An audit is an independent review of a company’s financial records to verify accuracy and ensure compliance with Malaysian Financial Reporting Standards (MFRS) and regulations. It enhances transparency, detects fraud, and strengthens financial integrity.

Auditors review financial records, assess internal controls, and verify transactions to ensure financial statements provide a true and fair view. They follow established auditing standards, identify potential risks or irregularities, and issue an audit report with their findings.

A complete audited financial report includes:

• Balance Sheet (Statement of Financial Position): Shows assets, liabilities, and equity.
• Profit & Loss Statement (Statement of Comprehensive Income): Summarizes revenue, expenses, and net profit.
• Statement of Changes in Equity: Tracks shareholders’ equity changes.
• Cash Flow Statement: Reports cash inflows and outflows.
• Notes to the Financial Statements: Provides disclosures, accounting policies, and explanations.

The audit process includes:

• Planning: Understanding the business and assessing risks.
• Fieldwork: Examining records, testing controls, and verifying transactions.
• Reporting: Issuing an audit opinion.
• Follow-up: Addressing findings and recommending improvements.

Key documents include:

• Financial statements and general ledgers
• Bank statements and reconciliations
• Invoices, receipts, and payment vouchers
• Tax returns and supporting documents
• Inventory records and fixed asset registers
• Contracts, agreements, and board resolutions

Subsequent event documents verify financial transactions after the reporting date that may impact financial statements, including:

• Adjustments to financial statements
• Major changes in assets, liabilities, or operations
• Legal claims or contingent liabilities
• Post-year-end transactions

Inventory audits help ensure financial accuracy and fraud prevention by:

• Verifying physical stock counts to confirm actual inventory levels
• Reconciling recorded vs. actual stock balances
• Testing valuation methods for proper accounting treatment
• Conducting cut-off testing to ensure year-end transactions are recorded correctly

An unqualified audit report indicates that the financial statements present a true and fair view, while a qualified audit report highlights specific issues that do not severely misrepresent the financial position. However, there are also other types of audit opinions:

• Unqualified (Clean) Opinion – No material misstatements; financial statements fully comply with accounting standards.
• Qualified Opinion – Financial statements are mostly accurate, but there are some misstatements or limitations that require disclosure.
• Adverse Opinion – Financial statements contain significant misstatements that misrepresent the company’s financial position.
• Disclaimer of Opinion – The auditor cannot form an opinion due to insufficient evidence or severe scope limitations.

An audited report is typically shared with:

• Shareholders and directors – for financial decision-making and governance.
• Regulators (SSM) – to ensure compliance with statutory requirements.
• Banks and lenders – for loan approvals and credit assessments.
• Tax authorities (LHDN) – to verify taxable income and ensure tax compliance.
• Investors and creditors – to assess financial stability and risk.

Under the Companies Act 2016, the Board of Directors must appoint the first auditor before the first Annual General Meeting (AGM), unless the company qualifies for an audit exemption.

To change an auditor:

• Pass a resolution at a general meeting.
• Notify the outgoing auditor and obtain a resignation letter.
• Appoint a new auditor following the Companies Act 2016 and SSM requirements.

• Internal Audit: Conducted by in-house or outsourced auditors to assess internal controls, identify risks, and improve operational efficiency. It is not legally required but helps enhance business governance.
• External Audit: Performed by independent auditors to verify financial statements for accuracy and compliance with Malaysian Financial Reporting Standards (MFRS). It is mandatory for most companies and ensures financial transparency.

• Accounting: Focuses on recording, classifying, and summarizing financial transactions to produce financial statements.
• Auditing: Involves an independent examination of financial records to ensure accuracy, detect errors or fraud, and verify compliance with financial regulations.

Both functions work together to ensure reliable financial reporting.

In Malaysia, auditor licenses are issued by the Accountant General’s Department (AGD) under the delegation of the Ministry of Finance (MOF). To obtain a license, auditors must:

• Be a Chartered Accountant and hold a valid Practicing Certificate from the Malaysian Institute of Accountants (MIA).
• Pass an interview conducted by the Committee for the Approval of Company Auditors under the AGD.
• Register with the Audit Oversight Board (AOB) under the Securities Commission Malaysia (SC) if auditing Public Interest Entities (PIEs).

Licensed auditors must comply with professional and regulatory requirements to maintain their license.

Audit Requirement:

• A JMB must appoint an approved company auditor to audit its financial accounts annually, as required under Section 26(1)(b) of the Strata Management Act 2013 (Act 757).
• The audit ensures transparency and proper management of the maintenance and sinking fund accounts.

Submission Deadline:

• The JMB must submit a certified true copy of the audited accounts and the auditor’s report to the Commissioner of Buildings (COB) within 14 days of the audit’s completion, as specified in Section 26(1)(c) of the Act.

