In my earlier post, I had highlighted the proposed audit exemption for dormant companies and small companies under the Companies Act 2016. This would be carried out through a Practice Directive on Audit Exemption. The Companies Commission of Malaysia (SSM) invited feedback on this proposed move.
SSM has now published the feedback it has received and has extended the deadline for feedback until 28 February 2017. From the feedback, there appears to be mixed views. In general, there is support for allowing dormant companies to no longer require an auditor. However, there are differing views on whether to allow audit exemption for small companies. A majority of the responses objected to such an exemption.
Some of the points raised in the feedback process in relation to small companies were:
(1) Impact to SMEs
SMEs may not be able to maintain proper accounting records. There is a need for an annual audit so that SMEs can have access to an independent finance professional. Not many SMEs may have their own in-house accounting professional so the mandatory annual audit can assist such companies.
The compulsory annual audit will deter fraud. It would also protect the directors of such SMEs so that there is less risk of sanctions for failure to maintain proper accounting records.
If the annual audit is removed, ad hoc audits may still be required for funding or financing purposes. Such ad hoc audits may be expensive.
(2) Impact to society
Doing away with annual audits for small companies would have an impact on the submission of tax returns since the submission process requires the audited accounts. When banks extend financing or loans, the banks would also want to have a copy of the audited accounts.
(3) Impact to the accounting profession
There will be an impact on the accounting profession. Many accountants will see a drastic reduction in their audit revenue. Audits of small companies provide a training ground for fresh accountants. 78% of the accountants who responded to a survey stated that they do not have any strategy in place to cope with any possible audit exemption.