Current criteria:

A private company can be exempt from auditing if it fulfils the following three conditions for the current year and the previous two financial years:

• Annual revenue does not exceed RM100,000.
• Total assets (Assets) do not exceed RM300,000.
• Number of Employees* is 5 or fewer.

New criteria: **

A private company can be exempt from auditing if it meets any two of the following three conditions for the current year and the previous two financial years:

• Annual revenue (Turnover) does not exceed RM3,000,000.
• Total assets (Assets) do not exceed RM3,000,000.
• Number of Employees* is 30 or fewer.

*Employees means full time employees employed by the company at the end of each relevant financial year, excluding directors and/or shareholders who are also working as full-time employees.

** New criteria will be implemented in three phases, the above-mentioned criteria are for financial period commencing on or after 1st January 2027.

The new criteria will be introduced in phases over a period of three (3) years.

Example 1:

Assume that your company Financial Year End is on 31 December. To qualify for Phase 1 audit exemption, the Company’s financial statements for financial year end on 31 December 2025, 31 December 2024 and 31 December 2023 must not exceed the maximum threshold specified for at least two (2) criteria. Then, the company may opt for audit exemption for the financial year end 31 December 2025.

Example 2:

Assume that your company Financial Year End is on 31 July. To qualify for Phase 1 audit exemption, the Company’s financial statements for financial year end on 31 July 2026, 31 July 2025 and 31 July 2024 must not exceed the maximum threshold specified for at least two (2) criteria. Then, the company may opt for audit exemption for the financial year end 31 July 2026.

The audit exemption does not apply to the following types of companies:

• Exempt Private Companies that have opted to lodge a certificate relating to their status as an exempt private company with the Registrar under Section 260 of the Companies Act 2016.
• Subsidiaries of public companies.
• Foreign companies.

Yes, certain situations might require your company to continue with audits:

• Regulatory requirements: Some industries or authorities require companies to submit audited financial statements, regardless of SSM’s exemption.
• Financial institutions: If your company has loans or plans to borrow money, the bank might require audited accounts.
• Legal obligations: Contracts or grants your company holds might require audited accounts.

Example:
If your company has a loan from a bank, the bank may still require you to submit audited financial statements, even if you meet the exemption criteria.

Easier access to bank financing:

• Without an audit, your business may need to offer additional collateral or accept higher interest rates, which can be costly.
• Many banks and financial institutions still prefer audited statements, as they offer credibility and reliability in assessing your company’s financial health
• Check with banks whether they require audited statements for financing, even if you are exempt from the audit requirement.

Mitigating tax risks and avoiding scrutiny from LHDN:

• LHDN may be more likely to scrutinize companies that don’t have an audit.
• Audited financial statements are more likely to pass LHDN's review, which reduces the chances of being flagged for a tax investigation.
• An audit can identify potential errors in your financial records, ensuring your tax filings are compliant and minimizing the risk of future penalties or back taxes.

Fostering investor confidence and upholding stakeholder trust:

• Investors are more inclined to invest in companies with audited financial statements, as they provide a reliable indicator of the organization's financial health.
• Audits play a crucial role in maintaining trust with suppliers, investors, and business partners by providing assurance that financial statements accurately reflect the company's financial position.
• If your company is jointly owned by multiple shareholders, an audit ensures that financial data is accurate and reliable, preventing shareholder disputes arising from financial issues.

Improved internal controls:

• The audit process often identifies weaknesses in internal controls. Addressing these weaknesses can enhance your organization's operational efficiency and protect against fraud.

Preparing for future IPO, financing, or mergers & acquisitions

• Historical audit records are crucial for companies planning expansion, financing, or an IPO. Investors and acquirers typically require 3 to 5 years of audited financial statements.
• Consistent audits increase company value and investor trust, making it easier to secure investment or pursue a sale.
• Companies without audit records will face additional due diligence during financing, leading to increased costs and potential missed opportunities, ultimately resulting in significant opportunity cost.

Unaudited financial statements result in stricter loan approval processes and require additional documentation, such as

• Tax records (LHDN Form C + tax filing receipt)
• Company bank statements (6-12 months)
• Key customer contracts or sales invoices

Banks are more willing to offer lower interest rates to companies with audited financial statements.

If your company no longer meets the criteria for exemption, it will need to undergo an audit. However, it will still be exempt for the financial years in which it qualified.

Example:
If your company qualified for exemption in 2025, but in 2026 it exceeds both the revenue and employee thresholds, it will need an audit in 2026, but it won’t need one for 2025.

The company must lodge unaudited financial statements, a directors’ report, and a certificate of compliance within thirty (30) days of circulation.

• Directors must sign an audit exemption certificate, acknowledging their responsibility for the financial statements’ accuracy and compliance with the Companies Act 2016.

• The statements must be prepared according to approved accounting standards issued by the Malaysian Accounting Standards Board (MASB), such as the Malaysian Private Entities Reporting Standard (MPERS).

• Any member or members who eligible to vote hold 5% or more of the company’s total issued shares.

• The Registrar who directs the company to have its accounts audited.

Yes, even if a company qualifies for audit exemption and chooses to proceed with it, the company is still required to submit a complete set of accounts for tax purposes.