How to qualify for Audit Exemption in Malaysia? (with Example)

audit exemption in malaysia

Background of Audit Exemption in Malaysia

If you are the owner of a Private Company (Sdn Bhd) you will know exactly how much work is involved in preparing your annual audited report. If you are not aware, please see our article HERE.

In short, a Private Company must appoint an auditor for each financial year of the company for purposes of auditing its financial statements.  But with the coming into force of the Practice Directive No. 3/2017it has been confirmed that a Private Company may not need to appoint an auditor in a Financial Year.

How to qualify for Audit Exemption in Malaysia?

A private company which falls within the following categories, may opt for Audit Exemption:

  1. Dormant Company;
  2. Zero Revenue Company;
  3. Threshold Qualified Company.

(Important Note: Just be mindful that if you are in year 2017 you will normally be preparing the audited report for financial year 2016)

What is a Dormant Company?

(1) You have incorporated a company but you have not been active since the day of incorporation; OR

(2) There are no financial transaction(s) made throughout the current financial year and preceding financial year.

For the purpose of qualifying under this category the company must not carry any business and does not have any accounting transaction. But expenses incurred to comply with the law, such as Company Secretary Fee, filing fee and administrative fee does not fall under accounting transaction.

Which means that if your company is dormant but you have expenditure incurred in order to comply with the law, you may still qualify for audit exemption.

Example: 

(1) Company A was incorporated on 1st January 2015. Since 1st January 2015 until today Company A has not conducted any business activity. Company A may apply for audit exemption.

(2) Company B was incorporated on 1st January 2015. Assuming that the financial year end is at 31 December every year.

  • In financial year ending 31 December 2016 there are financial activity;
  • In financial year ending 31 December 2017 there are NO financial activity;
  • In financial year ending 31 December 2018 there are NO financial activity;

For financial year ending 31 December 2018, Company B may apply for Audit Exemption.

What are Zero Revenue Companies?

You may qualify for this category if:

(1) no revenue in current financial year;

(2) no revenue in immediate past 2 financial years; AND

(3) total assets in current statement of financial position does not exceed RM300,000 for the current financial year as well as immediate past 2 financial years.

Example:

(1) Company C was incorporated on 1st January 2017. Assuming that the financial year end is at 31 December every year.

  • In financial year ending 31 December 2017 there are revenue;
  • In financial year ending 31 December 2018 there are NO revenue;
  • In financial year ending 31 December 2019 there are NO revenue;
  • In financial year ending 31 December 2020 there are NO revenue;
  • Total Assets in current statement for all financial year end above is less than RM300,000

Company C may apply for audit exemption for financial year end 2020 but NOT for financial year end 2017, 2018 and 2019.

 

What are Threshold Qualified Companies?

Your company is regarded as a Threshold Qualified Company when

(1) the company’s revenue does not exceed RM100,000  in the current financial year and the immediate past 2 financial years;

(2) the total asset in statement of financial position for current financial year does not exceed RM300,000 and for the immediate past 2 financial year; AND

(3) at the end of current financial year and immediate past 2 financial year, does not have more than 5 employees.

Example:

(1) Company D was incorporated on 1st January 2017. Assuming that the financial year end is at 31 December every year.

  • In financial year ending 31 December 2017 – revenue RM500,000;
  • In financial year ending 31 December 2018 – revenue RM50,000;
  • In financial year ending 31 December 2019 – revenue RM50,000;
  • In financial year ending 31 December 2020 – revenue RM50,000;
  • Total Assets in current statement for all financial year end above is less than RM300,000;
  • Number of Employee is always less than 5 in all financial year end above;

Company D may apply for audit exemption for financial year end 2020, but NOT for financial year end 2017, 2019 and 2018

How do I apply for Audit Exemption in Malaysia?

Ask your Company Secretary. Let them guide you through the application process.

Does this mean Companies don’t have to do anymore accounting?

Nope, one of the requirements to apply for audit exemption is that the Private Company must submit their unaudited financial statement. If you don’t do the accounting there is no financial statement. Plus you will need your financial statement to file your tax return for the Company. Therefore accounting is still required.

 

This sounds to good to be true, what is the catch?

We foresee three major problem with audit exemption in Malaysia (amongst other smaller problems) with not having an audited account:

(1) Banks may reject your financing application – this is because banks will usually depend on audited financial statement to do risk assessment before granting any loan facility. The absence of audited account may affect your ability to apply for bank financing.

(2) Investor may not be attracted to finance – if there is no audited account there is no guarantee that the numbers in the management account is correct, so it may dissuade an investor to invest in the company.

(3) Tax submission is usually be based on an audited financial statement. We foresee some tax filing implications in relation to this practice directive.

Important Note: Best to consult your company secretary.

Other related article:

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We have assisted and advised numerous local and foreign startups, social enterprises, SMEs and MNCs to setup their Company in Malaysia. If you would like to know more on how we can help you, drop us an email or call +6017-2745203.









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