Company Audit Exemption in Malaysia – Good? Or Bad?
Big news coming out of Malaysia this 4th of August 2017. While Singapore may have started their audit exemption back in 2003 on the 15th of May, 14 years later Malaysia is finally hopping on board the bandwagon and getting into the game with the same move. Still, better late than never.
With this new change happening for companies, it is expected that Malaysia is going to be the next financial hub, since audit exemptions are going to make doing business in Malaysia a much easier process.
Here at 3E Accounting, we are placing out focus on the practice directive criteria for audit exemption geared towards private companies. To start with, audit exemption for certain categories of SSM companies is a welcomed move indeed. Although the current mandatory audit requirement is thought to be better in terms of improving business potential for audit firms, it can be a financial burden for private limited companies, especially the smaller ones.
To better hep smaller companies reduce their compliance cost and increase the competitiveness of doing business in Malaysia, certain measures needs to be increased to reduce the gap between Malaysia and Singapore. Dormant companies of more than three consecutive financial years are exempted from audit requirements, for example, but this does not help reduce the compliance costs incurred by the dormant company and they may find it difficult to continue to fund the auditing costs if they have already ceased their operations.
While MIA is still suggesting that only dormant companies should be exempted from audit requirements, 3E Accounting believes SSM’s should also be independent, and the law should be in favour of benefitting the economy of Malaysia as a whole.
SME Corp Malaysia’s CEO Datuk Dr Hafsah Hashim told the SunBiz in an interview that getting rid of annual audits for small companies would have an impact on the submission tax returns. Why? Because the submission process requires audited accounts. If loans and financing are required by companies, the banks would also have a copy of these audited accounts. Not many SME’s have in-house accounting professionals, and therefore mandatory annual audits can be of help to these companies. Even if the annual audits are removed, ad-hoc audits may still be required for funding and financing purposes, which may be expensive according to Dr Hafsah.
Is this in fact true? Not necessarily. In terms of cost saving, there is no need for the client to, for example, engage 2 professionals, one accountant or one auditor. In fact, it is enough for one qualified accountant to already handle the accounts for the company which complies with the law and accounting standards. There is no necessity for an auditor, especially for smaller companies. Even if the company had no in-house accounting professional, this can be outsourced.
In Singapore, it is possible for an SME to easily get a bank loan with a threshold of 10 million with an unaudited account as banks will be accommodating to adapting to the information required as long as it aligns with the law changes.
It is a similar case for IRB taxes. Sole proprietors, LLP and partnerships that have not been audited for many years can still have their tax reporting done accurately. IRB will always perform an audit check if required.
Singapore’s auditing quality has grown by leaps and bounds over the years with audit exemptions. Auditors no longer need to waste precious time auditing small or dormant companies, especially if clients have no need for it and this has helped many SMEs save cost especially in the early stages of their business venture. Audits can always be done voluntarily if needed.
3E Accounting definitely welcomes this move especially for the SSMs, as we can see this is going to help Malaysia’s economy in a big way soon, especially in terms of ease of doing business. When more people are keen to invest in business, this is good news for any economy to grow.
We are looking forward for a higher threshold and more benefits for SMEs, and more foreign investment coming into Malaysia.
Good job, SSM.