New Audit Exemption Criteria for Private Companies in Malaysia

In a significant move to streamline corporate governance and reduce compliance burdens, the Companies Commission of Malaysia (SSM) recently introduced new criteria for financial statement audit exemptions for private companies.

These criteria, outlined in Practice Directive No. 10/2024, aim to balance policy requirements with corporate financial reporting responsibilities, benefiting small and medium enterprises (SMEs) across Malaysia.

Why the Change?

The new audit exemption criteria, effective for financial years beginning on 1 January 2025, align with SSM’s broader goals of:

Improving the quality of financial statement audits.
Reducing compliance costs for SMEs.
Ensuring corporate governance practices remain efficient and transparent.

These updates reflect SSM’s commitment to maintaining a robust yet flexible regulatory environment that supports business growth while upholding financial accountability.

Stakeholder Consultation Process

Between February 2023 and June 2024, SSM engaged stakeholders through extensive consultations. An impressive 88% of respondents supported the new criteria, affirming the directive’s relevance and potential positive impact.

Eligibility Criteria: Private Firm Audit Exemption

To qualify for an audit exemption in Malaysia, a company must meet any two of the following three conditions:

Annual Turnover: The company’s annual turnover must not exceed RM3,000,000 in the current financial year and the preceding two financial years.
Total Assets: The company’s total assets must not exceed RM3,000,000 in the current financial year and the preceding two financial years.
Number of Employees: The company must have no more than 30 employees at the end of the current financial year and the preceding two financial years.

Additionally, companies with dormant status since their establishment or those that were dormant during the current and preceding financial year are also eligible for an audit exemption.

Key Highlights of the New Criteria

Phased Implementation

To ensure a smooth transition, SSM has introduced the new criteria in three phases, with increasing thresholds over three years:

Phase 1 (2025) – Audit Exemption Criteria

Financial statements beginning between 1 January 2025 and 31 December 2025.
Submission begins 1 January 2026.
Thresholds:
- Annual turnover and asset value: RM1,000,000.
- Number of employees: 10 people.

Phase 2 (2026) – Audit Exemption Criteria

Financial statements beginning between 1 January 2026 and 31 December 2026.
Submission begins 1 January 2027.
Thresholds:
- Annual turnover and asset value: RM2,000,000.
- Number of employees: 20 people.

Phase 3 (2027) – Audit Exemption Criteria

Financial statements beginning on or after 1 January 2027.
Submission begins 1 January 2028.
Thresholds:
- Annual turnover and asset value: RM3,000,000.
- Number of employees: 30 people.

In all phases, thresholds for the previous two financial years cannot exceed the maximum set for the applicable phase.

Effective Dates

The new criteria apply to financial years beginning on 1 January 2025.
The current criteria will remain valid for financial statements for periods beginning before 31st December’24.

Note: Practice Instruction No. 10/2024 can be accessed through SSM’s official portal, www.ssm.com.my.

How This Benefits SMEs

The new directive significantly reduces the compliance burden for private companies, particularly SMEs. By exempting eligible companies from mandatory audits, SSM ensures:

Cost Savings: Lower compliance costs for small businesses.
Efficiency: Streamlined corporate governance processes.
Transparency: Clear criteria that simplify eligibility assessment.

Conclusion

SSM’s new audit exemption criteria mark a pivotal shift for private companies in Malaysia, offering significant benefits while promoting accountability. As businesses prepare for these changes, partnering with a reliable compliance SSM MBRS-XBRL solution provider in Malaysia is critical.

With DataTracks’ cutting-edge MBRS XBRL Tagging Service, you can streamline your compliance reporting process, reduce errors, and focus on growing your business.

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