# Your First Financial Year: The 18-Month Rule for a New Sdn Bhd

> A newly incorporated Sdn Bhd has eighteen months to prepare its first financial statements — and stretching that period can cost it audit exemption for longer than the extra six months it buys.

- Category: accounting
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/accounting/first-financial-year

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Every new Sdn Bhd is told it has eighteen months before its first accounts are
due, and it is presented as a concession — more runway, one fewer thing to pay
for in year one.

What nobody adds is that those eighteen months are a single financial year, and
that financial year does not go away. It sits in the audit exemption test for
the two years after it, carrying eighteen months of revenue against a threshold
written for twelve.

## What is actually due, and when

**Section 248(1)(a)** requires the directors of every company to prepare
financial statements **within eighteen months from the date of incorporation**.
Thereafter, s.248(1)(b) requires them within **six months of each financial
year end**. A director who contravenes s.248 is liable to a fine up to
RM500,000 or imprisonment up to one year, or both, under s.248(3) — the
liability is personal, not corporate.

Preparation is not filing. Once prepared, the ordinary sequential clock takes
over: circulate within six months of year end under s.258(1)(a), then lodge
within thirty days of circulation under s.259(1)(a) — see
[financial reporting deadlines](/en/accounting/financial-reporting-deadlines).

Two first-year items sit on a different clock. The **annual return** runs from
the incorporation anniversary under s.68, and s.68(2) means none is due in the
calendar year of incorporation. **Accounting entries** must be made within
sixty days of each transaction under s.245(2) — from the first transaction, not
the first year end.

## Why a long first period can cost you audit exemption

Practice Directive 10/2024 paragraph 5 grants audit exemption to a private
company meeting at least **two of three** criteria — revenue, total assets,
employee count — in the **current financial year and the immediate past two
financial years**. Paragraph 9 then sets the thresholds by the date the
financial period **commences**:

| Financial period commencing | Revenue | Assets | Employees |
| --- | --- | --- | --- |
| 1 Jan 2025 to 31 Dec 2025 | RM1,000,000 | RM1,000,000 | 10 |
| 1 Jan 2026 to 31 Dec 2026 | RM2,000,000 | RM2,000,000 | 20 |
| On or after 1 Jan 2027 | RM3,000,000 | RM3,000,000 | 30 |

Put the two paragraphs together and the cost of a long first period becomes
arithmetic.

**The threshold is annual; your period is not.** Paragraph 6(a) defines annual
revenue as revenue received and receivable **during the year**, with no
pro-rating for a period that is not twelve months long. An eighteen-month first
period commencing in 2026 is measured against RM2,000,000 — with six extra
months of trading in the numerator. A company turning over RM130,000 a month
clears the test comfortably over twelve months and fails it over eighteen.

**The phase is fixed by the commencement date, not the end date.** A period
commencing 1 December 2026 sits in the RM2,000,000 phase for its entire length,
even if it runs to 31 May 2028. Waiting a month to incorporate, or trimming the
first period so the second commences after 1 January 2027, moves the whole
period into the RM3,000,000 phase.

**And it contaminates the next two years.** Because paragraph 5 looks back
across the current year and the immediate past two, a first period that fails
the test is not a one-year problem. It is carried in the lookback for the two
financial years that follow it — which is how six months of extra runway turns
into roughly three years of statutory audit fees.

Paragraph 13 offers no relief here. It protects exemption already validly
taken; it does not repair a year that failed.

## Common mistakes

- **Treating eighteen months as advice rather than an outer limit.** It is the point at which a director commits an offence, not the recommended length.
- **Assuming a long period is pro-rated for the revenue threshold.** Paragraph 6(a) says revenue during the year, full stop.
- **Reading the phase off the year end.** Paragraph 9 keys it to the commencement date of the period.
- **Forgetting the period stays in the lookback** for the two financial years after it.
- **Waiting until month seventeen to appoint a bookkeeper.** Section 245(2) required entries within sixty days of each transaction all along.
- **Expecting an annual return in year one.** Section 68(2) says otherwise.

## What's next

Before fixing a first year end, write down two candidate periods — one running
about twelve months, one running to the eighteen-month limit — and for each,
note the commencement date, the PD 10/2024 phase that date falls in, and your
best revenue estimate for the whole period. If the longer period crosses a
threshold the shorter one clears, the extra runway is being paid for in audit
fees three times over.

## Sources

- Companies Act 2016 (Act 777), updated text as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Practice Directive No. 10/2024 — Qualifying Criteria for Audit Exemption for Certain Private Companies in Malaysia — https://www.ssm.com.my/Pages/Legal_Framework/Document/PD10-2024-Qualifying-Criteria-for-Audit-Exemption-for-Certain-Categories-of-Private-Companies.pdf (SSM)
- Practice Note No. 3/2018 — Clarification on Application for Extension of Time under the Companies Act 2016 — https://www.ssm.com.my/Pages/Legal_Framework/PDF%20Tab%205/pn_ss_609_2592_3404_eot.pdf (SSM)

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