Malaysia’s Audit Exemption: Are You Eligible, and Should You Use It?

Malaysia’s audit exemption framework has changed significantly.

Under Practice Directive No. 10/2024, Qualifying Criteria for Audit Exemption for Certain Private Companies in Malaysia (“PD 10/2024”), certain private companies may elect not to have their financial statements audited, provided they satisfy the prescribed criteria.

The new framework applies to financial periods commencing on or after 1 January 2025 and is being introduced progressively over three phases. For financial periods commencing in 2026, the applicable thresholds are RM2 million for revenue, RM2 million for total assets and 20 employees. From financial periods commencing on or after 1 January 2027, the thresholds increase to RM3 million, RM3 million and 30 employees respectively.

The change gives qualifying private companies greater flexibility and can reduce compliance costs.

But there is an important distinction between being eligible for audit exemption and whether it makes commercial sense to use it.

For some businesses, an annual statutory audit may be an unnecessary cost. For others, audited financial statements may continue to be useful for financing, investors, tenders, governance and future corporate transactions.

So, what has changed, and what should directors consider before deciding?

What is audit exemption?

Under the Companies Act 2016, companies are generally required to appoint an auditor. Section 267(2), however, allows the Registrar to exempt certain categories of private companies from the audit requirement.

PD 10/2024 sets out the current qualifying criteria.

An eligible company may elect to adopt the audit exemption and lodge unaudited financial statements instead of audited financial statements.

However, audit exemption does not mean financial statement exemption.

The company must still prepare its financial statements in accordance with the applicable accounting standards and comply with the relevant requirements of the Companies Act 2016, including the preparation, circulation and lodgement of the required documents.

This distinction is important.

The audit requirement may disappear, but the company’s financial reporting responsibilities do not.

What are the current audit exemption thresholds?

The new framework is being introduced in three phases.

For a financial period commencing in 2026, a company is assessed against the Phase 2 thresholds of RM2 million revenue, RM2 million total assets and 20 employees.

From financial periods commencing on or after 1 January 2027, the thresholds increase to RM3 million for revenue, RM3 million for assets and 30 employees. SSM states that the Phase 3 thresholds remain unchanged unless reviewed by the Registrar.

You only need to meet two of the three criteria

A company does not have to fall below all three thresholds.

It must satisfy at least two of the three criteria.

For example, under the 2026 Phase 2 thresholds, a company with:

• revenue of RM1.8 million;
• total assets of RM1.5 million; and
• 25 employees

would satisfy the revenue and assets criteria, even though its employee count exceeds 20.

It may therefore qualify, subject to the other requirements of PD 10/2024.

It is not just a current-year test

One of the more important aspects of the new framework is the three-year assessment.

The applicable criteria consider the current financial year and the immediate preceding two financial years.

SSM has also clarified how the phased thresholds should be applied.

For a company assessing eligibility for its 2026 financial year, the relevant revenue, assets and employee figures for the three years under review must not exceed the maximum Phase 2 thresholds of RM2 million, RM2 million and 20 employees respectively.

This means directors should not look only at the latest set of financial statements.

A company that appears small today may still fail the relevant criteria because of its financial or employee profile over the preceding years.

Who can use the exemption?

The framework is principally aimed at qualifying private companies.

However, being a private company is not by itself sufficient.

Certain categories are excluded from the framework, including public companies, private companies that are subsidiaries of public companies and foreign companies, together with other categories specified in PD 10/2024.

There is also an important distinction for private companies connected to public companies.

Associate, subsidiary and joint control are not treated the same way

SSM has specifically addressed this in Q25 of its Audit Exemption FAQ, updated on 6 November 2025.

A private company that is an associate of a public company may adopt PD 10/2024 if it fulfils all the relevant criteria.

However, a private company that is part of a public company as a subsidiary or through joint control is considered to have greater public interest and is not eligible to adopt the audit exemption.

This distinction is particularly relevant for companies within larger corporate groups.

The assessment should therefore consider not only the company’s own revenue, assets and employees, but also its ownership and group structure.

What about dormant companies?

The framework also provides a separate route for dormant companies.

SSM states that a company may qualify for audit exemption where it has been dormant since incorporation, or where it has been dormant during the current financial period and the immediate preceding financial period.

For such companies, the analysis is different from applying the revenue, asset and employee thresholds.

This can be particularly relevant for companies retained for investment, restructuring or future business purposes but which currently have no operating activities.

The potential benefits of audit exemption

For an eligible private company, there are several potential advantages.

