Statutory audit in Malaysia.

Under the Companies Act 2016, all companies incorporated in Malaysia must have their financial statements audited each financial year by an approved company auditor holding a practising certificate issued under the Act and registered with the Malaysian Institute of Accountants (MIA). This applies to public companies, foreign companies and all private companies (Sdn Bhd) unless they qualify for audit exemption under an SSM practice directive.

Companies that are categorically ineligible for exemption include public companies, foreign companies operating in Malaysia and subsidiaries of listed companies, all of which must appoint an auditor regardless of size or revenue. Private companies that fall outside the applicable exemption thresholds are also required to comply.

Under SSM’s Practice Directive 10/2024, effective for financial years commencing on or after 1 January 2025, a private company may elect for audit exemption if it satisfies at least two of three criteria across the current year and the two preceding financial years. The thresholds are being raised incrementally across three phases:

• Financial years commencing in 2025: revenue below RM1 million (approximately USD 225,000 at current rates), total assets below RM1 million, not more than 10 full-time employees
• Financial years commencing in 2026: revenue below RM2 million, total assets below RM2 million, not more than 20 full-time employees
• Financial years commencing from 1 January 2027: revenue below RM3 million, total assets below RM3 million, not more than 30 full-time employees

Dormant companies qualify regardless of these thresholds. The exemption does not extend to public companies, foreign companies or subsidiaries of listed companies. Even where exemption applies, banks and lenders commonly require audited financial statements as a condition of credit facilities, so some companies eligible for exemption may still choose to be audited.

Good preparation materially reduces audit time and the risk of delays. Core items auditors commonly request include:

• Trial balance and general ledger for the financial year
• Bank statements and reconciliations for all accounts
• Board and members’ resolutions passed during the year
• Draft financial statements and supporting management accounts
• Schedules for significant balance sheet items including fixed assets, receivables and payables
• Key contracts, loan agreements and leases
• Tax computations and correspondence with the Inland Revenue Board (LHDN)

Companies with overseas operations should also prepare intercompany reconciliations and consolidation schedules. Identifying areas of accounting judgement such as revenue recognition policies, asset impairment assessments or provisions in advance allows these to be discussed with the auditor early rather than becoming a source of delay during fieldwork.

Financial statements in Malaysia are prepared under one of two frameworks depending on the entity type. Public companies and public interest entities (PIEs) must use the Malaysian Financial Reporting Standards (MFRS), which are substantively converged with International Financial Reporting Standards (IFRS). Private entities as defined by the Malaysian Accounting Standards Board (MASB) may instead apply the Malaysian Private Entities Reporting Standard (MPERS), a simplified framework based on the IFRS for SMEs that reduces complexity in areas such as financial instruments, deferred tax and revenue recognition.

The audit itself is conducted under the Approved Standards on Auditing in Malaysia issued by the Malaysian Institute of Accountants, which are aligned with the International Standards on Auditing (ISA). Auditors of public interest entities are subject to additional oversight by the Audit Oversight Board (AOB) under the Securities Commission Malaysia.

Non-compliance with the statutory audit requirement is an offence under the Companies Act 2016. Under Section 259(1), a company and its directors may each be fined up to RM50,000 (approximately USD 11,000 at current rates), with a continuing daily fine of RM1,000 for each day the offence persists. The Companies Commission of Malaysia (SSM) escalated enforcement from late 2025 and has the power to strike off entities with persistent lodgement failures.

The practical consequences extend beyond regulatory penalties. Banks and financial institutions require audited financial statements as part of credit assessment, and the absence of audited accounts can block loan facilities, trade financing and lease agreements. LHDN may also query tax filings not supported by audited figures, and government grant programmes administered through agencies such as MIDA and SME Corp often require audited financial statements as supporting documentation.

For most small to mid-sized private companies, the fieldwork phase takes two to four weeks once the auditor has received complete and organised financial records. Sign-off and reporting follow within two to four weeks of fieldwork completion, putting the total elapsed time at one to two months for straightforward engagements.

Several factors extend this timeline: complex revenue recognition, group consolidation involving overseas subsidiaries, significant year-end adjustments or poorly organised records. Under the Companies Act 2016, audited financial statements must be circulated to members within six months of the financial year-end and lodged with SSM within 30 days of circulation. Engaging the auditor before the financial year-end allows planning to begin early and reduces the risk of late submission.