In a recent announcement by the Companies Commission of Malaysia (“SSM”) on August 4, 2017, Practice Directive No. 3/2017 titled “Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies” was introduced. This directive outlines the criteria under which certain private companies are exempt from undergoing audits.
In accordance with Section 20C of the Companies Commission of Malaysia Act 2001 and Subsection 267(2) of the Companies Act 2016 (“CA 2016”), Practice Directive No. 3/2017 specifies the conditions under which private companies are not required to appoint an auditor for a financial year, also known as audit exemption.
The directive states that the following types of companies are eligible for audit exemption:
Dormant companies
Companies with zero revenue
Threshold-qualified companies
It’s important to note that audit exemption does not apply to exempt private companies that have opted to submit a certificate regarding their exempt private company status to the SSM.
(a) Dormant Company Audit Exemption
i. A company is dormant in a financial year if
the company does not carry on business and,
there is no accounting transaction * occurred.
“An “accounting transaction” refers to a transaction for which the company is mandated to maintain records under section 245(1) of the Companies Act 2016. However, this definition excludes transactions resulting from legal obligations that require the company to make payments and incur related compliance costs.
ii. A dormant company, as defined by the Malaysian Accounting Standards Board (MASB), qualifies for audit exemption under two conditions:
it has been dormant from the time of its incorporation; or
it is dormant throughout the current financial year and in the immediate preceding financial year.
iii. The directive’s implementation is as follows:
where the company is incorporated on or after 31 January 2017, the financial statements with annual periods commencing on or after 31 January 2017; and
where the company is incorporated on or before 30 January 2017, the financial statements with annual periods commencing on or after 1 September 2017.
(b) Zero-revenue companies Audit Exemption
i. A zero-revenue company, as defined by the Malaysian Accounting Standards Board (MASB), is a private entity that qualifies for audit exemption if:
It has generated no revenue during the current financial year.
It has not generated any revenue in the immediate past two financial years.
The total assets listed in its current Statement of Financial Position (FS) do not exceed RM300,000, and this threshold is also maintained in the FS of the immediate past two financial years.