To further reduce the cost of doing business, the Companies Commission of Malaysia has announced that dormant, zero-revenue and threshold-qualified private companies are eligible to elect for audit exemption.

Dormant companies

A dormant company is a private entity as defined by the Malaysian Accounting Standards Board (MASB) and the company is qualified for audit exemption if—

(a) it has been dormant from the time of its incorporation; or

(b) it is dormant throughout the current financial year and in the

immediate preceding financial year.

Zero-Revenue Companies

A zero-revenue company is a private entity as defined by the Malaysian Accounting Standards Board (MASB) and the company is qualified for audit exemption if— (a) it does not have any revenue during the current financial year;

(b) it does not have any revenue in the immediate past two financial years; and (c) its total assets in the current Statement of Financial Position (FS) does not exceed RM300,000 as well as in the FS of the immediate past two financial years.

Threshold-Qualified Companies

A threshold-qualified company is a private entity as defined by the Malaysian Accounting Standards Board (MASB) and is qualified for an audit exemption if— (a) it has revenue not exceeding RM100,000 during the current financial year and in the

immediate past two (2) financial years; (b) its total assets in the current Statement of Financial Position (FS) does not exceed RM300,000 and in the immediate past two (2) financial years; and

(c) it has, at the end of its current financial year and in each of its immediate past two (2) financial years end, not more than five (5) employees.

Companies opting to file certificate of private exempt

The audit exemption is not applicable to an exempt private company which has chosen to lodge a certificate relating to its status as an exempt private company to the Registrar pursuant to section 260 of the CA 2016.

Other conditions

i. Any company that elects to be exempted from audit must lodge its unaudited financial statements with the Registrar accompanied with the required certificate in compliance with sections 258 and 259 of the Companies Act 2016.

ii. The unaudited financial statements prepared shall comply with applicable approved accounting standards pursuant to subsection 244(1) of the Companies Act 2016.

iii. The unaudited financial statements shall be lodged together with the directors’ report, statement by directors and statutory declaration pursuant to sections 251 and 252 of the Companies Act 2016. 17. And the unaudited financial statements must also be accompanied by a certificate stating the matters as set out in Appendix I within thirty days from the circulation date of the unaudited financial statements and reports are circulated under section 258 CA 2016

iv. And the unaudited financial statements must also be accompanied by a certificate stating the matters as set out in Appendix I of the Practice Directive 3/2017 within thirty days from the circulation date of the unaudited financial statements and reports are circulated

under section 258 CA 2016.

v. A company that is eligible for audit exemption shall be required to audit its accounts if it receives a notice in writing requiring the company to audit its accounts during a financial year but not later than one month before the end of that financial year from:–

(a) any member or members eligible to vote and holding in aggregate of not less than 5% of the total number of issued shares of the company or any class of those shares;

(b) not less than 5% of the total number of members eligible to vote in of the company; or

(c) the Registrar who directs the company to have its accounts audited.

Effective date: a. Dormant company –

• Where the company is incorporated on or after 31 January 2017, the financial statements with annual periods commencing on or after 31 January 2017;

• 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 –

• For financial statements with annual periods commencing on or after 1 January 2018.

c. Threshold-qualified companies –

• For financial statements with annual periods commencing on or after 1 July 2018.

Comments from StanleyCo

a. The exemption is welcome as it would bring down the cost of doing business in Malaysia.

b. Without audit being carried out, the Directors of a company would have a heavier responsibility to ensure the accounts are prepared in accordance with applicable accounting standards and Companies Act requirements.

c. Without an independent audit by the auditors, shareholders would have to rely on the accounts prepared by the Directors.

d. Some banks and financial institutions may still require audited financial statements to be prepared for loan application or extension purposes. As such, it would be important to consult with your banks and lenders on this issue.

e. Clients are advised to refer to their contractual obligations under existing loan agreements, shareholders agreements and other covenants – as it is not uncommon under these agreements to oblige the company or directors to produce audited financial statements periodically/yearly. In such case, the company may not be able to opt for the audit exemption.

f. The Inland Revenue Board of Malaysia has not amended its regulations that require tax returns to be filed based on audited figures. It is expected that the IRBM would be responding to these changes soon.

Please contact StanleyCo if you need assistance

StanleyCo consist of chartered accountants, chartered secretaries and tax agents – we are able to assist you in preparing or compiling unaudited financial statements that would meet the requirements of CCM and Companies Act. Please contact us if you require advice on this matter.