Audit exemption provides eligible private companies in Malaysia with greater flexibility by removing the requirement for an annual audit, provided they meet the qualifying criteria under the Companies Act 2016 (CA 2016). This article is based on the Audit Exemption FAQ (Part Q) released by SSM. While our main guide covers the eligibility conditions and compliance steps, this FAQ addresses common questions and provides additional clarifications.
1. Why was the audit exemption framework introduced?
The audit exemption framework, which took effect on August 4, 2017, was introduced to:
- Reduce financial and regulatory burdens on micro and small companies.
- Allow auditors to focus on high-risk businesses, improving audit quality.
- Improve Malaysia’s auditor-to-company ratio, as there is a limited number of approved auditors compared to the growing number of companies.
A World Bank report in 2012 highlighted that the demand for audits in Malaysia was significantly high compared to the number of licensed auditors. As of December 31, 2024, there were 691,960 active companies but only 1,955 registered auditors, meaning each auditor was responsible for auditing an average of 354 companies.
By exempting non-public interest companies, audit firms can focus on high-risk audits, enhancing corporate governance and compliance quality.
2. Do audit-exempt companies still need to prepare financial statements?
Yes. Audit exemption does NOT mean exemption from financial reporting. Companies that qualify for audit exemption must still prepare and submit:
- Unaudited financial statements.
- Directors’ report.
- Certificate confirming compliance with the audit exemption criteria.
These documents must be lodged with the Companies Commission of Malaysia (SSM) within 30 days of circulation and must comply with applicable accounting standards (MPERS/MFRS).
3. What happens if a company loses its eligibility for audit exemption?
If a company exceeds the qualifying thresholds in a financial year, it must appoint an auditor for future financial years. However, it remains exempt for the financial years in which it met the criteria.
Additionally, even if a company qualifies for audit exemption, an audit will be required if:
- Members holding at least 5% of issued shares submit a written request at least one month before the financial year-end.
- At least 5% of voting members request an audit.
- The Registrar of Companies (SSM) mandates an audit.
4. Does audit exemption apply to private companies with corporate shareholders?
Yes, a private company with corporate shareholders can qualify for audit exemption, provided it meets the required revenue, assets, and employee thresholds.
However, companies that are subsidiaries of public companies DO NOT qualify for audit exemption.
5. Can a private exempt company (EPC) opt for audit exemption?
No, not if the company chooses to lodge an EPC certificate with SSM instead of financial statements. However, if an EPC does not lodge an EPC certificate and meets the audit exemption criteria, it can qualify for audit exemption.
6. How does audit exemption affect tax filing obligations?
While the Companies Act 2016 allows audit exemption, companies must still comply with tax laws. The Inland Revenue Board of Malaysia (LHDN) has stated that companies not required to submit audited accounts to SSM are also not required to submit audited accounts for tax purposes under Section 77A(4) of the Income Tax Act 1967.
However, tax authorities may still require additional documentation to verify financial statements.
For more details, refer to LHDN’s official announcement:
LHDN Audit Requirement Announcement
7. How do companies determine the number of employees for audit exemption?
For audit exemption eligibility, “employees” are counted based on:
- Full-time workers working at least six (6) hours per day for 20 days a month or 120 hours per month.
- Includes local, foreign, and contract workers, as well as probationary employees.
- Excludes directors, shareholders, and unpaid workers (such as family members working without wages).
8. How does a company elect for audit exemption under the new PD 10/2024 framework?
Companies do not need to apply for audit exemption. If they meet the qualifying criteria, they can elect for audit exemption by:
- Ensuring compliance with the revenue, asset, and employee thresholds.
- Preparing unaudited financial statements instead of audited reports.
- Lodging the required documents with SSM via the MBRS Portal.
A company can still choose to appoint an auditor even if it qualifies for exemption.
9. What if government agencies, banks, or regulators still require audited financial statements?
Even if a company qualifies for audit exemption, certain financial institutions, government agencies, and licensing authorities may still require audited accounts for:
- Loan applications.
- Government grants or tenders.
- Regulatory compliance in specific industries.
These agencies prioritize financial reliability and governance, so companies should check with relevant authorities before opting out of audits.
10. Does the new audit exemption framework apply to companies that have not submitted audited financial statements since 2017?
Yes. Companies that have not submitted financial statements since 2017 must still comply with PD 3/2017 for financial years before 2025. However, for financial years commencing on or after January 1, 2025, they must follow PD 10/2024.
Read our full guide on audit exemption here.
Refer to the original Audit Exemption FAQ document by SSM here.