Top 5 Mistakes Singapore SMEs Make During an Audit (And How to Avoid Them)
Introduction
For many small and medium-sized enterprises (SMEs) in Singapore, the annual audit can feel like a daunting process. However, it doesn’t have to be—if you know what to expect and prepare well. Unfortunately, many SMEs make avoidable mistakes during the audit process, which can result in delays, increased costs, qualified audit opinions, or even compliance issues with ACRA or IRAS.
This article outlines the top 5 common mistakes Singapore SMEs make during audits and offers practical tips on how to avoid them. With proper planning and the right mindset, your audit can be smooth, efficient, and even valuable for your business operations.
1. Poor Documentation and Missing Records
The Mistake:
One of the most frequent issues auditors face is incomplete or missing documentation. This includes missing invoices, contracts, receipts, or supporting documentation for transactions. Without proper evidence, auditors cannot verify the legitimacy of financial data, leading to qualified audit opinions or audit delays.
Why It Happens:
Many SMEs rely on manual systems or informal processes. They may not keep thorough records throughout the year, instead scrambling to compile documents at year-end. Others may store documents in scattered folders, emails, or even WhatsApp messages.
How to Avoid It:
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Implement cloud-based accounting systems like Xero, QuickBooks, or MYOB to centralize records.
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Create a monthly checklist for financial documentation (e.g., bank reconciliations, invoices, receipts).
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Store all documents in organized folders, ideally with both hard and soft copies.
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Assign someone in your team to be responsible for audit readiness year-round.
2. Lack of Bank Reconciliations and Cash Flow Errors
The Mistake:
Failure to reconcile your bank statements with your accounting records can raise red flags. Unreconciled bank accounts may signal fraud, errors, or mismanagement. Some SMEs also forget to record transactions like bank charges, transfers, or interest income.
Why It Happens:
Many SMEs leave reconciliations till year-end, relying on estimated figures or outdated software. Others outsource bookkeeping to untrained staff or freelancers who may not understand proper reconciliation practices.
How to Avoid It:
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Perform monthly bank reconciliations without fail.
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Reconcile all accounts: current, savings, credit card, and loan accounts.
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Use accounting software that includes automated reconciliation features.
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Review statements with your accountant or bookkeeper quarterly.
3. Misclassification of Transactions
The Mistake:
Many SMEs misclassify income and expenses. For instance, recording a capital purchase (like a computer) as an expense rather than an asset, or mixing director loans with shareholder equity. This leads to inaccurate financial statements, which auditors must correct—costing you time and money.
Why It Happens:
A lack of understanding of accounting standards and terminology often causes this mistake. SMEs sometimes use basic spreadsheets or untrained staff to manage their books, leading to errors in categorisation.
How to Avoid It:
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Engage a qualified bookkeeper or accountant to review your accounts regularly.
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Familiarise yourself with basic SFRS rules, especially on asset capitalization, depreciation, and revenue recognition.
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Create a chart of accounts with proper categories and guidelines for classification.
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Seek pre-audit advisory from a professional firm like Koh & Lim Audit PAC to identify and correct issues early.
4. Ignoring Related Party Transactions and Disclosures
The Mistake:
Many SMEs fail to disclose or account for related party transactions, such as loans to directors, inter-company transfers, or personal use of business funds. These must be clearly reported and disclosed under SFRS.
Why It Happens:
Owners may view the business as an extension of themselves and mix personal and business transactions. SMEs may also lack the systems or discipline to record such transactions properly.
How to Avoid It:
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Avoid using company accounts for personal expenses.
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Set up clear separation of owner and company finances.
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Document all related party transactions with agreements or board approvals.
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Maintain a register of related parties and update it annually.
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Disclose related party transactions transparently in your financial statements.
5. Engaging an Auditor Too Late
The Mistake:
Some SMEs wait until the last minute to engage an auditor, hoping to avoid audit fees or thinking it will be a quick process. This can result in:
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Missed deadlines for ACRA’s Annual Return or IRAS tax submissions,
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Rushed audits with errors,
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Limited choice of available audit firms,
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Higher audit fees due to urgency.
Why It Happens:
There’s often a misconception that audits can be completed in a few days. SME owners juggling operations and compliance may also de-prioritise audits until deadlines loom.
How to Avoid It:
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Engage your auditor at least 2–3 months before your financial year-end.
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Confirm audit timelines based on your company’s complexity and internal readiness.
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Work with a firm that provides a clear audit schedule and document checklist early.
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Maintain year-round communication with your audit partner.
Bonus Tip: Choosing the Right Audit Firm
One of the most strategic moves an SME can make is choosing an audit firm that:
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Understands SME challenges and Singapore regulations,
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Communicates clearly and proactively,
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Offers fair pricing with transparent scope,
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Provides value-added advice, not just compliance checks.
At Koh & Lim Audit PAC, we help SMEs avoid these common audit pitfalls through our guided audit process, checklists, and hands-on approach.
Conclusion
A business audit doesn’t have to be painful—but only if you plan ahead and avoid these common SME mistakes. By keeping good records, reconciling bank accounts, classifying transactions properly, managing related party dealings, and working with your auditor early, your audit can become an opportunity, not just an obligation.
Audits are more than a regulatory requirement—they are a strategic tool to improve financial governance, attract investment, and position your company for sustainable growth.
Don’t let audit mistakes derail your business goals.
Let Koh & Lim Audit PAC guide you through a smooth, compliant, and insightful audit process.
📞 Call us at +65 98638665
📧 Email: Tommyksh@kohlimaudit.sg
🌐 Visit: https://kohlimaudit.sg
