Audit exemption provides eligible private companies in Malaysia with the flexibility to operate without the need for an annual audit, reducing administrative burdens and costs. This exemption is guided by the Companies Act 2016 (CA 2016) and is subject to specific criteria and conditions.
Qualifying Criteria
To qualify for an audit exemption, a private company must meet at least two out of the following three conditions:
- Annual revenue does not exceed RM3,000,000 for the current and past two financial years.
- Total assets do not exceed RM3,000,000 for the current and past two financial years.
- The company employs no more than 30 full-time employees at the end of each financial year.
Definitions
Understanding the key financial and employment metrics used in the exemption criteria is crucial for companies considering their eligibility:
- Annual Revenue: Includes all revenue except non-operational entries, tax adjustments, and asset disposals.
- Total Assets: Includes all current and non-current assets as per accounting standards.
- Employees: Includes full-time local, foreign, and probationary staff but excludes directors, shareholders, and unpaid workers.
Implementation Timeline
The implementation of the audit exemption framework will be carried out in phases, allowing companies to progressively adapt to the changes. The threshold limits will be gradually increased over three years:
Exemptions and Non-Eligibility
Certain companies are automatically exempt from audit requirements, while others do not qualify for exemption based on their corporate structure.
Companies that are automatically exempt include dormant companies that have not carried out business activities since incorporation or during the current and past financial years.
However, some companies do not qualify for exemption, including:
- Public companies or their subsidiaries.
- Private companies that are subsidiaries of public companies.
- Companies registered as exempt private companies.
Additional Considerations
While companies may qualify for audit exemption, specific situations may still require an audit to be conducted. If members holding at least 5% of the total issued shares or 5% of the total voting members submit a written request at least one month before the end of the financial year, the company must conduct an audit.
Companies that elect for audit exemption must still fulfill regulatory submission requirements. They are required to file unaudited financial statements along with a directors’ report and a certificate confirming compliance with the CA 2016.
Preparing for Compliance
To ensure smooth compliance with audit exemption regulations, companies should:
- Ensure financial records are maintained according to Malaysian Private Entities Reporting Standard (MPERS) or Malaysian Financial Reporting Standards (MFRS).
- Verify eligibility for exemption annually.
For more details on audit exemptions and compliance, feel free to contact us at Spektra Management or consult the SSM guidelines.