Presently, a company that fulfils the applicable criteria set out in
Practice Directive No. 3/2017 – Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies (“
PD3/2017”) is eligible to be exempted from appointing an auditor to audit its financial statements for the financial year.
The exemption under PD3/2017 is available to three categories of private companies, namely Dormant Companies, Zero-Revenue Companies and Threshold-Qualified Companies and the criteria to be satisfied to qualify for the exemption under the respective categories are as follows:
On 2 February 2023, the Companies Commission of Malaysia (‘
CCM’) issued a
Consultative Document on the Proposed Review of Audit Exemption Criteria for Private Companies in Malaysia (“
2023 Consultative Document”) seeking public feedback on a proposal to increase the thresholds for several of the qualifying criteria for audit exemption set out in PD3/2017. However, the proposal was not implemented. Our summary of the proposal under the 2023 Consultative Document can be read
here.
On 7 February 2024, the CCM issued another consultative document, namely
Consultative Document on the Proposal of the New Audit Exemption Criteria for Private Companies in Malaysia (“
2024 Consultative Document”) seeking feedback on the proposed new audit exemption for private companies in Malaysia. The reasons for not implementing the proposal in the 2023 Consultative Document are set out in the 2024 Consultative Document.
After considering the feedback received on the 2023 Consultative Document, the CCM proposes in the 2024 Consultative Document to replace the existing criteria under PD3/2017 based on the three categories of companies with qualifying criteria based on turnover, assets and employee thresholds and to increase the thresholds from those stated in PD3/2017.
The new proposal under the 2024 Consultative Document is as follows:
The proposed new audit exemption criteria under 2024 Consultative Document will not apply to a private company that is a subsidiary of a public company.
An exempt private company that fulfils the new audit exemption criteria that opts not to lodge its financial statement with CCM is required to continue to undergo an audit.
The justifications put forward by the CCM for the proposal in the 2024 Consultative Document include the following:
- the use of relatively straightforward parameters like turnover, assets and employee headcount, would make the implementation of the audit exemption criteria more transparent and practical with fewer interpretation errors;
- distinguishing the qualifying criteria based on turnover, assets and employee headcount will assist companies to tailor their business and financial status with the need for audit; and
- as the United Kingdom, Australia and Singapore have already adopted the requirement to fulfil two of three criteria to qualify for audit exemption, the adoption of a similar approach will align Malaysia’s audit exemption requirement with international practices.
The adoption of the new audit exemption criteria is likely to significantly increase the number of companies that are eligible for audit exemption. Based on the CCM’s records as of July 2023, 77.4% of financial statements filed with the CCM indicated a total turnover of less than RM3.0 million and 74.3% of companies indicated total assets of less than RM3.0 million. The companies mentioned above will qualify for audit exemption under proposal in the 2024 Consultative Document if they fulfil both the turnover and asset requirements or either of those requirements and the employee headcount requirement.
Feedback on the proposed new audit exemption criteria may be submitted to the CCM by
8 March 2024.
Alert by Sheba Gumis (Partner) and Tham Zhi Jun (Associate) of the Corporate Practice of Skrine.