Qualifying Criteria for Audit Exemption for Malaysia Private Limited Companies
In a recent announcement of the Companies Commission of Malaysia (“SSM”) on August 4, 2017, Practice Directive No. 3/2017 entitled “Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies”, the qualifying criteria for audit exemption has been set out for certain private companies.
Issued pursuant to Section 20C of the Companies Commission of Malaysia Act 2001 and Subsection 267(2) of the Companies Act 2016 (“CA 2016”), this Practice Directive rolls out the qualifying criteria for private companies from having to appoint an auditor in a financial year i.e. audit exemption.
The Practice Directive No. 3/2017 indicates that the following companies are eligible for audit exemption.
(a) dormant companies
(b) zero-revenue companies
(c) threshold-qualified companies
Kindly remind that the audit exemption is not applicable for an exempt private company which has chosen to lodge a certificate relating to its status of an exempt private company to the SSM.
(a) Dormant Company Audit Exemption
i. A company is dormant in a financial year if
- the company does not carry on business and,
- there is no accounting transaction * occurred.
* “Accounting transaction” means a transaction, accounting or other records of which is required to be kept under section 245(1) of the Companies Act 2016, excluding a transaction arising from any obligations that the company is required to abide by any laws to pay and its related costs to comply.
ii. A dormant company is qualified for audit exemption if
- it has been dormant from the time of its incorporation; or
- it is dormant throughout the current financial year and in the immediate preceding financial year.
iii. It shall take effect as follows:
- 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) Zero-revenue companies Audit Exemption
i. A zero-revenue company is a private entity as defined by the Malaysian Accounting Standards Board (MASB) and the company is qualified for audit exemption if
- it does not have any revenue during the current financial year;
- it does not have any revenue in the immediate past two financial years; and
- its total assets in the current Statement of Financial Position (FS) does not exceed RM300,000 as well as in the FS of the immediate past two financial years.
ii. “Revenue” does not include credit entries for reversal of accounting entries arising from earlier entries, accounting entries related to taxation, reversal of provisions made earlier and gain on recognition of property, plant, equipment and investment property in the Statement of Comprehensive Income;
iii. A company ceases to be inactive where there are revenue received or receivable; and
iv. Any expenses incurred in maintaining the company is disregarded.
v. It shall take effect for financial statements with annual periods commencing on or after 1 January 2018.
(c) Threshold-qualified companies Audit Exemption
i. A threshold-qualified company qualifies for an audit exemption if
- it has revenue (includes revenue receivable during the year) not exceeding RM100,000 during the current financial year and in the immediate past two (2) financial years;
- its total assets in the current Statement of Financial Position (FS) does not exceed RM300,000 and in the immediate past two (2) financial years; and
- it has, at the end of its current financial year and in each of its immediate past two (2) financial years end, not more than five (5) employees.
ii. It shall take effect for financial statements with annual periods commencing on or after 1 July 2018.
Any company that opts for audit exemption must submit its unaudited financial statements with the Registrar together with the required certificate in compliance with sections 258 and 259 of the Companies Act 2016. Please note that the same set of unaudited financial statement is required, just that the signature of auditor is no longer needed (people can save cost for this reason).
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