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Audit Exemption Malaysia: New Qualifying Criteria

31.03.2025

The Companies Commission of Malaysia (SSM) has introduced an audit exemption to reduce costs for small companies, with new rules on turnover, assets, and employees phased in over three years. Certain companies, such as public company subsidiaries, remain ineligible. While the exemption offers benefits, companies should assess its impact on governance and transparency, as explained by the Ecovis experts from ECOVIS Malaysia.

The Companies Commission of Malaysia (SSM) introduced the audit exemption under the Companies Act 2016, which came into effect on 31 January 2017. However, the specific guidelines on audit exemption were issued later through Practice Directive 3/2017, which was published on 4 August 2017 and became effective for financial periods ending on or after 31 December 2017.

What are the Objectives?

• To reduce the financial burden faced by micro and small companies, as well as the cost of preparing audited accounts.
• To align with the Government’s policy to help Malaysian companies reduce the overall cost of doing business.
• To encourage business growth by reducing the regulatory burden, allowing small businesses to focus on business development and expansion rather than compliance costs.
• To optimise regulatory resources by exempting small companies from audits, allowing regulators to focus on larger companies and high-risk entities that require closer financial supervision.
• To aligning with global best practices. Many countries have introduced audit exemptions for small companies. Malaysia follows similar international standards to remain competitive and business-friendly.

What are the Current Criteria?

• Dormant companies: Companies must have either been dormant since the time of incorporation, or dormant during the immediate past and current financial year.
• Threshold Qualified Companies: Companies must fulfil the following requirements for the current Statement of Financial Position as well as in the immediate past two financial years:
  • Annual revenue not exceeding RM100,000
  • Total assets of RM300,000 or less
  • Has not more than five (5) employees
• Zero Revenue Companies: Companies must fulfil the following requirements for the current Statement of Financial Position as well as in the immediate past two financial years:
  • Revenue = NIL
  • Assets = do not exceed RM300,000

NEW Qualifying Criteria

A private company qualifies for audit exemption if it meets any two (2) of the following criteria:

• The annual income of the company for the current financial year and the immediately preceding two (2) financial years does not exceed RM3,000,000.
• The total assets of the company in the current statement of financial position and in the immediately preceding two (2) financial years does not exceed RM3,000,000.
• The number of employees as at the end of the current financial year and in the immediately preceding two (2) financial years does not exceed thirty (30).

Implementation Stages

1. The audit exemption threshold criteria will be phased in over a three (3) year period.
2. The thresholds for revenue, assets and number of employees will increase incrementally over three (3) years.
3. The new qualifying criteria will be effective for financial statements with fiscal years beginning on or after January 1, 2025.
4. The criteria under the current Practice Directive will remain in effect until 31 December 2024.

Year	2025 (Phase 1)	2026 (Phase 2)	2027 (Phase 3)
Financial Period	Commencing from 1st January until 31st December 2025	Commencing from 1st January until 31st December 2026	Commencing from 1st January 2027 onwards
Financial Statement Submission Year:	Beginning from 1st January 2026	Beginning from 1st January 2027	Beginning from 1st January 2028
Thresholds:
– Turnover	RM1,000,000	RM2,000,000	RM3,000,000
– Assets	RM1,000,000	RM2,000,000	RM3,000,000
– No. of Employees	10	20	30

Other Conditions

1. Companies which have been dormant since their incorporation or have been dormant during the immediate past and the current financial year are also EXEMPT from the audit requirement.
2. The exemption under this Practice Direction does not apply to:
   • An exempt private company that has elected to file a certificate of its exempt private company status with the Registrar pursuant to section 260 of the CA 2016;
   • A private company that is a subsidiary of a public company; and
   • A foreign company.
3. If a company ceases to qualify for exemption from audit, it will cease to be exempt but will remain exempt in respect of the accounts for the financial years in which it qualifies.

* The other conditions remain the same as in the existing Practice Direction.

Implication

1. An estimated 42% of active companies are expected to benefit immediately from this first-phase.
2. Several factors need to be considered that could result in a lower number of eligible companies, i.e:
   1. Employee Thresholds
      The number of eligible companies under this proposal does not take into account the number of people employed by companies.
   2. Financial Institutions Requirements
      Companies with existing obligations to these institutions or plans to secure financing facilities may still need to continue to have their financial statements audited in order to meet their obligations. Based on the statistics as of October 2024 on the charges registered with the SSM, 34% of active companies have unsatisfied charges and may continue to have their financial statements audited.
   3. Regulatory Requirements
      Certain agencies, such as governmental or other relevant authorities, may have regulatory requirements that mandate the submission of audited financial statements regardless of the company or financial status.
   4. Other Legal Obligations
      Certain legal obligations, such as contracts or grants, might stipulate the need for audited accounts, and the company may opt to continue with the audit.

While providing certain benefits, the audit exemption also raises certain practical considerations regarding the concerns of various stakeholders regarding the accuracy, reliability and transparency of the unaudited financial statements. The decision to apply for an audit exemption should be carefully considered based on the company’s size, financial complexity, stakeholder needs and future business plans. While an audit exemption reduces compliance costs, companies must ensure that financial governance remains strong to maintain trust and transparency.

