Background

Subsection 267(1) of the Companies Act 2016 requires every private company to appoint an auditor for each financial year of the company for purposes of auditing its financial statements.

However, pursuant to subsection 267(2) of the CA 2016, the Registrar may exempt any private company from having to appoint an auditor according to the criteria and conditions as set out below.

Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies
The following categories of private companies will be qualified for audit exemption:
(a) Dormant Companies
(b) Zero-Revenue Companies
(c) Threshold-Qualified Companies

(a) Dormant Companies
A dormant company is a private entity as defined by the Malaysian Accounting Standards Board (MASB) and the company is qualified for audit exemption if:

1. it has been dormant from the time of its incorporation; or
2. it is dormant throughout the current financial year and in the immediate preceding financial year.

A company is dormant in a financial year if the company does not carry on business and there is no accounting transaction¹ occurred.

Effective date:

• the financial statements with annual periods commencing on or after 31 January 2017 (if the company is incorporated on or after 31 January 2017)

• the financial statements with annual periods commencing on or after 1 September 2017 (where the company is incorporated on or before 30 January 2017)

(b) Zero-Revenue Companies
A zero-revenue company is a private entity as defined by the MASB and the company is qualified for audit exemption if:

1. it does not have any revenue² during the current financial year;
2. it does not have any revenue in the immediate past two financial years; and
3. its total assets in the current Statement of Financial Position (FS) does not exceed RM300,000 as well as in the FS of the immediate past two financial years.

A company ceases to be inactive where there are revenue received or receivable; and any expenses incurred in maintaining the company is disregarded.

Effective date:

• the financial statements with annual periods commencing on or after 1 January 2018

(c) Threshold-Qualified Companies

A threshold-qualified company is a private entity as defined by the MASB and is qualified for an audit exemption if:

1. it has revenue¹ not exceeding RM100,000 during the current financial year and in the immediate past two (2) financial years;
2. its total assets in the current Statement of Financial Position (FS) does not exceed RM300,000 and in the immediate past two (2) financial years; and
3. it has, at the end of its current financial year and in each of its immediate past two (2) financial years end, not more than five (5) employees.

Revenue includes revenue receivable during the year.

Effective date:

• the financial statements with annual periods commencing on or after 1 July 2018

Other conditions
Where a company which is exempt from audit requirements ceases to be so qualified, it shall thereupon cease to be so exempt but it shall remain so exempt in relation to accounts for the financial years in which it qualifies.

Notwithstanding, a company that is eligible for audit exemption shall be required to audit its accounts if it receives a notice in writing requiring the company to audit its accounts during a financial year but not later than one month before the end of that financial year from:

1. any member or members eligible to vote and holding in aggregate of not less than 5% of the total number of issued shares of the company or any class of those shares;
2. not less than 5% of the total number of members eligible to vote in of the company; or
3. the Registrar who directs the company to have its accounts audited.

Requirements for the submission of accounts
Any company that elects to be exempted from audit must lodge its unaudited financial statements with the Registrar accompanied with the required certificate in compliance with sections 258 and 259 of the Companies Act 2016.

The unaudited financial statements prepared shall comply with applicable approved accounting standards pursuant to subsection 244(1) of the Companies Act 2016.

The unaudited financial statements shall be lodged together with the directors’ report, statement by directors and statutory declaration pursuant to sections 251 and 252 of the Companies Act 2016.

In addition, the unaudited financial statements must also be accompanied by a Audit Exemption Certificate within thirty days from the circulation date of the unaudited financial statements and reports are circulated under section 258 CA 2016.

The certificate is to be signed by a director certifying to the best of his knowledge and belief for the financial year ended, the company is entitled to exemption from audit under section 267(2) of the Companies Act 2016 relating to private companies and, where the director is not primarily responsible for the financial management of the company, the name of the person responsible should also be stated.

The exemption will not be applicable to an exempt private company which has chosen to lodge a certificate relating to its status as an exempt private company to the Registrar pursuant to section 260 of the CA 2016.

^{1 Accounting transaction means a transaction, accounting or other records of which is required to be kept under section 245(1) of the Companies Act 2016, excluding a transaction arising from any obligations that the company is required to abide by any laws to pay and its related costs to comply.} 

^{2 Revenue does not include credit entries for reversal of accounting entries arising from earlier entries, accounting entries related to taxation, reversal of provisions made earlier and gain on derecognition of property, plant, equipment and investment property in the Statement of Comprehensive Income}

 Source: SSM