Accounting controls are the routines a company uses to make sure its records are complete, accurate and reviewed. For a Malaysian SME they also support a legal duty. The Companies Act 2016 requires a company and its directors to keep accounting and other records that sufficiently explain its transactions and financial position, allow true and fair financial statements to be prepared, and can be conveniently and properly audited.
What the Act expects of the records
Under the same provision of the Companies Act 2016, entries are to be made in the records within sixty days of the completion of the transactions they relate to, and the records are to be retained for seven years. Good controls make it easier to meet these requirements consistently, rather than rebuilding records at year end.
Seven practical areas to review
The areas below are a practical way to organise a review of controls. They are not a statutory list, and their relevance varies from one business to another:
- Director and related-party accounts, and how advances are recorded and approved.
- Revenue recognition and cut-off at the period end.
- Payroll and statutory deductions, and whether they reconcile to payments made.
- Inventory records and physical counts.
- Fixed asset registers and supporting documents.
- Bank, supplier and customer reconciliations, which should be complete and documented.
- Management review of the monthly accounts before they are relied on.
Director balances have tax and company law aspects of their own; see our article on director loans and advances. Well-kept records and reconciliations also help when preparing for an audit; see our statutory audit preparation checklist.
This article is general information only. Requirements depend on each company's circumstances; please refer to the Companies Act 2016 published by SSM, and see Saifudin & Co's accounting and financial reporting services if you would like assistance.