Wholesale and trading companies often handle high sales volumes, multiple suppliers, large inventory balances and transactions across different markets. Their financial statements may include goods in transit, foreign currency purchases, customer rebates, supplier incentives, trade receivables, inventory provisions and significant working capital balances.
An independent audit examines the company’s financial statements and supporting records. It can give directors, shareholders, lenders, investors and other stakeholders greater confidence in the reported figures.
Koh & Lim Audit PAC provides audit services for wholesale and trading companies in Singapore. We work with businesses involved in importing, exporting, distribution, wholesale supply, regional trading and the sale of products to commercial customers.
Independent audit services for trading businesses
An audit involves gathering evidence to assess whether a company’s financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework and relevant requirements.
For a wholesale or trading company, the audit may involve reviewing the movement of goods from suppliers to the company, from the company to its customers, or directly between third parties. The audit team may also need to understand how the business records sales, purchases, inventory, freight costs, foreign currency transactions and customer or supplier incentives.
The audit work depends on the company’s size, trading model, systems, locations and financial reporting risks. Our approach begins with understanding how the business operates and identifying the financial statement areas that require attention. We then plan procedures to obtain appropriate evidence and discuss information needs with management.
Why wholesale and trading companies may need an audit
A Singapore company may need an audit to meet statutory requirements, comply with financing terms, fulfil group reporting instructions or provide assurance requested by shareholders, investors or business partners. A lender, parent company or major customer may also request audited financial statements as part of its own requirements.
Some companies may qualify for an audit exemption, depending on the applicable criteria and their circumstances. ACRA’s guidance explains the small company audit exemption framework. Companies should confirm whether they qualify rather than assume that private ownership or a low level of activity automatically removes the audit requirement. www.acra.gov.sg
Directors remain responsible for the company’s financial reporting. ACRA states that companies that are not audit exempt must present audited financial statements. www.acra.gov.sg The applicable accounting standards depend on the type of entity and its circumstances. www.acra.gov.sg
Even when there is no statutory audit requirement, an audit may help a business meet a shareholder agreement, group reporting timetable or financing condition. It may also help stakeholders assess the company’s financial position and trading performance.
Understanding wholesale and trading operations
Wholesale and trading companies can operate in different ways. A business may purchase goods, store them in its own warehouse and sell them to customers. Another may arrange for a supplier to ship goods directly to its customer. Some companies act as distributors, while others trade commodities or products between overseas markets.
These differences affect the accounting records and audit evidence needed. During an audit, we may consider how the company:
- Records sales and purchases
- Identifies when control of goods transfers
- Tracks inventory in warehouses and in transit
- Reconciles physical stock with accounting records
- Accounts for discounts, rebates and sales returns
- Records freight, insurance, duty and other landed costs
- Manages trade receivables and supplier balances
- Converts foreign currency transactions
- Assesses slow-moving, damaged or obsolete goods
- Distinguishes principal trading from agency arrangements
Clear records help support the financial statements and make it easier for management to monitor margins, cash flow and stock levels.
Revenue recognition and sales cut-off
Wholesale revenue is generally associated with the sale of goods, but the timing of revenue recognition depends on the contract terms and the applicable financial reporting framework. Terms covering delivery, shipping, customer acceptance, consignment and return rights may affect the accounting.
The audit may involve reviewing customer contracts, purchase orders, invoices, delivery records, shipping documents, proof of receipt, customer confirmations and subsequent receipts. These documents help establish whether the sale occurred in the reporting period and whether the amount recorded is supported.
Sales cut-off is particularly relevant around year-end. Goods may have been invoiced before delivery, shipped close to the reporting date or held at a third-party warehouse. The company should keep records that support when the relevant contractual obligations were met and when the goods should be recorded as sold.
The audit may also review credit notes issued after year-end, sales returns, customer discounts, volume rebates and promotional allowances. These items may relate to sales made before year-end and could affect reported revenue or the amounts due from customers.
Inventory and goods in transit
Inventory is often one of the largest balances in a trading company’s financial statements. It may include products held in the company’s warehouses, stock stored by third-party logistics providers, goods in transit and items held at customer locations under consignment arrangements.
