The Companies Commission of Malaysia (CCM) had on 4 August 2017 issued a Practice Directive No. 3/2017 (PD 3/2017) setting out the "Qualifying Criteria For Audit Exemption For Certain Categories Of Private Companies".

The Malaysian Companies Act 2016 (CA 2016) requires every private company to appoint an auditor for purposes of auditing its financial statements for each financial year. However, the Registrar also has the power to exempt any private company from having to appoint an auditor.

Categories of private companies that qualify for audit exemption

The following categories of private companies will qualify for audit exemption: (i) dormant companies, (ii) zero-revenue companies and (iii) threshold-qualified companies.


When does the audit exemption take effect?

The audit exemption takes effect on or after the dates set out below:



The exemption will not apply to exempt private companies. Under the CA 2016, an exempt private company is a private company with not more than 20 shareholders, none of which are corporate bodies (with direct or indirect interest in those shares).

Practical considerations

Companies will need to carefully consider various practical issues arising from this exemption:

  1. Audit-exempt companies still need to prepare unaudited financial statements in accordance with prevailing approved accounting standards and lodge them with the CCM. The unaudited financial statements must be accompanied by a certificate signed by a director confirming that the financial statements have been prepared based on applicable accounting standards, the board acknowledges responsibility for complying with the CA 2016 and that the shareholders did not request for the financial statements to be audited.
  2. The board will have a collective responsibility for the certification and the unaudited financial statements. They must understand potential legal ramifications arising from third parties relying on the information as the unaudited financial statements will be a publicly available document.
  3. The board may require the assistance of audit / accounting firms to prepare the unaudited financial statements in accordance with the accounting standards. From a cost perspective, it may not make much of a difference from a full audit exercise.
  4. For companies which do not qualify in subsequent financial years, there is a risk that the auditors may qualify the audited financial statements on the basis that the opening balances are derived from unaudited numbers.
  5. The tax authorities may still require financial information in annual corporate tax submissions to be derived from audited figures.

Companies will have to undertake a cost-benefit analysis and consult their financial and tax advisers to determine whether they qualify for audit exemption and more importantly, whether there is any practical and/or regulatory advantage to pursue the audit exemption.

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