Does Your SME Qualify for Audit Exemption? If not, Here’s How

From 1 January 2025, SMEs in Malaysia can skip statutory audits if they’re dormant, zero-revenue, or meet SSM’s new “small company” thresholds. Audit exemption reduces costs, but it doesn’t remove filing or director responsibilities.

Audit bills in Malaysia can run higher than your annual office kopi ice budget. The good news? Not every company needs one, if you qualify, you can save thousands without breaking the law.

The leading audit firm in Malaysia will break down the 2025 audit exemption rules, who qualifies, who doesn’t, the benefits, the risks, and what filing steps remain.

What Is Audit Exemption in Malaysia?

Audit exemption means certain private companies don’t need to appoint auditors for statutory audits.

It doesn’t mean “no accounting”, you still must prepare financial statements and file with the Companies Commission of Malaysia (SSM). 

The exemption is only about skipping the audit process, not skipping your reporting or tax obligations.

What Changed in 2025?

The rules shifted under Practice Directive 10/2024.

• The earlier Practice Directive 3/2017 (with stricter thresholds) is revoked for periods beginning 1 January 2025.
• A new phased system now applies, with thresholds increasing gradually between 2025 and 2027.

“The new qualifying criteria is applicable for financial statements with annual periods commencing on or after 1 January 2025.” — SSM

Who Qualifies for Audit Exemption in 2025?

Eligibility is limited, but the categories are clear. SSM’s new Practice Directive 10/2024 sets out three main groups that can skip statutory audits from 1 January 2025.

1. Dormant Companies

No transactions = no audit.

If your company hasn’t recorded any accounting transactions during the current and previous financial year, you’re considered dormant.

• Example: A shelf company registered in Johor Bahru but never used for trading.
• Still required: Filing of unaudited financial statements with SSM.

2. Zero-Revenue Companies

No income, very low assets.

To qualify, your company must:

• Report zero revenue for the current and past two years, and
• Hold total assets not exceeding RM500,000.

Example: A KL-based tech start-up that hasn’t begun sales yet, but only holds minimal seed capital in the bank.

3. Small Companies

The main group most SMEs fall into. To qualify, a company must meet at least 2 of these 3 criteria for two consecutive financial years, using the thresholds that apply in each year:

• FYs beginning in 2025: revenue ≤ RM1m, assets ≤ RM1m, employees ≤ 10
• FYs beginning in 2026: revenue ≤ RM2m, assets ≤ RM2m, employees ≤ 20
• FYs beginning in 2027: revenue ≤ RM3m, assets ≤ RM3m, employees ≤ 30

Falling outside the thresholds for two consecutive years means you lose the exemption for the next period.

Example scenario:

• A café with RM2.5m revenue, RM1.8m assets, 18 employees does not qualify in 2025 or 2026. It may qualify in 2027 (Phase 3) if it meets two of three criteria for two consecutive years under the applicable limits.

“A company may continue not to audit its financial statements commencing from 1 January 2025 so long as it satisfies the criteria for audit exemption under Phase 1.” — SSM FAQ (Part Q)

Who Does Not Qualify?

Some companies are excluded entirely.

Audit exemption does not apply to:

• Exempt Private Companies (EPCs) that choose to lodge an EPC certificate (s.260).
• Public companies (including listed).
• Private companies that are subsidiaries of a public company.
• Foreign companies.

Benefits of Audit Exemption

Audit exemption isn’t just a line in the Companies Act, for many SMEs, it’s a lifeline.

• Real cost savings. Audit fees in Malaysia commonly range from RM8,000 to RM20,000 per year. That’s money better spent on hiring, stocking inventory, or upgrading your POS system.
• Less paperwork, fewer headaches. Without auditors requesting endless reconciliations and supporting documents, your finance team (or part-time bookkeeper) can focus on running the business, not entertaining auditors.
  
• Faster compliance turnaround. Filing annual returns with SSM becomes a leaner process when you don’t need to wait for an audit sign-off.

“For small businesses, saving RM10,000 a year in audit fees isn’t “small change”, it’s rent, salaries, or marketing budget freed up.”

Risks of Relying on Audit Exemption

Audit exemption isn’t a free pass, it’s more like a discount with terms attached.

• Banks and investors may still insist. Planning to apply for a CIMB loan, pitch to venture capital, or tender for a government project? Chances are they’ll still want audited numbers.
  
