Audit Exemption Comes into Effect in Malaysia

On 4 August 2017, the Companies Commission of Malaysia, or SSM (its Malay acronym), has brought into force audit exemption for certain categories of private companies. SSM has issued Practice Directive No. 3/2017 to set out the qualifying criteria for private companies to be exempted from appointing an auditor for a financial year. SSM’s FAQ document has also been updated as at 4 August 2017 to address questions regarding audit exemption.

Credit: Nick Youngson –


The following types of private companies can decide to opt for audit exemption:

  1. Dormant companies;
  2. Zero-revenue companies; and
  3. Threshold-qualified companies – annual revenue of RM100,000 or less, total assets of RM300,000 or less, and 5 employees or less.

I expand on this further below and also set out four observations.

Audit Exemption Criteria

(1) Dormant companies

These private companies must have either been dormant since the time of incorporation, or dormant during the immediate past and current financial year.

(2) Zero-revenue companies

There are three requirements to be met in order to classified as a zero-revenue company:

  • No revenue during the current financial year;
  • No revenue in the immediate past two financial years; and
  • Total assets do not exceed RM300,000 for the current Statement of Financial Position as well as in the immediate past two financial years.

(3) Threshold-qualified Companies

There are three requirements to be met:

  • Annual revenue of RM100,000 or less during the current financial year and the immediate past two financial years;
  • Total assets in the current Statement of Financial Position of RM300,000 or less and in the immediate past two financial years; and
  • Five employees or less at the end of its current financial year and in the immediate past two financial years.

Arising from this audit exemption criteria, I make some observations.

Four Observations

(1) Companies must still prepare financial statements

There will still be a need to prepare a company’s financial statements except that the qualifying companies can opt to not have those financial statements audited. That will save such companies the costs of the audit fees.

(2) Safeguards

There are safeguards in case there is a need for an audit. A company shall still be required to audit its accounts if a notice is served on the company by 5% or more of the company’s members, or when the Registrar directs the company.

(3) Narrower Exemption Compared with the Draft Practice Directive:

This Practice Directive is narrower than the draft audit exemption directive that was circulated. I wrote about it in an earlier post.

The initial proposed policy was for a company to satisfy only two of the following three criteria:

(i) Revenue: Does not exceed RM300,000.00 for each financial year.
(ii) Total Assets: Does not exceed RM500,000.00 for each financial year.
(iii) Employees: Not more than 5 employees.

However, the present Practice Directive has limited the companies that can satisfy the criteria and all three criteria in terms of revenue, total assets and number of employees must be met. In effect, with the present threshold of revenue not exceeding RM100,000 for each financial year, the company would have a monthly revenue of just over RM8,000.

This small incremental introduction of audit exemption can also be seen in light of the opposing views raised during the consultation process. I wrote about this more in an earlier post.

(4) Issues for the Future:

With the introduction of audit exemption for certain companies, this does present some issues for the future.

I had touched on the possible tax-related issue if companies no longer file in audited accounts. We will have to see how the Inland Revenue Board approaches the requirement of audited financial statements for tax submission purposes.

Where certain companies no longer have audited financial statements, it will also be interesting to see how banks and other financial institutions react and whether such institutions will still insist that audited accounts be provided.

I am also keen to see a future relaxation and expansion of the qualifying criteria such that a larger pool of companies can decide on whether to opt for audit exemption or not. Looking at Singapore, audit exemption is open to private companies even with an annual revenue not exceeding SGD 10 million and with total assets not exceeding SGD 10 million. In the UK, the threshold is an annual revenue not exceeding GBP10.2 million and with total assets not exceeding GBP5.1 million.

It is inevitable that we will eventually see a gradual increase in the threshold limits for audit exemption.


0 thoughts on “Audit Exemption Comes into Effect in Malaysia

  1. Ricky Lew 23 September, 2017 / 1:49 pm

    If I did not read wrongly, the law takes effect on 4 August 2017.

    Assuming my company qualify for the exemption and my year end is 31st May.

    Will that mean that I will still have to get my financial statements audited for year end 31 May 2017. Can only apply for exemption from audit for year end 31 May 2018.

    Is my understanding correct?

    Looking forward to your reply.

    Thank you.

Leave a Reply

Your email address will not be published.