a governance perspective:

  • Identifies internal control weaknesses

  • Detects fraud, mismanagement, or operational inefficiencies

  • Highlights gaps in financial reporting

  • Improves financial discipline across departments

This is especially useful for:

  • Family-owned businesses looking to professionalize operations

  • Startups scaling quickly with limited internal controls

  • Companies with new finance teams or recent leadership changes

An audit creates a culture of accountability and transparency, laying the foundation for future growth and external financing.

5. Industry or Regulatory-Specific Needs

Some industries may have additional requirements or expectations for financial audits, especially if they are subject to special licensing, public accountability, or external scrutiny.

Examples include:

  • Real estate developers or MCSTs managing shared property funds

  • Construction companies with government contracts and performance bonds

  • Healthcare providers, educational institutions, and social enterprises that receive donations or subsidies

  • Financial services companies, such as fund managers and insurance brokers, governed by MAS (Monetary Authority of Singapore)

Even if not explicitly required by law, businesses in such sectors often benefit from audits to build trust with clients, regulators, and the public.

6. Complex Financial Structures

As a company grows in size and complexity, so does its financial reporting. Situations that may trigger the need for an audit include:

  • Holding companies with multiple subsidiaries

  • Group companies preparing consolidated accounts

  • Complex capital structures with convertible debt, preference shares, or equity incentives

  • Companies with significant foreign currency transactions, cross-border trade, or transfer pricing issues

In these scenarios, audited financials help ensure that complex financial arrangements are recorded and reported accurately.

7. Investor or Board Requirement

In businesses with multiple investors or a formal board of directors, an audit can serve as a neutral financial check that ensures:

  • Transparency for shareholders

  • Proper use of invested funds

  • Accountability by management

Even for small businesses, when new partners or investors come on board, an audit can help build mutual trust and reduce future disputes.

8. Timing and Frequency Considerations

While most audits are conducted annually, there may be reasons to conduct:

  • Interim audits: during a financial year to assess specific risks

  • Special audits: for a specific purpose like fraud investigation or project funding

  • One-time audits: to meet requirements for a loan, grant, or acquisition

The right timing and frequency of the audit depends on the company’s goals, reporting needs, and stage of development.

Conclusion: When Should You Audit?

To decide whether your business needs to be audited, ask these key questions:

  1. Is the audit legally required based on your company’s size or structure?

  2. Do your stakeholders expect audited financial statements?

  3. Are you preparing for fundraising, IPO, or M&A activity?

  4. Do you want to improve internal controls and governance?

  5. Are you operating in a regulated or sensitive industry?

  6. Has your company become too complex for simple financial oversight?

  7. Will an audit help build trust and credibility?

If the answer to any of the above is “yes,” then an audit is not just advisable—it’s likely necessary.

An audit is more than a compliance requirement; it is a strategic tool that enhances transparency, accountability, and business readiness. Whether you’re a startup eyeing expansion or an established company planning succession, knowing when to audit—and choosing the right audit partner—can set your business up for long-term success.

Audit with https://kohlimaudit.sg/