Malaysia Company Audit Exemption
Audit helps both shareholders and stakeholders to make informed decisions about future directions based on how the company is performing. The blooming of the Small and Medium-sized enterprises (SMEs) have played an important role in the process of industrialization in the world. Therefore, to support the growth of SMEs, an audit exemption regime has been implemented in lots of developed countries, such as Australia, United Kingdom, etc.
Meanwhile in Malaysia, the policy makers and regulators have announced that the audit for SMEs will remain a legal obligation irrespective of their size, private or public. Malaysia company audit exemption has been the focus of wide debate and contemplation over the years.
The mandatory audit requirement is perceived to better improve the business potential for audit firms that primarily service the private limited companies in Malaysia. However, as for the private limited companies, the audit fee is a financial burden to them, especially the small private limited companies. Besides, many of their financial statement users may not benefit from having the audited financial statements as well. As a result, the mandatory audit may be treated as a waste of companies’ resources to the smaller companies.
According to some surveys conducted, there is a significant difference between the ownership structure of firms and the decision of SMEs to opt for voluntary audit. In addition, the lack of resources is significantly related to opting for a voluntary audit.
Therefore, the new bill aims to streamline the accounting and auditing provisions with approved accounting standards and industry practices. The mandatory audit regime is retained but the Companies Commission of Malaysia (CCM) is now empowered to exempt certain categories of companies. Currently, the criteria, requirements and thresholds for audit exemption have yet to be set or determined, however will certainly be an area of considerable interest and concern for audit practitioners and SMEs.
The Companies Commission of Malaysia (“SSM”) had recently issued the following Audit Exemption requirement in relation to subsidiary legislations (Companies Act 2016 [Act 777]) for public consultation.
For the purposes of exemption from appointing an auditor for a financial year, the Registrar exempts the following categories of companies:
A company shall be exempt from audit requirements if:
(a) it has been dormant from the time of its formation; or
(b) it has been dormant for three consecutive financial years
A company qualifies as a small company if (a) it is a private company in the financial year in question; and (b) it meets at least 2 of 3 following criteria for immediate past two consecutive financial years:
(i) the revenue of the company for each financial year does not exceed RM300,000;
(ii) total value of the company’s total assets at the end of each financial year does not exceed RM500,000;
(iii) it has at the end of each financial year not more than 5 employees.
For a company which is part of a group, to qualify to the audit exemption:
(a) the company must qualify as a small company; and
(b) the entire group must be a “small group”
*NEW UPDATE* The Companies Commission of Malaysia (“SSM”) on 4 August 2017, issued Practice Directive No. 3/2017 entitled “Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies”.
This Practice Directive is issued pursuant to Section 20C of the Companies Commission of Malaysia Act 2001 and Subsection 267(2) of the Companies Act 2016 (“CA 2016”). It sets out the qualifying criteria for private companies from having to appoint an auditor in a financial year i.e. audit exemption.
The Practice Directive indicates that dormant companies, zero-revenue companies and threshold-qualified companies qualify for audit exemption and it shall take effect as follows:
(a) In the case of a dormant company,
- where the company is incorporated on or after 31 January 2017, the financial statements with annual periods commencing on or after 31 January 2017; and
- where the company is incorporated on or before 30 January 2017, the financial statements with annual periods commencing on or after 1 September 2017.
(b) In the case of zero-revenue companies, for financial statements with annual periods commencing on or after 1 January 2018.
(c) In the case of threshold-qualified companies, for financial statements with annual periods commencing on or after 1 July 2018.
Please see Qualifying Criteria for Audit Exemption for Malaysia Private Limited Companies for more detailed information.
For the moment, for SME that qualifies for exemption, by obtaining the Director’s Report and Statement, Profit and Loss, Balance Sheet, Compliance Notes (Compilation of Financial Statement) will be sufficient to be compliant with Malaysia laws and regulations. Apart from that, SME will be able to fill respective company’s annual return to SSM (Suruhanjaya Syarikat Malaysia). Not only that, but also the lodgement and filing for yearly tax returns to IRB (Inland Revenue Board of Malaysia).
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