Published August 7, 2017 · Updated October 14, 2026
Since 2017, audit exemption in Malaysia has allowed qualifying private companies to avoid a statutory audit. The saving can be material, but banks, investors and tax authorities may still need reliable financial information.
In this guide, we explain the current SSM framework under Practice Directive 10/2024. We cover eligibility, the three-period assessment and continuing filings. We also show when an audit may still be needed.
What Is Audit Exemption and Who Qualifies in Malaysia?
Qualifying private companies may elect not to appoint an auditor, but they must still prepare and lodge financial statements.
Subsection 267(1) of the Companies Act 2016 generally requires a private company to appoint an auditor. Under subsection 267(2), the Registrar may exempt qualifying private companies from that requirement.
SSM issued Practice Directive 10/2024 on 16 December 2024. It applies to financial periods commencing on or after 1 January 2025. A private company must meet at least two of three tests.
The Phase 2 thresholds apply to financial periods commencing from 1 January 2026 through 31 December 2026. Revenue and total assets must not exceed RM2 million. The employee limit is 20 full-time employees.
Phase 3 starts for financial periods commencing on or after 1 January 2027. Its limits are RM3 million for revenue, RM3 million for total assets and 30 employees. The company assesses the current financial year and the immediate past two financial years against the applicable phase ceiling. This is a three-period assessment, not a two-year test.
1. Dormant Companies
A company is dormant if it carries on no business and has no accounting transaction other than statutory-compliance transactions; it must be dormant since incorporation or in both the current and immediate past financial years. Only a very narrow list of permitted transactions, such as fees paid to keep the company registered, can occur without breaking dormancy.
2. Zero-Revenue Companies
A zero-revenue company earned no revenue in the financial year but may still incur limited administrative expenses, typically bookkeeping, secretarial and registered office costs. Under PD 10/2024, zero revenue is not a separate category; the company must qualify as dormant or satisfy at least two of the revenue, assets and employee criteria.
3. Threshold-Qualified Companies
A threshold-qualified company stays within the revenue, total asset and employee-count ceilings set by SSM. Under PD 3/2017, threshold-qualified companies had a revenue ceiling of RM100,000, a total-assets ceiling of RM300,000 and an employee limit of five. SSM has raised the figures in phases since then, so always confirm the operative thresholds against the current directive on SSM's website before deciding.
For a fuller breakdown of the tests, read our guide on the qualifying criteria for audit exemption for Malaysia private limited companies.
Audit Exemption Categories at a Glance
| Category | Core Condition | Key Restriction | Accounts Filed |
|---|---|---|---|
| Dormant company | No business and no accounting transaction other than legal-compliance obligations | Dormant since incorporation or in the current and immediate past financial years | Unaudited |
| Zero-revenue company | No separate category under PD 10/2024 | Meet the dormant or threshold test | Unaudited only if eligible |
| Threshold-qualified company | Revenue, assets and headcount within SSM ceilings | Test applies over three consecutive financial years | Unaudited |
When Is Eligibility Assessed and How Do the Transition Rules Work?
Eligibility is assessed for each financial year using the current period and the two immediately preceding financial years.
The threshold test is not a one-year test. A company must meet at least two tests for the current financial year and the immediate past two financial years, making it a three-period assessment.
For a financial period commencing in 2026, Phase 2 applies. The RM2 million and 20-employee ceilings are used when assessing the current and two preceding financial years. Phase 3 applies to financial periods commencing on or after 1 January 2027.
Practice Directive 3/2017 remains relevant only to financial statements with annual periods commencing on or before 31 December 2024. A company should assess the financial-period commencement date, rather than the filing date.
A company that does not meet the threshold test cannot rely on that exemption for the financial year assessed. It remains exempt for earlier financial years in which it qualified. No separate application is required, but the company must elect the exemption and lodge the required documents.
Eligibility Assessment in Practice
| Situation | Likely Outcome | Practical Step |
|---|---|---|
| Qualifies in current and two preceding financial years | Exempt for the current year | Lodge unaudited accounts on time |
| Qualifies in the current year only | Exemption generally unavailable under the three-period test | Budget for an audit and retest next year |
| Loses qualification mid-cycle | Auditor must be appointed for that financial year | Plan fees and inform shareholders early |
| Subsidiary of a public company | Not eligible under PD 10/2024 | Appoint an auditor for the financial year |
| Dormant this year and last year, or since incorporation | Exempt regardless of size | Keep the transaction record clean |
Does Audit Exemption Cancel Your Other Filing Obligations?
No — the exemption removes the audit, not the filings: unaudited accounts, the annual return and tax submissions all remain due.
According to SSM, the annual return must be lodged within 30 days of the anniversary of the company's incorporation date, recording the directors, shareholders, registered office address and share capital as at that date.
Financial statements must still be prepared and circulated to members within six months of the financial year end for private companies. Lodgement with SSM through the Malaysian Business Reporting System (MBRS) follows within 30 days of circulation, even for exempt companies.
Tax duties continue in parallel. The Inland Revenue Board of Malaysia (LHDN) requires the company income tax return (Form C) within seven months of the accounting period end, and an existing operating company must lodge CP204 at least 30 days before the basis period begins; a newly operating company generally has three months from commencement, while a dormant company need not lodge e-CP204. Companies that qualify for the small-company thresholds must lodge unaudited statements within the same timeframes, which is where a reliable compilation of unaudited financial statements service becomes essential.
