Malaysia's new audit exemption policy: Reducing the burden and boosting growth for micro, small and medium-sized enterprises-FOZL

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Malaysia's new audit exemption policy: Reducing the burden and boosting growth for micro, small and medium-sized enterprises

The Companies Commission of Malaysia ( SSM ) announced on 2024 year 12 month 16 day, through the issuance of Practice Direction No. 10 number /2024 ， new audit exemption criteria for private companies ， Qualifying Criteria For Audit Exemption For Certain Private Companies In Malaysia 。This move aligns with SSM the commitment to enhancing the quality of financial statement audits nationally while simultaneously reducing the compliance burden on private companies. The new standards will benefit small and medium-sized enterprises (SMEs) PKS ), reducing compliance costs and ensuring that the efficiency and transparency of corporate governance remain at their optimal levels.

Current Audit Requirements

To date, Malaysia's audit requirements for small businesses have been relatively stringent, particularly for companies that are dormant after incorporation or those with low revenue. The specific criteria are as follows:

Dormant Companies ：If a company has been dormant since its incorporation, or is dormant in the current and previous financial years, it may be exempt from audit requirements.
Companies with Zero Revenue ：Companies with zero revenue and assets not exceeding 30 RM million are also eligible for audit exemption.
Threshold-Qualified Companies ：Companies with annual revenue not exceeding 10 RM million, total assets not exceeding 30 RM million, and a workforce not exceeding 5 people will be exempt.

New Eligibility Criteria

The new audit exemption policy further relaxes the eligibility requirements for audit exemptions, providing more opportunities for exemptions. According to the new regulations, private companies that meet any two of the following criteria may apply for audit exemption:

Companies whose annual revenue for the current and past two financial years does not exceed 3,000,000 Malaysian Ringgit.
Companies whose total assets for the current and past two financial years do not exceed 3,000,000 Malaysian Ringgit.
Companies whose workforce at the end of the current and past two financial years does not exceed 30 people.

The introduction of these criteria means that more SMEs will be able to enjoy audit exemptions, reducing their financial burden and further promoting the sustainable development of their businesses.

Implementation Plan and Transition Period

To help businesses transition smoothly, the Malaysian government has decided to implement this new policy through a phased approach:

Phased Transition ：The new audit exemption standards will be implemented gradually over three years. This transition period will provide companies with sufficient time to adapt to the new requirements, ensuring that businesses can continue to enjoy audit exemptions at different scales.
Annual Threshold Increase ：Over the next three years, the thresholds for revenue, assets, and workforce numbers will be gradually raised, eventually reaching the new audit exemption standards.
Effective Date ：The new eligibility criteria will apply to 2025 year 1 month 1 day or later, and the current standards will remain in effect until 2024 year 12 month 31 day.

Phase 1 ：Applies to 2025 year 1 month 1 day to 2025 year 12 month 31 day, with submissions starting from 2026 year 1 month 1 day. At this stage, the upper limit for annual revenue and total assets is 100 RM million, and the workforce does not exceed 10 people.
Phase 2 ：Applies to 2026 year 1 month 1 day to 2026 year 12 month 31 day, with submissions starting from 2027 year 1 month 1 day. At this stage, the upper limit for annual revenue and total assets is 200 RM million, and the workforce does not exceed 20 people.
Phase 3 ：Applies to 2027 year 1 month 1 day or later, with submissions starting from 2028 year 1 month 1 day. At this stage, the upper limit for annual revenue and total assets is 300 RM million, and the workforce does not exceed 30 people.

Important Notes

While this policy provides audit exemptions for many companies, some will not be eligible. The following types of companies will not be eligible for audit exemptions:

Companies that have chosen to submit a certificate of exemption from private company status to the Registrar, as stipulated under Section 2016 of the Companies Act 260 year
Publicly Listed Companies
Subsidiaries of Publicly Listed Companies
Foreign Companies

Furthermore, exemption will cease when a company no longer meets the eligibility criteria. However, audit exemption will still apply to financial years where the company previously met the criteria.

This new audit exemption policy provides further support for small businesses in Malaysia, particularly in reducing financial burdens and lowering operational costs. Through the phased implementation, the government has ensured a smooth transition, allowing businesses to gain more flexibility while remaining compliant. This reform not only complies with international standards but also lays a solid foundation for the long-term development of SMEs.

If you would like to learn more about Malaysia's audit exemption policy or how to meet the new eligibility criteria, please feel free to contact the FOZL Malaysia team. We will be happy to provide you with comprehensive support to help you succeed in your business journey in Malaysia.

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