The audit may include reviewing the company’s stocktake procedures, observing a physical count, performing test counts and checking how count results are reconciled to the inventory records. The procedures depend on the locations, the nature of the stock and the company’s systems.
For goods held by third parties, the company may need to provide warehouse statements, stock confirmations or other evidence of quantities held. Goods in transit may require shipping documents, supplier records and evidence about delivery terms and ownership. The company should be able to distinguish its own goods from items owned by suppliers or customers.
Where the count takes place before or after the reporting date, the company should maintain records of stock movements between the count and year-end. These may include receiving reports, delivery documents, sales invoices and stock adjustment records.
Inventory valuation and obsolete stock
Trading inventory is usually recorded using an established costing method applied consistently. Depending on the business, the cost may include the purchase price and other costs required to bring the goods to their present location and condition. The relevant treatment depends on the company’s accounting policy and the applicable framework.
The audit may examine supplier invoices, freight and insurance charges, duty documents, inventory costing schedules and the method used to assign costs to goods. We may also compare recorded costs with subsequent sales or current selling prices when considering whether inventory remains recoverable.
Stock may become slow-moving or obsolete because of changing demand, product redesign, expiration dates, damage or a supplier discontinuing an item. Management should review inventory ageing and identify goods that may no longer be saleable at their recorded cost. Evidence may include sales history, stock turnover, product lists, customer orders and subsequent sales.
For goods that are damaged, expired or no longer expected to be sold, management should assess whether an adjustment is needed under the applicable accounting framework. A regular review of ageing reports can help identify these issues before year-end.
Purchases, supplier rebates and landed costs
Wholesale businesses may purchase products from local and overseas suppliers. The audit may examine supplier invoices, purchase orders, goods received records, supplier statements and payments after year-end. These records help assess whether purchases and liabilities are complete and recorded in the correct period.
Goods may be received before an invoice arrives. The company should have a process to identify these items and record the related liability when required. Matching purchase orders, delivery records and supplier invoices can also help identify differences in quantities, prices or agreed terms.
Some suppliers provide volume rebates, marketing support, discounts or other incentives. The audit may consider how these arrangements are documented and when they are recognised in the accounts. The company should maintain supporting agreements, calculations and evidence that the relevant conditions have been met.
Landed costs may include freight, cargo insurance, customs duty, handling charges and other costs related to bringing goods to the company’s location. The company should apply a consistent approach to deciding which costs are included in inventory and which are recorded as expenses. Clear cost allocation records can make the treatment easier to support.
Foreign currency transactions and overseas activity
Trading companies often invoice customers or purchase goods in currencies other than Singapore dollars. Foreign currency transactions can affect revenue, cost of sales, receivables, payables and bank balances.
The audit may examine how foreign currency transactions are initially recorded, how balances are translated at year-end and how exchange differences are recognised. We may also review the company’s foreign currency bank accounts, supplier invoices, customer invoices and year-end valuation calculations.
Where the company has overseas branches, subsidiaries or related parties, the audit may involve additional records and coordination. These may include intercompany balances, overseas inventory, local statutory accounts, foreign tax records and group reporting schedules.
Management should maintain clear documentation showing the exchange rates used, the dates of transactions and how exchange differences were calculated. Inconsistent or undocumented exchange rate practices can make balances difficult to reconcile.
Trade receivables and credit risk
Wholesale and trading businesses may extend credit to customers. As a result, trade receivables can be a significant part of the company’s working capital. A high level of revenue does not necessarily mean that cash has been collected, so receivable ageing and subsequent payments are important records.
During the audit, we may review customer balances, payment history, credit notes, disputes, collection correspondence and cash received after year-end. The audit considers whether receivables are supported and whether there is evidence that any amounts may not be recoverable.
The company should maintain an up-to-date ageing report and follow up on overdue balances. Where a customer is in financial difficulty, disputes an invoice or has stopped trading, management should assess whether an allowance or other adjustment is appropriate under the applicable framework.
