FAQ

The audit exemption framework was first introduced and taken effect since 4 August 2017.

The audit exemption aims to reduce the financial burden for carrying company audit on micro and small private companies, promoting ease of doing business whilst ensuring financial accountability.

Yes, subsidiaries of public companies, exempt private companies which has opted to lodge certificate relating to its status as an exempt private company, and foreign companies are excluded.

Yes, companies that have been dormant since incorporation or dormant in the current financial year and in the immediate past financial year qualify for audit exemption.

If a company no longer meets the criteria, it will lose its eligibility to adopt the audit exemption framework for future financial years but shall remain exempt for the qualifying years in which it is so exempt.

The company must lodge unaudited financial statements, a directors’ report, and a certificate of compliance within 30 days of circulation pursuant to Section 254 of the Companies Act 2016.

Based on the Report on the Observance of Standards and Codes in Malaysia
– Auditing and Accounting” (ROSC) published by the World Bank in 2012, it was reported that the demand for statutory audits is significantly high compared to the number of qualified auditors in Malaysia. The report also touched on the size of the capital market and number of companies that need to be audited where there are not many licensed auditors in Malaysia. Independence requirements for auditors do not effectively restrict or limit the provision of a range of non-audit services to clients, and there was little oversight of quality of audit carried out or independence of auditors.

This is reflected in the number of active companies as at 30 November 2024 which is 689,134 companies compared to 1,947 of active approved auditors registered in Malaysia. This means the average “auditor to company” ratio is one auditor to 354 companies. It may place a strain on the auditors and his resources to meet tight deadlines which will impact the efficiency of his auditing services as well as the quality of audit. To address this, the implementation of audit exemption for non-public interest entities will assist the industry to improve the “auditor to company” ratio, thus improving the overall quality of audit and the annual reports in Malaysia.

The new criteria for audit exemption for private companies will be applicable to the financial statements with annual periods commencing on or after 1 January 2025.

The new qualifying criteria aim to ensure that the policy objective remains relevant, which is to reduce the audit and financial burden on micro and small companies, ensure that more companies, especially Small and Medium Enterprises (SMEs) have the opportunity to benefit from this policy.

Yes, PD 3/2017 will continue to be applicable for financial statements commencing on or before 31 December 2024.

Private companies meeting at least two (2) of the revenue, assets and employee thresholds are eligible to adopt the audit exemption framework under the new qualifying criteria.

Thresholds will progressively increase each year from 2025 to 2027, with a maximum turnover, asset value, and employee count of RM3,000,000 and 30 employees respectively by 2027.

Generally, the law requires every company to appoint an auditor for each financial year. However, under Section 267(2) of the Companies Act 2016, the Registrar is empowered to exempt certain categories of private companies from having to appoint an auditor for a financial year.

Nonetheless, even if the company is a private company where it is a subsidiary of a public company, the subsidiary company will not be eligible for audit exemption.

For a company to elect to be exempted from audit, it must be a private company and must satisfy the criteria applicable to the company to qualify for the audit exemption. A private company which has corporate shareholders but fulfils the criteria can enjoy the audit exemption for the relevant years.

The company is still obliged to prepare and circulate financial statements within the time period stated in the Companies Act 2016. Thereafter, the company is required to lodge the unaudited financial statements with SSM within 30 days after circulation. The financial statements prepared and lodged with SSM must comply with applicable approved accounting standards.

No. An exempt private company cannot elect to be exempted from an audit if it chooses to lodge an EPC certificate with SSM in lieu of financial statements. However, an exempt private company is eligible to elect for audit exemption provided the company satisfies the criteria and lodges its unaudited financial statements with SSM.

Similar like exempt private companies, you need not apply for audit exemption with SSM. A company is eligible for audit exemption if it satisfies the criteria set in PD 10/2024 and if it elects to do so. The company can always appoint an auditor to conduct an audit if there is a need and the company is not prohibited from engaging one.

The requirement for audited accounts by the Inland Revenue Board of Malaysia (“LHDNM”) is pursuant to subsection 77A(4) of the Income Tax Act 1967 (“ITA”) and it is beyond the scope of the requirements under the Companies Act 2016.

However, LHDNM had announced that if a company is not required to submit its audited accounts to the Companies Commission of Malaysia (“SSM”), then the provision of subsection 77A(4) of the ITA would not apply. LHDNM has posted the following announcement at their website pertaining to the application of subsection 77A(4) of the Income Tax Act 1967, which is selfexplanatory.

https://phl.hasil.gov.my/pdf/pdfam/ANNOUNCEMENT_REGARDING_THE_APPLICATION_OF_SUBSECTION_77A_11042014.pdf

For further clarification, please contact LHDNM directly.

The number of employees is based on the number of full-time employees employed by the company at the end of each relevant financial years.

For the purpose of PD10/2024, full-time employees means paid workers working for not less than six (6) hours a day for at least 20 days a month or working for at least 120 hours a month.

Full-time workers include local, foreign, contract workers and workers undergoing probationary period but excluding—

(a) a director who is also working as a full-time employee;

(b) a shareholder who is also working as a full-time employee; or

(c) family members or friends who are unpaid or receiving irregular wages while working in the company.

For a company that qualifies and wishes to elect for an audit exemption, the company must first assess its audit exempt financial period commencing after the exemption takes effect to see whether it fulfils the requirements set in the said PD for the current and immediate past periods.