Malaysia's New Audit Exemption: A 2025 Guide for Private Companies

A New Chapter for SMEs: The 2025 Audit Exemption in Malaysia

In a significant move to reduce the regulatory burden on Small and Medium Enterprises (SMEs), the Companies Commission of Malaysia (SSM) has introduced new audit exemption criteria under the Companies Act 2016. Effective for financial periods commencing on or after January 1, 2025, these new rules, detailed in Practice Directive No. 10/2024, allow eligible private companies to be exempt from the requirement to have their financial statements audited.

The New "Two-out-of-Three" Qualifying Criteria

A private company now qualifies for audit exemption if it meets at least two of the following three criteria for the current financial year AND for the two immediate preceding financial years:

1. Its annual revenue does not exceed a specific threshold.
2. Its total assets at the end of the financial year do not exceed a specific threshold.
3. It has no more than a specific number of employees at the end of the financial period.

Phased Implementation of Thresholds (2025-2027)

Crucially, the financial thresholds for the exemption are being implemented in three phases, allowing businesses time to adapt:

• Phase 1 (Financial periods starting on or after 1 Jan 2025):
  • Revenue ≤ RM1,000,000
  • Total Assets ≤ RM1,000,000
  • Employees ≤ 10
• Phase 2 (Financial periods starting on or after 1 Jan 2026):
  • Revenue ≤ RM2,000,000
  • Total Assets ≤ RM2,000,000
  • Employees ≤ 20
• Phase 3 (Financial periods starting on or after 1 Jan 2027):
  • Revenue ≤ RM3,000,000
  • Total Assets ≤ RM3,000,000
  • Employees ≤ 30

Who is NOT Eligible for Audit Exemption?

It is important to note that certain companies are ineligible for the audit exemption, regardless of whether they meet the size criteria. These include:

• Public companies
• Subsidiaries of public companies
• Guarantor corporations
• Companies that are subject to regulation by another authority, such as financial institutions licensed by Bank Negara Malaysia.

The Responsibility of Directors in Exempt Companies

The audit exemption does not mean an exemption from all financial reporting responsibilities. The directors of an exempt company are still fully responsible for:

• Preparing financial statements that provide a true and fair view and comply with approved accounting standards (MFRS or MPERS).
• Circulating the financial statements to all members of the company.
• Lodging the unaudited financial statements with the SSM, accompanied by a certificate signed by a director confirming the company's eligibility for the audit exemption.

In essence, the absence of an external audit places an even greater onus on the directors to ensure the accuracy and integrity of the company's financial reporting.

Conclusion

The new audit exemption criteria represent a significant and welcome change for many SMEs in Malaysia, reducing compliance costs and administrative burdens. However, it is crucial for directors to carefully assess their company's eligibility each year, based on the three-year consistency rule and the phased thresholds. For those that qualify, the focus must shift to ensuring robust internal processes for financial reporting, as the ultimate responsibility for true and fair accounts remains firmly with the board.