In the world of business, financial statements serve as the backbone of decision-making. They reflect the financial health, performance, and position of a company. But not all financial statements are the same—some are audited, and others are unaudited. This difference significantly impacts how stakeholders—such as investors, regulators, banks, and even internal management—perceive and use them.
For businesses in Singapore, especially SMEs, understanding the difference between unaudited and audited financial statements can help you stay compliant, make strategic decisions, and build trust with stakeholders.
What Are Financial Statements?
Before diving into the differences, it’s helpful to understand what financial statements are. A full set of financial statements typically includes:
- Income Statement (Profit & Loss Statement)
- Balance Sheet (Statement of Financial Position)
- Cash Flow Statement
- Statement of Changes in Equity
- Notes to the Financial Statements
These documents provide a snapshot of a business’s operations and financial standing over a specific period.
What Are Unaudited Financial Statements?
Unaudited financial statements are prepared by the company’s internal finance team or an external accountant, but they have not been reviewed or verified by an independent auditor.
Key Characteristics:
- Prepared based on internal accounting records
- Do not include an auditor’s opinion
- May still follow accounting standards (e.g., Singapore Financial Reporting Standards – SFRS)
- Faster and less costly to prepare
- Commonly used for internal management reporting or submission for tax filing to IRAS (when audit exemption applies)
Use Cases:
- Small companies exempt from audit requirements in Singapore
- Management decision-making
- Basic financial analysis
- Initial submissions to banks or grant applications (may later require audited versions)
Legal Note in Singapore:
Under the Singapore Companies Act, private companies that meet the small company criteria are not required to have their accounts audited. The criteria include:
- Total annual revenue not more than S$10 million
- Total assets not more than S$10 million
- Number of employees not more than 50
If the company meets at least two out of these three criteria for the past two consecutive financial years, it qualifies as a small company and can prepare unaudited financial statements.
What Are Audited Financial Statements?
Audited financial statements are those that have been independently verified by a licensed auditor. The auditor examines the company’s financial records, transactions, accounting practices, and internal controls to ensure that the financial statements present a true and fair view of the company’s financial performance and position.
Key Characteristics:
- Prepared by the company, but examined and verified by an independent audit firm
- Includes an audit report with the auditor’s opinion (e.g., unqualified, qualified, adverse, or disclaimer)
- Follows strict accounting and auditing standards
- May involve adjustments and recommendations by auditors
- More costly and time-consuming
Use Cases:
- Companies required by law to be audited
- Companies applying for loans, grants, or investments
- Companies preparing for M&A or IPO
- Stakeholder confidence and corporate governance
Legal Note in Singapore:
Companies that do not qualify for the small company exemption must have their financial statements audited annually. This includes:
- Public companies
- Companies part of a group that exceeds the small group threshold
- Companies receiving certain grants or engaging with institutions that require audited accounts
Key Differences Between Unaudited and Audited Financial Statements
| Feature | Unaudited Financial Statements | Audited Financial Statements |
|---|---|---|
| Prepared by | Internal finance team or accountant | Prepared by company, verified by independent auditor |
| Audit involvement | No independent audit | Undergoes audit by licensed audit firm |
| Compliance | May follow SFRS but not independently verified | Must comply with SFRS and auditing standards |
| Credibility | Lower | Higher – trusted by banks, investors, regulators |
| Cost | Lower | Higher (audit fees apply) |
| Time required | Faster | Takes more time due to audit procedures |
| Usefulness | Useful for internal and basic external use | Essential for statutory filing, investors, banks, etc. |
| Legal requirement | Optional for small companies | Mandatory for non-small companies |
Why Do Audited Financial Statements Matter?
Audited financial statements provide an independent assurance that the numbers reported are accurate and reliable. This boosts confidence among external stakeholders such as:
- Banks and lenders – to assess creditworthiness
- Investors – to evaluate performance and risk
- Government agencies – for grant approvals and compliance
- Suppliers and partners – for long-term business relationships
Moreover, they help management identify areas for improvement through the auditor’s observations on internal controls, risk management, and compliance.
Are Unaudited Financial Statements Good Enough?
For small private companies, unaudited financial statements may be sufficient, especially if:
- They’re not seeking external investment
- They’re not applying for large loans or government grants that require audits
- Their stakeholders are internal (owners, directors)
However, even if your company qualifies for audit exemption, having audited statements can add an extra layer of credibility and open more doors for funding, partnerships, or business expansion.
Choosing Between Audited and Unaudited Financials
Here are a few guiding questions to help you decide:
- Is your company legally required to be audited?
- If yes, you must engage an audit firm.
- Do you plan to seek funding, apply for grants, or tender for contracts?
- If yes, audited statements may be required.
- Is your company growing quickly or preparing for an acquisition or IPO?
- If yes, audited financials can provide better transparency and investor confidence.
- Do you want to improve internal financial discipline and governance?
- An annual audit encourages better accounting practices and risk awareness.
Conclusion
The difference between unaudited and audited financial statements comes down to independent verification and credibility. While unaudited financials may be enough for some smaller businesses, audited financials provide a greater level of trust and assurance, often necessary for scaling and strategic growth.
In Singapore, understanding your obligations under the Companies Act and the benefits of having your financials audited—even if not compulsory—can help your business stay compliant, professional, and future-ready.
If you’re unsure whether your company needs an audit, or if you’re seeking a reliable audit partner, it’s best to speak with a qualified audit firm to get advice tailored to your situation.