EU Omnibus Package: EU Commission plans changes to sustainability reporting

31.03.2025

On 26 February 2025, the European Commission published significant proposals to simplify sustainability reporting. These adjustments primarily affect the Corporate Sustainability Reporting Directive (CSRD) and Article 8 of the Taxonomy Regulation. The aim is to reduce reporting obligations for companies and streamline processes.

As part of its “Omnibus Package”, the EU Commission has proposed two directives to amend requirements for sustainability reporting and corporate due diligence. The proposed measures introduce significant relief for companies, explain the Ecovis advisors.

Key changes at a glance

• Reduction of the scope: Companies will only be required to submit sustainability reports if they have more than 1,000 employees and either an annual revenue exceeding EUR 50 million or a balance sheet total of more than EUR 25 million. This change reduces the number of affected companies by approximately 80%.
• Limitation on value chain reporting: Companies no longer falling under the CSRD requirements will be encouraged to follow a voluntary reporting standard based on the SME standards developed by European Financial Reporting Advisory Group (EFRAG).
• Revision of ESRS (European Sustainability Reporting Standards): The number of data points will be reduced, unclear wording will be revised, and consistency with other regulations will be improved.
• Elimination of sector-specific reporting standards: The European Commission plans to revoke its authority to introduce sector-specific standards.
• Limited assurance requirement: While the requirement for sustainability reports to be audited with limited assurance remains, plans for a future stricter “reasonable assurance” requirement will be abandoned.
• Postponement of reporting obligations: Companies that have not yet begun implementing the CSRD will receive an additional two years for compliance.
• Elimination of Article 8 taxonomy reporting requirements: Taxonomy reporting will become voluntary for companies with more than 1,000 employees and annual revenue below EUR 450 million.

Please contact us if you are not sure whether the new regulations also apply to you.

Thilo Marenbach, Auditor, Tax Advisor, Sustainability Auditor (IDW), Board of Directors, Ecovis, Düsseldorf, Germany

Background and next steps

The proposed changes were already announced in the EU Commission’s 2025 work programme as part of a comprehensive “Omnibus Package.” The legislative process is now underway in the European Parliament and the Council.

The newly published proposals are expected to provide significant relief, particularly for mid-sized companies that have not yet engaged with sustainability reporting or the implementation of the CSRD.

For further information please contact:

Thilo Marenbach, Auditor, Tax Advisor, Sustainability Auditor (IDW), Board of Directors, Ecovis, Düsseldorf, Germany
Email: thilo.marenbach@ecovis.com

Helping Chinese Companies Go Global: Insights from Pingwen Hu

26.03.2025

Mrs Pingwen Hu is the Managing Partner and a founding member of ECOVIS Ruide China. With over 30 years of experience and exceptional professional expertise, she is widely recognised in the fields of international accounting, auditing and consulting. As a member of both the ECOVIS International Quality and Development Board and the ECOVIS International Supervisory Board, Pingwen plays a key role in the firm’s global business operations, particularly its presence across the Asia Pacific region.

Under her leadership, ECOVIS Ruide China provides tailor-made advisory services to multinational companies across audit, tax, accounting, investment and business consulting. She specialises in helping international companies establish a foothold in the Chinese market, guiding her team in providing seamless end-to-end support—from company establishment to tax planning, auditing and consulting. Her expertise ensures businesses navigate the complexities of cross-border operations with stability and confidence.

Pingwen understands that compliance and tax planning are key challenges for multinationals entering new markets. Therefore, she leads her team in conducting in-depth research on Chinese and international tax laws, providing clients with accurate tax advice and compliance support, and helping companies reduce operational risks.

What are Pingwen’s thoughts on the growing trend of Chinese companies expanding globally in recent years? She explains:

 “Chinese companies going global has become a powerful trend, strongly supported by the Chinese government. In the past, we at ECOVIS Ruide primarily focused on inbound business. However, in recent years, we have witnessed the difficulties that some Chinese companies encounter when expanding overseas, for example:

• Companies may have a comprehensive development strategy, but they lack an integrated understanding of finance and law, leading to significant fines and penalties.
• The inability to unify domestic and international financial statements results in a lack of robust internal controls within the company.
• How do overseas expatriate employees pay their personal income tax, and how can social security and tax issues be maintained in relation to their domestic contracts?

As a professional CPA firm with over 20 years of experience, we are well aware of our mission to help more Chinese companies successfully enter the international market. We have formed a dedicated service team, drawing on our ECOVIS international platform, which is also one of our greatest strengths, to specifically support the implementation of overseas layouts for Chinese companies.”

When asked about the part of her job she enjoys the most, Mrs. Pingwen HU replied, “Being able to fully support the international development of our clients and help them succeed in the global marketplace is the greatest source of satisfaction for me. At the same time, the diversity of working with international clients constantly exposes my team and me to new challenges and opportunities, which is the charm of our work.”