1. Lower compliance costs

The most obvious benefit is the removal of the statutory audit requirement and, consequently, the audit fee associated with it.

For a genuinely small business with straightforward transactions, simple ownership and limited external stakeholders, this can represent a meaningful reduction in annual compliance costs.

The SSM framework was introduced in part to reduce the audit and financial burden on micro and small companies and to allow more SMEs to benefit from audit exemption.

2. Less administrative work

An annual audit involves management preparing supporting schedules, explanations and documentation for the auditor.

Without a statutory audit, some of this annual administrative work may be reduced.

For a small business where the owner is also responsible for day-to-day operations, that can be useful.

However, the extent of the saving will depend on how the company’s accounting function is structured.

A company still needs proper financial records and financial statements even when it is audit exempt.

3. More flexibility for smaller businesses

Not every private company has the same level of external reporting needs.

A small family-owned business with straightforward operations may have very different requirements from a company preparing to raise capital, obtain significant financing or undertake a corporate transaction.

The new framework gives qualifying businesses greater flexibility to determine whether an annual statutory audit continues to serve a useful purpose.

4. The exemption is optional

This is perhaps the most important point.

Qualifying for audit exemption does not mean the company must stop having an audit.

MIA confirms that a company eligible for audit exemption may still voluntarily appoint an auditor. MIA notes that voluntary audits may be undertaken to enhance credibility with investors, lenders and regulators, satisfy requirements relating to grants or loans, or strengthen internal governance and controls.

Therefore, the decision does not have to be viewed simply as “audit or no audit”.

It can instead be:

Is the statutory audit still required, and separately, does an independent audit continue to provide commercial value?

The potential problems directors should consider

This is where the decision becomes more interesting.

The audit exemption removes a statutory requirement.

It does not remove the underlying responsibilities of directors or the need for reliable financial information.

1. Your bank may still want audited accounts

Being eligible for audit exemption does not necessarily mean that audited financial statements will no longer be relevant to the business.

Banks and other financial institutions may request audited financial statements when assessing financing applications or evaluating the financial position of a borrower.

MIA’s guidance specifically notes that acceptance of unaudited financial statements by banks and government agencies depends on their respective policies and risk assessment frameworks. Audited financial statements may be preferred because they provide assurance from an independent party.

So the question should not only be: “Are we legally required to have an audit?”

It should also be: “Who needs to rely on our financial statements?”

That is a very different question.

2. Customers and tender requirements may still matter

Some businesses participate in tenders, supplier qualification programmes or contracts with larger organisations.

An audited set of financial statements may form part of the financial assessment or vendor onboarding process.

Even if the Companies Act no longer requires an audit, another party may still require one.

This is particularly relevant for businesses dealing with larger corporates, regulated industries or government-related organisations.

An audit exemption therefore should not be considered in isolation from the company’s commercial environment.

3. Investors and shareholders may value independent assurance

An audit provides something that management-prepared financial statements do not.

It provides an independent examination of the financial statements and an auditor’s opinion.

That distinction can become particularly relevant when ownership changes.

A business may be entirely family-owned today but may be considering bringing in a new shareholder or investor in the future.

The value of an audit may therefore extend beyond the current financial year.

It can form part of the company’s financial history and provide external stakeholders with greater confidence in the information they are reviewing.

4. Removing the audit does not remove the risk of errors

Without an external audit, there is one less independent review of areas such as:

• revenue recognition;
• inventory;
• receivables;
• related-party transactions;
• fixed assets;
• liabilities and accruals;
• bank balances;
• accounting estimates; and
• compliance with applicable accounting standards.

This does not mean that unaudited financial statements are necessarily unreliable.

It means that management and the directors carry greater responsibility for ensuring that the financial information is complete, accurate and properly prepared.

For a company with a strong finance function and good internal controls, this may be manageable.

For a business where accounting records are heavily dependent on one person or where financial controls are informal, the decision deserves more consideration.

What happens when the company grows?

A company can qualify for audit exemption today and become subject to audit again in the future.

Revenue may increase. Assets may increase. Headcount may increase.

The business may also change its ownership structure or enter into transactions that affect its eligibility.

For a growing company, audit exemption should therefore be viewed as part of the company’s current stage of development, rather than as a permanent change.

There can also be practical considerations when an audit is resumed after a period without one.

MIA notes that companies should consider potential audit implications when returning to an audit, including matters relating to opening balances.

For a business that expects to grow quickly, maintaining good accounting records and financial controls from the beginning can make that transition considerably easier.

