Qualifying Criteria for Audit Exemption for Private Companies in Malaysia

We would like to bring to your attention the latest Qualifying Criteria for Audit Exemption (Practice Directive No. 10/2024) applicable to private companies in Malaysia. This directive, issued under Section 267(2) of the Companies Act 2016 (CA 2016), outlines the eligibility conditions, implementation phases, and submission requirements for companies seeking exemption from statutory audits.

• General Rule: All private companies must appoint an auditor annually to audit their financial statements (Section 267(1) of the CA 2016).
• Exemption Possibility: The Registrar may exempt a private company from appointing an auditor if it meets the specified criteria (Section 267(2) of the CA 2016).

The audit exemption criteria will be implemented progressively over three (3) years to facilitate the transition into the new audit framework.

Note: The annual revenue, total assets and number of employees for the immediate past two (2) years must not exceed the maximum threshold specified for the respective corresponding phase.

Definitions

• Annual Revenue: Includes total revenue received and receivable, but excludes credit entries for reversal of accounting entries arising from earlier entries, accounting entries related to taxation, reversal of provisions made earlier and gain on derecognition of property, plant, equipment and investment property in the Statement of Comprehensive Income.
• Total Assets: Includes all current and non-current assets as defined in the approved accounting standards.
• Employees: Includes full-time, contract, probationary, and foreign workers, but excludes:
  • a director who is also working as a full-time employee.
  • a shareholder who is also working as a full-time employee; or
  • family members or friends who are unpaid or receiving irregular wages while working in the company.

• Dormant Companies:
• Companies dormant since incorporation or dormant during the current and past financial years are automatically exempted.
• A company is considered dormant if it has no business activity and no accounting transactions except for legal obligations (e.g., tax payments).

The exemption from audit will NOT APPLICABLE to:

1. Exempt private company that have opted to lodge a certificate under Section 260 of the CA 2016;
2. Public company, including listed companies;
3. Private company that is subsidiary of public company; and
4. Foreign company.

A company loses its audit exemption status if it no longer meets the criteria. However, it remains exempted for the financial years in which it previously qualified.

A company opting for audit exemption must submit unaudited financial statements to the Registrar, along with a required certificate, as per Sections 258 & 259, CA 2016.

This directive provides a structured framework for audit exemption to ease regulatory burdens on small private companies, while maintaining financial transparency and compliance. It also ensures flexibility through a phased approach and allows certain companies to continue operations without mandatory audits, provided they meet the eligibility criteria.

For companies applying for bank loans, tenders, or other financial facilities, please be advised that an audit report may still be required by financial institutions and relevant authorities, even if your company qualifies for audit exemption under the threshold criteria. We recommend confirming specific audit requirements with the respective institutions before proceeding.