Companies Act 2016 Audit Exemption: Opposition to Exempting Small Companies

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.

auditor-2
Pic from NY – http://nyphotographic.com/

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.

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5 thoughts on “Companies Act 2016 Audit Exemption: Opposition to Exempting Small Companies

  1. Johny Lim 14 December 2016 / 2:03 pm

    I’m accountant myself & I know exactly how it feels for the small business audit exemption. This is surely affecting many small audit firms if it goes through.

    I live in Malaysia and am able to provide the same accounting service abroad particularly in the UK. Yes I’m well verse in Malaysia’s GST & UK’s VAT.

    Where a small business doesn’t need to get audited their accounts in the UK, what quality you can expect because not all owner who knows accounting! Yes it’s without quality, but again the errors are equally negligible too. If a small mistake made means tax evasion, then the tax officer must be very busy then ! What’s the point of to be pound foolish but penny wise !

    We are no longer living in an era where you can get yourself comfortable till your retirement, one needs to move forward to stay relevant, otherwise more surprises will come to you soon!

    Like

  2. Kristin 12 March 2017 / 2:34 pm

    Has there been any update on the Audit Exemption for Dormant and Small Companies?

    Like

    • Lee Shih 14 March 2017 / 3:40 pm

      So far, there is still no update on the audit exemption.

      Like

  3. Just 22 March 2017 / 8:46 pm

    Heard that company secretary is also optional as the director can appoint himself as compliance officer is that true?

    Like

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