Note that limited liability partnerships follow a separate regime entirely, so LLP owners should review the LLP setup rules rather than assume company rules apply.
Compliance Calendar After Audit Exemption
| Obligation | Deadline | Authority |
|---|---|---|
| Annual return (Section 68) | Within 30 days of the incorporation anniversary | SSM |
| Circulate financial statements | Within six months of the financial year end | SSM |
| Lodge statements via MBRS | Within 30 days of circulation | SSM |
| Form C income tax return | Within seven months of the accounting period end | LHDN |
| CP204 tax estimate | At least 30 days before the basis period begins | LHDN |
| Director or address changes | Within 14 days of the change | SSM |
When Would a Bank or Regulator Still Ask for an Audit?
An exempt company may still need an audit after a qualifying member request or Registrar direction, while lenders and counterparties may set separate requirements.
Practice Directive 10/2024 allows an eligible company to elect audit exemption. It also identifies cases where an audit becomes mandatory.
A written request from members holding at least 5% of the total issued shares, or from at least 5% of members eligible to vote, must reach the company during the financial year. It must arrive no later than one month before that financial year ends. The Registrar may also direct an audit where the Registrar considers it necessary.
1. Bank Financing and Credit Lines
Many commercial lenders ask for audited financial statements before approving term loans, overdrafts or larger credit facilities. A company that skipped the audit may face delays or less favourable terms when it eventually needs working capital.
2. Investors, Grants and Licences
Prospective investors and acquirers usually build their valuation on audited numbers, and some grant bodies, licensing authorities and franchise agreements require audited accounts as a condition of approval. A voluntary audit before fundraising can shorten due diligence considerably.
3. Tax Reviews and Disputes
LHDN can call for a company's accounts and records during a review or investigation. Audited statements provide independent support for the reported figures, which can matter when deductions or losses are challenged.
4. Shareholder Assurance and Internal Control
Where shareholders are not involved in day-to-day management, an audit gives them independent confirmation that the accounts are reliable. The audit process also surfaces control weaknesses and errors early, before they distort management decisions.
Audited Versus Unaudited Accounts at a Glance
| Consideration | Audited Accounts | Unaudited Accounts |
|---|---|---|
| Professional cost | Higher fees | Lower fees |
| Preparation timeline | Longer close | Faster close |
| Lender confidence | Generally stronger | Varies by lender |
| Assurance level | Independent opinion | Management-prepared |
| Statutory duty | Required for larger companies | Available to qualifying companies |
So, Is Audit Exemption Good or Bad for Your Company?
The exemption suits qualifying companies that do not need audited accounts for shareholder, lender or contractual purposes.
Audit exemption is neither a reward nor a penalty. Directors should compare the compliance saving with the information needs of shareholders, lenders and counterparties.
1. When the Exemption Is Clearly Good
A dormant, zero-revenue or consistently small company with no external financing plans saves a genuine professional fee and closes its books faster. The cash saved can be put to better use, and compliance risk stays low provided the unaudited accounts are still prepared properly and filed on time.
2. When It Can Hurt
Skipping the audit to save money can cost more later if the company then applies for a bank facility, seeks investors, bids for contracts requiring audited accounts, or faces a shareholder dispute. Weak controls that an audit would have exposed are also left unexamined.
3. How to Decide: A Quick Checklist
Work through these questions before each financial year end:
- Will you apply for bank financing or grants within the next two years?
- Are there shareholders who are not involved in day-to-day management?
- Is your revenue close to the current SSM thresholds?
- Do any licence, franchise or tender conditions require audited accounts?
- Would independent assurance help if LHDN reviews your returns?
Conclusion
Audit exemption in Malaysia can reduce compliance costs for qualifying private companies. It is not a permanent right.
Eligibility depends on the company's status and results for the current and two immediate past financial years. The company must meet at least two applicable SSM tests. It must still prepare accounts, lodge the annual return and meet LHDN deadlines.
Directors should decide each year. A company planning financing, investment or a licence renewal should check the counterparty's requirements early. A voluntary audit may be appropriate where audited accounts are requested.
At 3E Accounting Malaysia, we help clients assess eligibility at each financial year end. We also help prepare unaudited financial statements and track the compliance calendar. If you are considering the exemption, our Corporate Services Provider team is ready to advise you.
Not Sure Whether Your Company Should Still Be Audited?
Our team can review your eligibility, financials and growth plans, then recommend the most cost-effective compliance route.
Frequently Asked Questions
No. Exempt companies must still prepare and circulate financial statements, lodge them with SSM within 30 days of circulation, and file the annual return within 30 days of the incorporation anniversary.
SSM raised the thresholds in phases after introducing the rules in 2017, so always verify the operative revenue, asset and employee figures against the current practice directive on SSM's official website before relying on the exemption.
Yes. The exemption removes the obligation, not the option. Many companies commission voluntary audits to support bank financing, investor due diligence or licence applications.
It loses the exemption for the financial year in which it fails the test and must appoint an auditor for that year, so plan the cost as soon as growth approaches the thresholds.
No. Eligibility is re-tested every financial year against the applicable category and thresholds, and it can be lost through growth, a change in dormancy status, or the company becoming a subsidiary of a public company.
Abigail Yu
Director
Abigail Yu oversees executive leadership at 3E Accounting Group, leading operations, IT solutions, public relations, and digital marketing to drive business success. She holds an honors degree in Communication and New Media from the National University of Singapore and is highly skilled in crisis management, financial communication, and corporate communications.
