New Audit Exemption Qualifying Criteria – PD10/2024
On 16 December 2024, Companies Commission of Malaysia (“SSM”) issued Practice Directive No. 10/2024 (“PD10/2024”), relating to the new qualifying criteria for private companies from having to appoint an auditor in a financial year (“Audit Exemption”).
The new qualifying criteria will be applicable to the financial statements with annual periods commencing on or after 1 January 2025.
Old Audit Exemption Qualifying Criteria – PD3/2017
The audit exemption framework was first introduced and taken effect since 4 August 2017 via SSM’s Practice Directive 3/2017 (“PD3/2017”).
The old criteria as provided in the PD3/2017 will remain in place until 31 December 2024, and will continue to apply to financial statements for periods beginning before 1 January 2025.
For avoidance of doubt, the PD3/2017 shall continue to apply to financial statements with financial period commencing on or before 31 December 2024 prepared by companies as though the PD10/2024 has not been issued.
The PD3/2017 is revoked with effect from 16 December 2024.
Objectives of the New Qualifying Criteria for Audit Exemption
The new qualifying criteria aim to ensure that the policy objective remains relevant, which is to reduce the audit and financial burden on micro and small companies, ensure that more companies, especially Small and Medium Enterprises (SMEs) have the opportunity to benefit from the policy.
Types of Companies Eligible for New Qualifying Criteria for Audit Exemption
Private companies (including those with corporate shareholders) meeting at least two (2) of the revenue, assets and employee thresholds are eligible to adopt the audit exemption framework under the new qualifying criteria.
Thresholds for Revenue, Assets and Number of Employees
To facilitate the transition into the new audit framework, the threshold criteria for audit exemption will be implemented via a phased approach over a period of three (3) years. Please refer to pages 2 to 4 of the PD10/2024,
Non-Application
The audit exemption framework DOES NOT apply to the following companies:-
- An exempt private company (“EPC”) which has opted to lodge a certificate relating to its status as an EPC to the Registrar pursuant to section 260 of the Companies Act 2016 (“CA 2016”);
- A public company including public listed company;
- A private company that is a subsidiary of a public company; and
- A foreign company.
Section 2 of CA 2016 provides that EPC means a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation and which has not more than twenty members none of whom is a corporation.
Notwithstanding anything in the PD10/2024, a company that is eligible for audit exemption shall be required to 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:-
- any member or members eligible to vote and holding in aggregate of not less than 5% of the total number of issued shares of the company or any class of those shares;
- not less than 5% of the total number of members eligible to vote in of the company; or
- the Registrar who directs the company to have its accounts audited.
Requirements for Preparation and Submission of Accounts/ Unaudited Financial Statements with SSM
A company is eligible for audit exemption if it satisfies the criteria set in PD10/2024 and if it elects to do so (i.e. needs not apply for audit exemption with SSM).
The company is still obliged to prepare and circulate unaudited financial statements within the time period stated in the Companies Act 2016 (i.e. prepare and circulate within 6 months from its financial year end which is same as the time period of for audited financial statements).
The unaudited financial statements prepared shall comply with the applicable approved accounting standards pursuant to subsection 244(1) of the CA 2016.
The company must lodge the following documents with SSM within 30 days from the unaudited financial statements are circulated to its members and other parties:-
- the unaudited financial statements;
- the required certificate in compliance with sections 258 and 259 of the CA 2016 (please refer to page 9 of the PD10/2024);
- the directors’ report;
- statement by directors;
- statutory declaration and
- any other reports that is required to be lodged with SSM pursuant to sections 251 and 252 of the CA 2016.
Please refer to our DMC Insights – Key Requirements of the Malaysian Companies Act 2016 – Annual Return, Financial Statements and Annual General Meeting for the statutory requirements for the preparation, circulation and submission of the unaudited financial statements.
Frequently Asked Questions (FAQ)
FAQ issued by SSM https://www.ssm.com.my/Pages/Legal_Framework/Document/FAQ-AUDIT-EXEMPTION.pdf
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