How To Effectively Prepare Unaudited Financial Statements
What are Unaudited Financial Statements?
Unaudited financial statements are unverified documents used internally by the management to judge current financial health and performance of a company.
Though these are unverified by an external auditor, their data and financial insights are useful for making business decisions. This data helps you prepare or modify plans and make strategic decisions to grow your business.
Who Benefits from Unaudited Statements?
Are your small businesses or dormant companies exempt from statutory audits? If it so, where do you get the financial insights to grow your business?
The latest financial statements provide financial insights and enable you to compute and file corporate tax returns. In the absence of verified statements, you must prepare unaudited financial statements. These also provide you with actionable financial insights for business decision-making.
These statements are just perfect for management’s use. They even simplify your work by providing access to data pertaining to a speicific reporting period under your consideration.
You can use these statements strategically for internal analysis. You can also use them to ensure compliance with regulations such as income tax filing or annual returns filing. Their accuracy determines your success and compliance.
It is why you need an expert to prepare these statements. They give you a chance to understand the business’ financial position. You get to use the insights to adjust operational strategies.
Critical Elements of Annual Unaudited Financial Statements
These statements may include:
- Director’s statement: Details the company’s statutory requirements related to compliance and responsibility
- Profit and Loss statement: Shows cash flow over the company’s financial year
- Balance Sheet statement: Depicts changes in the total assets of your company based on other comprehensive income and expense
- Notes to the financial statements: Includes information on financial status and results of operations absent from financial statements themselves
- Equity Statement: Shows changes in shareholders’ equity and investment
Who Must Prepare an Unaudited Financial Statement?
In Singapore, qualified small companies, small groups, and dormant companies can get audit exemptions. The exempted ones must submit their unaudited financial records when filing annual returns.
Requirements of an Unaudited Financial Statement
Small Company
A private company is tagged as a Small Company if it fulfils at least two criteria presented below for two consecutive years. A small company gets an audit exemption and can file unaudited statements if it has,
- Less than 50 full-time employees
- Less than $10 million in total annual revenue
- Less than $10 million in total assets
Unaudited profit and loss statements enable you to track company’s profits and losses. It also gives you an opportunity to update your plans to improve company finances.
Small Group
The small company criterion mentioned above also applies to the small groups. Each company in a group must fulfil at least 2 of the 3 criteria for 2 consecutive years. Their combined total revenue, employees, and assets must conform to the criteria.
Dormant Company
As per IRAS, a dormant company is a business entity without any income over a specific time or financial year. And also that it may have expenses.
As per ACRA, a company with no accounting transactions during its financial year is a dormant company. However, some of its transactions are not classed as accounting transactions. These are as follows:
- Hiring of an auditor
- Hiring of a company secretary
- Maintenance of a registered address
- Fees or penalties paid to ACRA
- Maintenance of company books and bookkeeping of registries
- Share-related transactions under certain conditions
The Benefits of Statutory Audit Exemptions
The auditing process is a complex and highly manual process. During the process, your financial records are verified against the documentary evidence. These audits cost money and are stressful.
The major beneficiaries of audit exemptions are Exempt private limited companies that earn $5 million or less in annual revenue. If your small company or dormant company enjoys audit exemption, you do not have to hire an auditor within 3 months of the date of company formation in Singapore. It also helps reduce your financial burden.
However, you have to maintain all of its accounting records as per Singapore Financial Reporting Standards or International Financial Reporting Standards. You also must prepare and file its financial statements every year.
How to Prepare an Unaudited Financial Statement
You must follow the steps listed below to prepare unaudited statements for your company:
- Collect and record your financial information regularly
- Collect necessary documents like receipts, invoices, and bills
- Prepare annual financial reports
- Present these documents to the Annual General Meeting
- File annual returns to ACRA
Let us see this process in brief.
Step 1: Collect and Record Your Financial Information Regularly
In this step, you must collect documents and information that show the financial activities of your company.
- It means collecting documents related to cash flow, unaudited profit, expenses, government grants, and changes in shares
- You also must collect and store bank statements and all receipts
Step 2: Prepare Annual Financial Statements
Now, you can use the financial data in your hand to prepare necessary statements. Use it judiciously to prepare a detailed profit and loss statement showing all your unaudited profits, balance sheet statements, and equity statements.
Step 3: Compliance with the Companies Act
In Singapore, you must prepare financial statements that are compliant with the Companies Act, Accounting Standards Council regulations, and IFRS. Please review all the statements to ensure they are okay. Now, go ahead and draft the Director’s statement and clarify compliance of your company.
Differences Between an Audited and Unaudited Financial Statement
Audited statements are prepared by CPA accountants. They scrutinise and verify each of your financial data. These statements are considered reliable and reflect the true financial state of the company. The creditors, lenders, and investors use these reports to make investment-related decisions.
Unaudited financial statements provide a less formal financial status of the company to management who have intimate knowledge of its working. They are not thoroughly verified, but they are good enough to support compliance-related activities. These reports are of great use to your managerial staff when making business decisions.
If you are not that familiar with the accounting concepts and principles, you must hire an expert accountant to prepare unaudited financial statements for your company. Contact us at +65-6536 0036 or email us at info@sbsgroup.com.sg to talk to our experts and to know how they will fulfil your business needs.
Also Read: How to Choose the Right Business Entity for Company Formation in Singapore
