A Changing Audit Landscape in Malaysia
For many years, statutory audits have been a standard requirement for Malaysian companies but this is gradually changing.
The Companies Commission of Malaysia (SSM) introduced revised audit exemption criteria under Practice Directive No. 10/2024 which allows eligible private companies to submit unaudited financial statements instead of undergoing a statutory audit.
The changes are being introduced progressively over three phases and the final phase is taking effect for financial periods commencing on or after 1 January 2027.
While the revised framework offers companies greater flexibility and potentially lower compliance costs, it also raises an important question: Does being exempt from an audit necessarily mean a company should stop having its financial statements audited?
Companies planning their financial reporting and compliance arrangements for 2027 need to acknowledge the importance of understanding the new requirements.
1. What Is Changing Under the New Audit Exemption Rules?
Under the previous framework, certain private companies could qualify for audit exemption based on specific conditions, including dormant status or financial thresholds.
SSM’s Practice Directive 10/2024 introduces revised qualifying criteria based on three financial and operational indicators:
- Annual revenue.
- Total assets.
- Number of employees.
To qualify under the revised framework, an eligible private company must satisfy at least two out of the three prescribed criteria.
The thresholds are being increased progressively to give companies time to adjust to the revised requirements.
Audit Exemption Thresholds: 2025–2027
| Financial period | Revenue | Total assets | Employees |
| 2025 (Phase 1) | RM1 million | RM1 million | 10 |
| 2026 (Phase 2) | RM2 million | RM2 million | 20 |
| 2027 (Phase 3) | RM3 million | RM3 million | 30 |
The respective thresholds apply to the current and immediate preceding two financial years under the relevant phase.
For example, under Phase 3, a company must satisfy at least two of the following:
- Annual revenue not exceeding RM3 million.
- Total assets not exceeding RM3 million.
- No more than 30 employees.
The revised framework is not an automatic exemption for every company below these thresholds. Eligibility, exclusions and the applicable financial periods must still be considered.
2. Which Companies Qualify for Audit Exemption?
The revised criteria apply to eligible private companies, provided they meet the prescribed requirements.
However, certain companies are excluded, including:
- Exempt private companies that have elected to lodge a certificate confirming their exempt private company status.
- Public companies including listed companies.
- Private companies that are subsidiaries of public companies.
- Foreign companies operating in Malaysia.
Companies must also consider whether other regulatory bodies, licensing arrangements, financing agreements or specific requirements require them to submit audited financial statements.
Meeting SSM’s qualifying criteria does not necessarily remove every other obligation to provide audited financial statements.
3. Does Audit Exemption Mean Companies No Longer Need Proper Financial Reporting?
One common misconception is that companies qualifying for audit exemption no longer need to maintain proper financial records but this is not the case. Companies remain responsible for preparing financial statements in accordance with the applicable accounting standards and meeting their statutory filing obligations.
Under the audit exemption framework, companies opting for exemption must still lodge the required unaudited financial statements and supporting documents with SSM. These include the directors’ report, directors’ statement, statutory declaration and audit exemption certificate, as applicable.
The distinction is that an independent statutory audit is no longer required for qualifying companies under the exemption.
However, financial reporting responsibilities still remain.
4. Is Avoiding an Audit Always the Best Decision?
The revised framework provides eligible companies with an opportunity to reduce compliance costs. However, the decision to opt out of an audit should not be based on cost savings alone.
An independent audit can provide value beyond fulfilling statutory requirements.
Financial transparency
An audit provides independent assurance on whether financial statements are prepared in accordance with the applicable financial reporting framework.
Identifying financial reporting issues
The audit process can help identify material misstatements and weaknesses in financial reporting processes that may otherwise go unnoticed.
Stakeholder confidence
Audited financial statements may be important when dealing with banks, investors, business partners and other stakeholders who require greater confidence in a company’s financial information.
Internal financial discipline
The preparation for an audit encourages companies to maintain supporting documentation, reconcile financial records and establish more consistent financial reporting practices.
Ultimately, the value of an audit depends on the company’s circumstances, reporting needs and expectations from its stakeholders.
5. What Should Companies Consider Before 2027?
With the final phase approaching, companies should review their eligibility and financial reporting arrangements ahead of their next financial period.
Some important considerations include:
- Review eligibility: Assess revenue, total assets and employee numbers against the applicable thresholds for the relevant financial years.
- Check other obligations: Determine whether lenders, regulators, licensing authorities or contractual arrangements still require audited financial statements.
- Maintain financial records: Ensure accounting records and supporting documents remain complete and accurate.
- Evaluate stakeholder expectations: Consider whether customers, investors, shareholders or financial institutions may require independently audited accounts.
- Consider the benefits of an audit: Evaluate whether the assurance and financial oversight provided by an independent audit remain valuable to the business.
Taking these steps early can help companies make informed decisions rather than treating audit exemption purely as a cost-saving measure.
Audit Exemption Is an Option, Not Necessarily the Best Choice
Malaysia’s revised audit exemption framework represents a significant development in the country’s financial reporting landscape.
By progressively expanding the eligibility thresholds, SSM aims to reduce the compliance burden on qualifying private companies while maintaining their financial reporting responsibilities.
However, the decision to opt out of an audit should consider more than whether a company meets the prescribed thresholds.
Financial transparency, stakeholder confidence, internal controls and business requirements remain important considerations regardless of statutory audit obligations.
For companies approaching the 2027 implementation phase, understanding both the regulatory requirements and the practical implications of audit exemption will be essential.
An audit may no longer be compulsory for certain companies, but its value in supporting financial transparency and accountability should not be overlooked.
About Battchoo & Yong
Battchoo & Yong provides professional audit and assurance services in Malaysia, supporting businesses with their financial reporting and statutory compliance requirements.
Companies seeking guidance on audit requirements and financial reporting obligations can contact Battchoo & Yong to discuss their circumstances and audit needs.
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