New Guide to Audit Exemption of Private Companies in Malaysia
Malaysia has introduced a revised framework for audit exemption aimed at reducing compliance costs and administrative burden for small and medium-sized private companies. The new rules, introduced by the Companies Commission of Malaysia (SSM) under Practice Directive No. 10/2024, came into effect beginning 1 January 2025 and are being implemented progressively over three phases until 2027. These changes are designed to support business growth while maintaining transparency and accountability in financial reporting.
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Overview of Audit Exemption in Malaysia
Audit exemption allows eligible private companies to submit unaudited financial statements to SSM instead of audited accounts. This initiative helps reduce compliance costs and administrative effort, especially for small businesses. However, companies that qualify for exemption must still prepare proper financial statements in accordance with the Companies Act 2016.
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Key Changes Under the New Audit Exemption Framework
The revised audit exemption framework simplifies eligibility by introducing financial and operational thresholds. Under the new rules, a private company must satisfy at least two out of the following three criteria for the current financial year and the immediate past two financial years to qualify for exemption:
(1)
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Revenue Threshold
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(2)
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Total Asset Threshold
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(3)
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Employee Threshold
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These thresholds aim to ensure that audit exemptions apply primarily to smaller private companies.
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Phased Implementation of New Thresholds
(1)
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Phase 1 – Financial Period Beginning 1 January 2025
(a) Annual Revenue: Not exceeding RM1 million
(b) Total Assets: Not exceeding RM1 million
(c) Number of Employees: Not exceeding 10
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(2)
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Phase 2 – Financial Period Beginning 1 January 2026
(a) Annual Revenue: Not exceeding RM2 million
(b) Total Assets: Not exceeding RM2 million
(c) Number of Employees: Not exceeding 20
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(3)
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Phase 3 – Financial Period Beginning 1 January 2027
(a) Annual Revenue: Not exceeding RM3 million
(b) Total Assets: Not exceeding RM3 million
(c) Number of Employees: Not exceeding 30
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Companies must meet at least two of the above thresholds consistently for the current year and the previous two financial years.
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Companies Not Eligible for Audit Exemption
Despite the expanded criteria, certain companies are excluded from the audit exemption framework, including:
(1)
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Public companies, including listed companies
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(2)
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Private companies that are subsidiaries of public companies
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(3)
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Foreign companies operating in Malaysia
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(4)
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Exempt private companies that have lodged certification under Section 260 of the Companies Act 2016
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These exclusions help maintain regulatory oversight over entities with greater public or stakeholder interest.
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Benefits of the New Audit Exemption Rules
The revised framework provides several advantages:
(1)
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Cost Savings: Companies can reduce audit-related expenses, which can be significant for small businesses.
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(2)
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Simplified Compliance: The new criteria provide clearer and more flexible qualification rules.
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(3)
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Support for SME Growth: The initiative is intended to encourage entrepreneurship and reduce regulatory burden on smaller companies.
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(4)
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Alignment with International Practices: The revised thresholds bring Malaysia closer to global standards for small company audit exemption.
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Conclusion
The new audit exemption framework introduced by SSM marks a significant shift in Malaysia’s corporate regulatory environment. By expanding eligibility thresholds and simplifying qualification requirements, the initiative supports small and medium-sized private companies in managing compliance costs while maintaining adequate financial reporting standards.
Although audit exemption reduces regulatory requirements, companies must still maintain proper accounting records and ensure financial statements are prepared accurately. Directors remain responsible for the reliability and integrity of financial reporting even if an audit is not conducted.
Companies are encouraged to review their financial performance and operational size carefully to determine eligibility and ensure compliance with the new directive.
Kaizen, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.
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