Shareholders can still require an audit

Audit exemption does not mean shareholders have permanently given up the right to have the company’s accounts audited.

Under PD 10/2024, an audit may still be required where the company receives the prescribed written notice from members meeting the relevant threshold, or where the Registrar requires the company to have its accounts audited.

The relevant member thresholds include members holding in aggregate at least 5% of the issued shares or a class of shares, or at least 5% of the total number of members entitled to vote, subject to the requirements of PD 10/2024 and the Companies Act 2016.

This provides an additional mechanism for an audit to be required where shareholders or the Registrar consider it necessary.

What still needs to be done if the company is audit exempt?

This is where one of the biggest misconceptions can arise.

An audit-exempt company still has financial reporting obligations.

The company must prepare its financial statements in accordance with the applicable approved accounting standards and comply with the relevant Companies Act 2016 requirements.

SSM states that an audit-exempt company must lodge:

• unaudited financial statements;
• the directors’ report; and
• a certificate of compliance

within 30 days of circulation, pursuant to section 254 of the Companies Act 2016.

These documents are lodged through SSM’s Malaysian Business Reporting System (MBRS), which requires the full set of financial statements, audited or unaudited, to be submitted in XBRL format. Our Audit & Assurance team assists with MBRS conversion.

So the process does not become:

No audit→No accounts→No compliance

It becomes:

No statutory audit→Management-prepared financial statements→Continued reporting and filing obligations

That distinction matters.

Could a compilation engagement be an alternative?

For some companies, there may be a middle ground between a statutory audit and simply preparing the accounts internally.

MIA’s audit exemption FAQ explains that a professional accountant in public practice may perform a compilation engagement under ISRS 4410 (Revised), Compilation Engagements, where appropriate.

A compilation engagement assists management in preparing and presenting historical financial information, but it does not provide assurance on that information.

This is fundamentally different from an audit.

An audit provides reasonable assurance and an independent audit opinion. A compilation engagement does not provide assurance.

For an audit-exempt company that still wants professional assistance with financial reporting, the appropriate service therefore depends on what the company and its stakeholders actually need.

Should an eligible company take the exemption?

There is no universal answer.

A small private company with straightforward operations, no significant external financing requirements, no external investors and no contractual requirement for audited accounts may find that the exemption provides a useful reduction in compliance costs.

On the other hand, a company that relies heavily on bank facilities, participates in major tenders, has external shareholders, is considering an investment or sale, or expects significant growth may still find that an annual audit provides commercial value.

The better approach is to consider the purpose of the financial statements, rather than looking only at whether the company passes the SSM thresholds.

A useful way to think about it is:

Eligibility answers whether you can stop the audit. It does not answer whether you should.

A practical checklist for directors

Before electing for audit exemption, directors should consider the following:

1. Eligibility. Does the company satisfy at least two of the three relevant criteria for the current financial year and the preceding two financial years?
2. Ownership structure. Is the company part of a wider corporate group, and does its relationship with any public company affect its eligibility?
3. Banking. Do existing or potential lenders require audited financial statements?
4. Contracts and tenders. Do major customers, government agencies or tender requirements require audited accounts?
5. Shareholders. Would shareholders benefit from independent assurance over the financial statements?
6. Investors. Is the company considering bringing in investors or new shareholders?
7. Business sale. Could the company potentially be sold, restructured or subject to a corporate exercise in the next few years?
8. Finance function. Does management have sufficient accounting knowledge, systems and controls to prepare reliable financial statements?
9. Growth trajectory. Is the company close to the applicable thresholds or expected to grow beyond them?
10. Cost versus value. Is the saving in audit cost meaningful when compared with the potential financing, governance and transaction benefits of continuing with an audit?

Audit exemption is a change in requirement, not an absence of responsibility

Malaysia’s revised audit exemption framework gives qualifying private companies more flexibility.

For smaller businesses, this can be a meaningful reduction in compliance costs. That is consistent with SSM’s stated policy objective of reducing the audit and financial burden on micro and small companies while allowing more SMEs to benefit from the framework.

But directors should be careful not to interpret “audit exempt” as “financial statements no longer matter”.

The financial statements still need to be prepared properly.

Directors remain responsible for the company’s financial reporting, and external stakeholders may continue to expect independently audited information.

For some companies, the audit is primarily a statutory requirement.

For others, it is part of the company’s financial infrastructure.

The real question is therefore not simply whether your company qualifies for audit exemption. It is whether removing the audit fits the direction in which your business is going.