Compliance Importance:

• Timely auditing and submission to the COB help ensure compliance with strata management regulations and maintain financial accountability for property owners.

• Circulation to Members: Within six months after the financial year-end.
• Lodgement with SSM: Within 30 days after circulation.

Failure to meet these deadlines may result in penalties or legal consequences under the Companies Act 2016.

Companies should aim to finalize their accounts within two to three months after the financial year-end to ensure a smooth audit process. While the statutory deadline requires audited financial statements to be circulated within six months, delaying account finalization may create audit bottlenecks, especially for financial year-ends with high demand, such as December.

Completing accounts early helps ensure auditors have adequate time for audit and review, reducing the risk of non-compliance and rushed reporting. Proper planning and early engagement with auditors are crucial for timely submission.

Assets require impairment when their recoverable value drops significantly below their carrying value due to:

• Market decline affecting asset prices.
• Obsolescence or outdated technology.
• Physical damage reducing usability.
• Legal or regulatory changes impacting value.

Impairment ensures financial statements reflect accurate asset valuations.

• Errors: Business owners must rectify misstatements promptly to ensure compliance and avoid penalties. Delays can lead to audit qualifications or regulatory scrutiny.
• Fraud: If fraud is detected, business owners must investigate immediately, strengthen internal controls, and take legal or disciplinary action if necessary. In serious cases, authorities may need to be notified.
• Impact: Unresolved issues can damage business credibility, affect financing opportunities, and lead to legal consequences. Proactive internal controls help prevent such risks.

Failure to submit audited financial statements to SSM (Companies Commission of Malaysia) can result in:

• Fines and penalties imposed on the company and directors.
• Legal consequences, including possible disqualification of directors.
• Loss of credibility with stakeholders and financial institutions.

Timely submission is crucial for regulatory compliance and corporate governance.

An audit committee oversees:

• Financial reporting accuracy and transparency.
• Risk management and internal control processes.
• External audit coordination and compliance.

Only public-listed companies are legally required to have an audit committee, but private companies may also benefit from having one for governance.

Audit exemptions apply to companies meeting SSM’s financial criteria, including:

• Dormant companies with no business activity.
• Small companies that meet specific revenue, asset, and employee thresholds.

However, financial institutions, public-listed companies, and certain regulated entities must always be audited.

Modern audits can be conducted remotely using digital tools, except for:

• Inventory verification, which may require physical checks.
• High-risk areas, where on-site examination is necessary.

Hybrid audits combining remote and on-site procedures are increasingly common for efficiency.

Audits for non-profits, associations, and cooperatives focus on:

• Compliance with funding and donor requirements.
• Proper allocation of resources and financial transparency.
• Regulatory obligations based on their governing statutes.

Each entity follows specific reporting standards set by authorities such as the Registrar of Societies (ROS) or Suruhanjaya Koperasi Malaysia (SKM).

To ensure a smooth audit process, businesses should:
✔ Organize financial records (invoices, bank statements, contracts).
✔ Reconcile accounts to correct discrepancies before the audit.
✔ Review tax compliance and legal obligations.
✔ Communicate with auditors about expectations and requirements.

Proper preparation reduces audit delays and potential issues.

• Audits verify financial statement accuracy, not tax compliance.
• Tax compliance is regulated separately by the Inland Revenue Board (LHDN).
• Audit findings may highlight tax issues, but companies must ensure they meet tax obligations independently.

If a company disputes an auditor’s findings, it can:

• Request clarifications on the audit opinion.
• Provide supporting documents to justify financial reporting.
• Seek a second opinion from another independent auditor if necessary.

Open communication with auditors helps resolve discrepancies and ensures accurate financial reporting.

An Exempt Private Company, as defined under the Companies Act 2016 (CA 2016), is a private company where the company has no more than 20 members, none of whom is a corporation.

An Exempt Private Company has the benefit of being exempted from filing full audited financial statements. Instead, it files an exempt private cert to the Registrar of Companies.

• The company is an exempt private company [refer to Q1] and has been one at all relevant times.

• The company's audited financial statements and reports required under the CA 2016 have been circulated to its members.

• As of the date of the financial statements, the company is able to meet its liabilities as they fall due.

Confidentiality of financial affairs. Since EPCs are not required to disclose financial information publicly, the company’s financial details remain private, providing a greater level of confidentiality for its shareholders and operations.

• Limited Access to Funding. EPCs cannot have other companies as shareholders and cannot issue shares to more than 20 individual shareholders, EPCs may limited the access to capital from external investors.

• EPCs may face more challenges when applying for loans from banks. EPCs are not required to file financial statements publicly, this could lead to stricter scrutiny from banks and higher loan interest rates, or in some cases, a refusal to lend.