New Qualifying Criteria for Audit Exemption

The Companies Commission of Malaysia (SSM) introduced new qualifying criteria for audit exemption for certain private companies through Practice Directive No. 10/2024, which came into effect for financial periods commencing on or after January 1, 2025.

The objective of this directive is to alleviate the regulatory and financial burden on micro and small-to-medium enterprises (SMEs), allowing them to redirect resources towards business growth and innovation, while still maintaining essential financial accountability. Crucially, it also aims to mitigate the issue of a supply-demand gap resulting from the high demand for statutory audits and the limited number of approved auditors available in Malaysia.

Under the revised framework, a private company qualifies for audit exemption if it can meet at least two (2) of the three (3) following criteria for the current financial year and the immediate past two (2) financial years

Existing Audit Exemption Criteria

The previous framework (Practice Directive No. 3/2017) grants exemption based on three categories, and a company must fulfill any one of the three (3) criteria for the current and immediate preceding financial years:

Previous Audit Exemption Criteria Under 

Practice Directive No. 3/2017

Companies need to fulfill any one of the following criteria

Dormant Companies

Companies with no significant transaction since incorporation or during the current and immediate past financial year.

Zero-Revenue Companies

Companies generating no revenue in the current and immediate past two years, with the total assets not exceeding RM 300,000 during the same period.

Threshold-Qualified Companies

Companies with the revenue and total assets not exceeding RM 100,000 and RM 300,000 respectively over the current and past two financial years, and employing not more than 5 employees

New Qualifying Criteria for Audit Exemption

Under Practice Directive No. 10/2024, a private company qualifies for audit exemption if it fulfils at least two (2) of the following three (3) criteria over the current and immediate past two financial years.This criteria take effect for financial reporting periods commencing on and after 1st January 2025.

New Audit Exemption Criteria Under 

Practice Directive No. 10/2024

Companies need to fulfill at least 2 criteria

Annual Revenue 

The annual revenue of the company during the current financial year and in the immediate past two financial years do not exceed RM3,000,000 All income source including: 

• Business Income 

• Investment Income 

• Account Receivable

Total Assets 

The total assets of the company in the current statement of financial position and in the immediate past two financial years do not exceed RM3,000,000

• Current Assets

• Non-Current Assets

Number of employees

The number of employees at the end of the current financial year and in the immediate past 2 financial years do not exceed 30. ✅ Employees include: 

• Local and foreign full-time employee 

• Contract workers 

• Employees under probation

---

❌ Employees exclude:

• Local and foreign full-time employee 

• Contract workers 

• Employees under probation

Other Condition: Dormant Companies

Companies which are dormant 

• since the time of incorporation, or;

• dormant during the immediate past and current financial year 

Implementation Phase

To ensure a smooth transition, the new criteria will be implemented gradually. The implementation will take place over three years, with an incremental increase in the thresholds for revenue, assets, and the number of employees.

Year	2025 Phase 1	2026 Phase 2	2027 Phase 3
Financial period	Commencing on or after 1st January 2025 until 31st December 2025	Commencing on or after 1st January 2026 until 31st December 2026	Commencing on or after 1st January 2027
Submission year	Beginning from 1st January 2026	Beginning from 1st January 2027	Beginning from 1st January 2028
Threshold
Turnover	RM 1,000,000	RM 2,000,000	RM 3,000,000
Assets	RM 1,000,000	RM 2,000,000	RM 3,000,000
Number of Employees	10	20	30

Companies That Are NOT Qualified for Audit Exemption

Based on the criteria from SSM's Practice Directive No. 10/2024, a private company would NOT qualify for an audit exemption if it falls into any of the following categories, even if it meets the financial and employee thresholds:

1. Exempt Private Companies (EPC)

2. Public / Listed Companies

3. Subsidiary of a Public Company

4. Foreign Company

   
   

---

How to apply for Audit Exemption

If the company meets the specified criteria and elected to be exempted from audit, the company is required to lodge the following documents with the Registrar: 

1. Unaudited Financial Statements

2. A Directors’ Report

3. A Statement by Directors

4. A Statutory Declaration

5. Audit Exemption Certificate

The company must still prepare a complete set of unaudited financial statements in compliance with a approved accounting standard - Malaysian Private Entities Reporting Standard (MPERS) or Malaysian Financial Reporting Standards (MFRS)

Actually, it's the same as the financial statements submitted before, 

just without the auditor's signature

What Happen if Company is No Longer Qualifies for Audit Exemption

If your company no longer qualifies for audit exemption, the status will be terminated. 

For any subsequent financial year where it no longer meets the criteria, it will be required to undergo statutory audit and exemption for past year will remain valid. 

Does Audit Exemption Affect My Companies

Audit exemption can lower short-term costs, but companies should be aware of the potential risks. Ultimately, it is not an ideal choice for those focused on long-term growth and development.

Limited access to financing Banks and investor may prefer audited accounts for loan approvals and investments.	Tax Compliance Risk  Tax authorities may question the accuracy of financial statements.
Credibility Concerns  Unaudited financial statement may be perceived as less reliable by stakeholders.	Regulatory Compliance Issues  Lead to undetected errors or fraudulent practices, increasing the risk of penalties of underpay taxes or custom duties.