Audit Exemption For Private Companies

Generally, all companies are required by law to do up their Audited Accounts. Section 267(1) of the Companies Act 2016 (CA 2016) requires for every company to appoint auditors for each financial year for statutory audit of its financial statements.

However, Section 267(2) of the CA2016 states that the Registrar shall have the power to exempt any private company from the abovementioned requirement according to the conditions as determined by the Registrar.

The Companies Commission of Malaysia (CCM) has issued a Practice Directive 3/2017 – Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies (PD3/2017) in August 2017, providing guidance on the qualifying conditions for the audit exemption.

The conditions are as follows:

1. Dormant Companies

A Dormant Company may be qualified for audit exemption if it has been dormant from the time of its incorporation or is dormant throughout the current financial year and the immediately preceding financial year and there are no accounting transactions.

“Accounting transaction” relates to a transaction which is required to be kept under Section 245 (1) of the CA 2016, excluding a transaction arising from any obligations that the company is required to abide by any laws to pay and its related cost to comply such as secretarial fee, accounting fee and audit fee.

The audit exemption shall take effect for dormant company, on the following situations:

• where the company is incorporated on or after 31 January 2017, the financial statements with annual periods commencing on or after 31 January 2017;
• where the company is incorporated on or before 30 January 2017, the financial statements with annual periods commencing on or after 1 September 2017;

2. Zero-Revenue Companies

Zero-Revenue Companies qualifies for audit exemption if:

• it does not have any revenue during the current and the immediate past two (2) financial years; and
• its total assets in the current and the immediate past two (2) financial years does not exceed RM300,000/-

The audit exemption shall take effect in the case of zero-revenue companies for financial statements with annual periods commencing on or after 1 January 2018.

3. Threshold-Qualified Companies

Threshold-Qualified Companies qualifies for an audit exemption if:

• its revenue is not exceeding RM100,000/- during the current and immediate past two (2) financial years.
• Its total assets in the current and in the immediate past two (2) financial years does not exceed RM300,000/-; and
• it has not more than five (5) employees at the end of its current and immediate past two (2) financial years.

The audit exemption shall take effect in the case of threshold-qualified companies for financial statements with annual periods commencing on or after 1 July 2018.

REQUIREMENTS FOR THE SUBMISSION OF UNAUDITED FINANCIAL STATEMENTS

Although a company’s accounts may be exempted for being audited by its company auditors, the company shall still be required to keep proper accounting records. The unaudited financial statements prepared shall comply with applicable approved accounting standards pursuant to the CA2016.

Any company that elects to be exempted from audit must lodge its unaudited financial statements with the Registrar accompanied with the required certificate in compliance with Sections 258 (i.e. Time allowed for sending out copies of financial statements and reports) and 259 (i.e. Duty to lodge financial statements and reports with the Registrar) of the CA2016.

REACH OUT TO US

If you feel that your company complies with the above requirements for exemption of the preparation of audited financial statements by your company auditor, please let us know to obtain our assistance.

Otherwise, please reach out to us should you have any further enquiries on the matter.

Thank you!

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