• Taxman always watches. LHDN doesn’t accept “audit exempt” as an excuse for sloppy records. If your bookkeeping is weak, exemption could make you more vulnerable to a tax audit.
• Credibility gap. Some partners or suppliers simply feel more comfortable when numbers are independently verified. An unaudited balance sheet might raise eyebrows in high-stakes deals.

“Unaudited accounts may save costs upfront, but credibility matters when raising capital.” 

Filing Obligations Still Apply

Audit exemption DOES NOT mean no filing.

All companies, even exempt ones, must file their unaudited financial statements via MBRS XBRL with SSM.

• Prepare and circulate financial statements in line with approved standards (CA 2016 s.244).
• Lodge the unaudited FS plus the directors’ report, statement by directors, statutory declaration and a director’s certificate within 30 days of circulation via MBRS (XBRL).
• File the annual return within 30 days of your incorporation anniversary (s.68).
• Keep accounting records for at least 7 years (s.245).

How Do You Apply for Audit Exemption?

Audit exemption is not automatic. A company that qualifies under SSM’s Practice Directive 10/2024 must still prepare, lodge, and retain proper documentation to stay compliant. Here’s how the process works in practice:

1. Confirm Eligibility Against Thresholds

• Check if your company falls under dormant, zero-revenue, or small company status.
  
• For “small company” status, confirm that you meet at least two of three thresholds for two consecutive financial years.
• Directors are responsible for ensuring accuracy; false declarations may attract penalties under the Companies Act 2016.

2. Prepare Unaudited Financial Statements

• Audit exemption does not remove your duty to prepare financial statements that give a true and fair view.
• Companies must comply with approved accounting standards, typically MFRS or MPERS, depending on eligibility.
• Unaudited financial statements must still include:
  • Statement of Financial Position
  • Statement of Profit or Loss and Other Comprehensive Income
  • Cash Flow Statement
  • Accompanying notes and disclosures as required by standards

Under Section 244 of the Companies Act 2016, financial statements must comply with approved accounting standards even if no audit is carried out.

3. Pass a Board Resolution Confirming Exemption (optional)

If you qualify, you elect audit exemption by lodging your unaudited FS with the required certificate. 

A board resolution can be documented internally as good practice, but it’s not required by PD 10/2024.

4. Lodge Financial Statements and Annual Return with SSM

• File your unaudited financial statements via the MyCoID portal using the MBRS (XBRL format).
  
  
• Filing deadlines:
  • Financial statements must be lodged within 30 days from circulation to members (CA 2016, Sec 259).
  • Annual return must be lodged within 30 days of the incorporation anniversary date (Sec 68).
  • A director’s certificate confirming eligibility is required with the filing (as per PD 10/2024).

Yes, even exempt companies must comply with MBRS. 

5. Maintain Proper Records

• Audit exemption does not mean you can skip bookkeeping.
• Under Section 245 of the Companies Act 2016, companies must keep accounting records that sufficiently explain transactions and financial position.
• These records must be kept for at least 7 years.

Best Practice Tips for SMEs

• If your company is close to the threshold, plan ahead. Exceeding limits for two consecutive years removes exemption.
• Consider a voluntary audit if you’re applying for loans, government grants, or courting investors, many institutions still request audited numbers.

Should You Still Do a Voluntary Audit?

Some SMEs choose audits even when exempt.

• Strengthens transparency if there are multiple shareholders.
• Improves creditworthiness with banks.
• Ensures better assurance for government grant applications.

It’s not mandatory, but it certainly adds credibility where it counts. 

Naturally as an accounting firm, we do recommend it not to make your life difficult, but to make it smoother when grants, government and governance is involved.

Audit Services and Exemption: Finding the Right Balance

Audit exemption offers real relief for smaller companies,  saving money, cutting paperwork, and giving directors breathing space. 

But it’s not a blanket waiver of responsibility. Financial statements must still comply with MFRS or MPERS, and records must be lodged with SSM through MBRS. 

For many SMEs, the question isn’t just “Am I exempt?” but “Should I still consider an audit for credibility and growth?”

At Accounting.my, our team of Chartered Accountants can help you determine eligibility, prepare compliant unaudited accounts, or guide you through voluntary audit services if that suits your financing, partnership, or governance needs.

If you want to apply for an audit exemption, give us a call! We are happy to help you to walk through the process.