The Registrar (“Registrar”) of the Companies Commission Malaysia (“CCM”) issued Practice Directive No. 10/2024 (“P.D. 10/2024”) on 16 December 2024 that sets out the new qualifying criteria for audit exemption.
 
New Qualifying Criteria              
 
Under the new audit exemption criteria, a qualifying private company is eligible for audit exemption if it fulfils at least two of the following three qualifying criteria: 

1. Annual Revenue: the annual revenue of the company during the current financial year and in the immediate past two financial years do not exceed RM3,000,000; 


2. Total Assets: the total assets of the company in the current statement of financial position and in the immediate past two financial years do not exceed RM3,000,000; or 


3. Number of Employees: the number of employees at the end of the current financial year and in the immediate past two financial years do not exceed 30. 

Implementation
 
The new audit exemption criteria will be implemented through a phased approach over three years from 2025 to 2027, with the new exemption criteria being fully implemented for the financial period commencing on or after 1 January 2027. The criteria for each of these phases are as follows:



Definitions
 
For the purposes of P.D. 10/2024: 

1. “annual revenue” includes revenue received and receivable during the year, but does not include 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; 


2. “total assets” means assets that are defined in the applicable approved accounting standards and includes current and not-current assets; and 


3. “employees” means full time employees employed by the company (i.e. one who works not less than six hours a day for at least 20 days a month or for at least 120 hours a month) at the end of each relevant financial year, and include local, foreign, contract workers and workers undergoing probation but excluding: 

• 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 which are dormant since their incorporation, and companies which are dormant during the current and immediate past financial year continue to be exempted from audit requirement. For this purpose: 

1. a company is dormant in a financial year if it does not carry on business and no accounting transaction has occurred; and 


2. “accounting transaction” means a transaction, accounting or other record which is required to be kept under section 245(1) of the Companies Act 2016 (“CA 2016”), excluding a transaction arising from any obligations that the company is required to abide by any laws to pay and its related costs to comply. 

Documents to lodge if Company elects audit exemption
 
A company that elects to be exempted from the audit requirements pursuant to P.D. 10/2024 need not apply for approval from the CCM. However, the company is required to comply with the following requirements: 

1. lodge with the Registrar its unaudited financial statements (together with a report and statement by the directors, statutory declaration and any other reports required to be lodged pursuant to sections 251 and 252 of the CA 2016); 


2. the unaudited financial statements to be lodged with the Registrar must be prepared in compliance with the applicable approved accounting standards pursuant to section 244(1) of the CA 2016 and be accompanied by a certificate signed by a director of the company stating the matters set out in Appendix 1 of P.D. 10/2024, namely that: 

• the members of the company have not requested the company to perform an audit of its audited accounts for that year; 


• the directors acknowledge their responsibilities for complying with the CA 2016 with respect to the accounting records and the preparation of financial statements; 


• the unaudited financial statements have been prepared in accordance with the Malaysian Private Entities Reporting Standard (MPERS) issued by the Malaysian Accounting Standards Board and comply with the requirements of the CA 2016; and 


• the unaudited financial statements and reports required under the CA 2016 for the relevant financial period have been circulated to the members and the date on which such documents were circulated; 

3. lodge a certificate of compliance with sections 258 and 259 of the CA 2016 within 30 days of circulation of the unaudited financial statements to its members; 


4. the director signing the certificate must also certify that to the best of his knowledge, information and belief, the company is entitled for exemption from audit for the relevant financial period under section 267(2) of the CA 2016, and where the director is not primarily responsible for the financial management of the company, to state the name of the person responsible for such financial management. 

Non-application of P.D. 10/2024 The exemption from audit under P.D. 10/2024 does not apply to: 

1. an exempt private company which has opted to lodge a certificate relating to its status as an exempt private company with the Registrar pursuant to section 260 of the CA 2016; 


2. a public company including listed company; 


3. a private company that is a subsidiary of a public company; and 


4. a foreign company. 

A company that ceases to qualify for audit exemption shall thereupon cease to be exempted but shall remain exempted in relation to the accounts for the financial years in which it qualified for audit exemption.
 
Overriding requirement to audit
 
Notwithstanding the provisions in P.D. 10/2024, a company that is eligible for audit exemption must audit its accounts if it receives a notice in writing requiring the company to audit its accounts during a financial year but not later than one month before the end of that financial year from: 

1. any member or members eligible to vote and holding in aggregate not less than 5% of the total number of issued shares of the company or any class of those shares; 


2. not less than 5% of the total number of members eligible to vote in a general meeting of the company; or 


3. the Registrar directing the company to have its accounts audited. 

Effective date of P.D. 10/2024
 
P.D. 10/2024 applies to financial statements with annual periods commencing on or after 1 January 2025.
 
Effect on Practice Direction No. 3/2017
 
Practice Directive No. 3/2017 (“P.D. 3/2017”) dated 4 August 2017 which sets out the audit exemption requirements prior to 1 January 2025 is revoked with immediate effect but shall continue to apply to financial statements for financial periods commencing on or before 31 December 2024.
 
A summary of the requirements of P.D. 3/2017 can be accessed here.
 
Frequently Asked Questions
 
To assist in the understanding of the provisions in P.D. 10/2024, the Registrar has issued a new Part Q to the Frequently Asked Questions on the Companies Act 2016 and Transitional Issues. Part Q can be accessed here.
 
Comments
 
The new audit exemption criteria and thresholds are based principally on the Consultative Document on the Proposed Review of Audit Exemption Criteria for Private Companies in Malaysia issued by the CCM on 7 February 2024. The new criteria significantly liberalises the requirements under P.D. 3/2017 where the threshold for annual revenue and total assets and the maximum number of full-time employees are RM100,000, RM300,000 and five employees respectively.
 
While the new criteria will substantially increase the number of companies that are eligible for audit exemption, some of these companies may be precluded from seeking audit exemption under P.D. 10/2024 by financial institutions who require their borrowers to furnish audited accounts annually as a condition for providing loans and credit facilities to them.
 
 
Article by Kimberly Low Ee Lin (Associate) of the Corporate Practice of Skrine.