Customer concentration can also be relevant. If a large share of sales or receivables relates to a small number of customers, management should understand the effect of delayed payments, cancellations or changes in customer demand.
Consignment, agency and drop-shipping arrangements
Some trading companies use consignment or drop-shipping models. In a consignment arrangement, goods may be held by another party before they are sold. In a drop-shipping arrangement, a supplier may deliver goods directly to the company’s customer.
These arrangements can affect whether the company controls the goods, when revenue is recognised and whether the company acts as principal or agent. The audit may review contracts, shipping records, supplier invoices, customer invoices and evidence of the company’s responsibilities in the transaction.
The accounting should reflect the substance of the arrangement and the applicable financial reporting requirements. Management should retain documentation that shows who owns the goods at each stage, who bears the relevant risks and what services the company provides.
Loans, cash flow and working capital
Wholesale businesses often need working capital to purchase stock before receiving payment from customers. Cash flow may be affected by supplier terms, inventory turnover, shipping lead times, customer credit periods and changes in demand.
The audit may include reviewing bank balances, loan agreements, interest costs, security arrangements and any borrowing covenants. We may also consider how inventory, receivables and payables affect the company’s ability to meet its obligations.
The company may have commitments to purchase goods, pay freight or meet minimum order quantities. Management should identify material commitments and consider whether disclosure or another accounting treatment is required.
If the company faces sustained losses, delayed collections, excess stock or difficulty renewing financing, directors may need to consider the effect on the company’s financial position and ability to continue operating. These matters may also affect financial statement disclosures.
Audit preparation for wholesale and trading companies
Preparing key schedules and documents before the audit begins can help the engagement progress smoothly. Companies may find it useful to organise:
- The trial balance and draft financial statements
- Bank statements and reconciliations
- Inventory listings by location and product category
- Stocktake instructions, count sheets and reconciliation records
- Details of goods in transit and stock held by third parties
- Purchase and sales records around year-end
- Supplier statements and customer ageing reports
- Freight, insurance, duty and landed cost schedules
- Foreign currency calculations and bank records
- Details of rebates, returns, discounts and credit notes
- Loan agreements, guarantees and covenant calculations
- Board minutes and significant correspondence
A staff member who coordinates audit requests can help provide consistent explanations and records. Management should also prepare explanations for unusual changes in stock levels, gross margins, foreign currency balances and overdue receivables.
Our audit process
Our audit process starts with understanding the company’s trading model, accounting systems, inventory arrangements and reporting timetable. We discuss significant developments during the year, including changes to suppliers, product lines, warehouses, customers or trading markets.
We then plan the engagement and agree on the information needed. Audit procedures may include testing transactions, reviewing inventory records, examining contracts, confirming balances with third parties and assessing financial statement estimates and disclosures.
At the end of the audit, we discuss significant findings and proposed adjustments with management. We issue the appropriate auditor’s report based on the audit evidence obtained and the applicable professional requirements.
The audit timeline depends on the readiness of the records, the number of inventory locations, the complexity of trading arrangements and the timely resolution of outstanding matters. Early planning is especially useful for companies with overseas suppliers, third-party warehouses or large year-end stocktakes.
Choosing an auditor for a wholesale or trading company
When selecting an auditor, a wholesale or trading company may want to consider whether the audit team understands inventory, purchasing, sales cut-off and foreign currency transactions. Clear communication, practical information requests and an agreed timetable can help the finance team prepare.
An audit does not replace management’s own inventory controls or credit management processes. The company remains responsible for keeping accurate records, monitoring stock and receivables, and preparing financial statements in accordance with the applicable requirements.
Audit services for wholesale and trading companies in Singapore
Koh & Lim Audit PAC provides audit services for wholesale and trading companies in Singapore, including importers, exporters, distributors, wholesalers and regional trading businesses. We aim to understand each company’s operations and carry out the audit with professionalism and care.
Whether your company needs an audit for statutory compliance, group reporting, financing or stakeholder requirements, we can discuss the engagement scope and the information needed to begin. Contact Koh & Lim Audit PAC to arrange a discussion about audit services for your wholesale or trading company in Singapore.