# Life After Audit Exemption: What Your Company Still Owes

> What actually changes when a Malaysian private company elects audit exemption — which Companies Act duties survive, what still gets lodged through MBRS, how LHDN treats it, and why the saving is smaller than advertised.

- Category: audit
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/audit/after-audit-exemption

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Every second post about Practice Directive 10/2024 sells the same line: skip the
audit, save the fee. The fee is real. So is the list of duties that do not move
an inch, and the reason a lot of qualifying companies keep their auditor anyway.

Here is the honest accounting of what changes.

## What the exemption actually removes

Two things, and only two.

Section 267(1) of the Companies Act 2016 requires a private company to appoint an
auditor for each financial year. Section 267(2) lets the Registrar exempt private
companies from that duty, and Practice Directive 10/2024 is how the Registrar has
done it.

Section 248(2) requires financial statements to be duly audited before they are
sent to members under s.257. That falls away with the appointment.

Everything else in Division 5 of Part III stands.

## What survives untouched

**Section 245 — accounting records.** The company, its directors and its managers
must keep accounting and other records that sufficiently explain the transactions
and financial position of the company, and enable true and fair accounts to be
prepared. Two obligations inside it are frequently missed: entries must be made
within **60 days** of the completion of the transaction, and the records must be
retained for **seven years**. The section also requires the records to be kept in
a manner that lets them be *conveniently and properly audited* — a standard that
quietly outlives the audit itself, and matters the day a buyer, a bank or LHDN
comes looking. Contravention carries a fine up to **RM500,000** or three years
imprisonment or both, on the company and every officer.

**Section 244 — approved accounting standards.** The statements must still be
made out in accordance with the applicable approved accounting standards, MFRS
or MPERS. Nothing about exemption permits a simplified or management-style set of
accounts.

**Section 248(1) — preparation deadlines.** Financial statements within 18 months
of incorporation, and thereafter within six months of each financial year end.

**Section 251 — approval and signature.** The statements must be approved by the
Board and accompanied by a statutory declaration from a director, or from the
person primarily responsible for financial management. The directors must make a
statement, by Board resolution, on whether the statements give a true and fair
view — signed by at least two directors, or by the sole director. Penalty up to
RM500,000 or one year imprisonment.

**Sections 252 and 253 — the directors' report.** Prepared and attached as before.

**Sections 257 and 258 — circulation.** Copies to every member, every person
entitled to notice of general meetings and every debenture holder on request,
within six months of the financial year end.

**Section 259 — lodgement.** Within **30 days** of circulation for a private
company. Fine up to RM50,000, plus RM1,000 a day while the default continues.

## You add a document, you do not remove one

The exempt company must lodge unaudited financial statements accompanied by an
**audit exemption certificate**, set out in Appendix 1 of the directive and
signed by a director. It certifies that members have not requested an audit for
the year, that the directors acknowledge their responsibilities under the
Companies Act 2016 for accounting records and the preparation of financial
statements, and that the statements comply with the applicable approved standards
issued by MASB. Where the signing director is not primarily responsible for
financial management, the person who is must be named.

The lodgement still runs through **MBRS** in XBRL, prepared in mTool and
submitted through mPortal. The exempt route has its own entry point; it is not a
paper filing and it is not a shortcut.

## The tax position, corrected

The claim you will see most often is that LHDN requires audited accounts
regardless, so the exemption is pointless. That is out of date.

Subsection 77A(4) of the Income Tax Act 1967 does require a company return to be
based on audited accounts. But LHDN has announced that where a company is not
required to submit audited accounts to SSM, subsection 77A(4) does not apply —
and SSM reproduces that position in its own audit exemption FAQ, pointing to the
LHDN announcement.

What does not change is the substance. The return still has to be supported by a
computation LHDN can follow, from records that satisfy the Income Tax Act's own
sufficient-records and retention rules, which run in parallel to s.245 and are
not affected by anything SSM has done. CP204 estimates, transfer pricing
documentation where relevant, and e-Invoice obligations are all untouched. What
you have removed is an independent check that used to find the errors before
the assessment did.

## The commercial layer nobody legislates

Banks reviewing a facility, landlords assessing a covenant, grant agencies,
government tender panels and any acquirer running diligence routinely ask for
audited accounts. None of them are bound by PD 10/2024. A company that drops the
audit in March and applies for a term loan in September may find itself
commissioning a retrospective audit at a premium, or explaining a two-year gap in
audited history to a buyer.

Check the covenant and the tender prequalification pack before you tell the
auditor you will not need them.

## The 5% clause, and why the timing hurts

Under paragraph 14, a company that is otherwise eligible **must** audit its
accounts if it receives written notice during the financial year, but no later
than one month before the end of that year, from members holding at least 5% of
the issued shares or of any class of them, from at least 5% of the members
eligible to vote, or from the Registrar directing an audit.

The notice is not retrospective in law — it applies to the year in progress. In
practice it might as well be. A notice served on 30 November for a 31 December
year end obliges an audit of a year that is eleven months gone, planned by nobody,
with no auditor appointed, no interim work done, no stocktake attended and no
opening balances agreed. That is the most expensive audit a company can buy, and
it wipes out several years of saving in one engagement.

A minority shareholder in dispute knows this. So does a joint-venture partner.

## Losing the exemption

Paragraph 13 is symmetrical and mild: a company that ceases to qualify ceases to
be exempt from that point, but remains exempt for the financial years in which it
did qualify. There is no clawback. The practical difficulty is the reverse
direction — you must appoint an auditor for the year you fail, and by the time
the figures are final, that year is over.

Eligibility should be assessed on a rolling basis, before the year starts, not
when the accounts are drafted.

## Common mistakes

- **Treating exemption as deregistration.** Circulation, lodgement, the annual
  return, the company secretary and the registered office are all unchanged.
- **Believing LHDN still demands audited accounts.** LHDN has confirmed that
  s.77A(4) does not apply where SSM does not require an audit.
- **Assuming the fee saved is the fee quoted.** Preparation, MPERS or MFRS
  compliance and XBRL conversion still cost money, and some of it was previously
  inside the audit fee.
- **Signing the exemption certificate without checking the member position.** It
  certifies that members have not requested an audit that year.
- **Forgetting the 60-day and seven-year rules in s.245**, which have nothing to
  do with the audit and carry the heaviest penalty in the division.
- **Dropping the audit before checking bank covenants and tender requirements.**
- **Deciding late.** Once the year has run without an auditor appointed, the
  options narrow and the price rises.

## What's next

If the exemption is right for the company, the next decision is the reporting
framework the unaudited statements are prepared under — MFRS or MPERS — because
that choice drives the disclosures, and nobody is going to catch a wrong one for
you now.

## Sources

- 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)
- FAQs on Companies Act 2016 and Transitional Issues — Part Q, Audit Exemption — https://www.ssm.com.my/Pages/Legal_Framework/Document/FAQ-AUDIT-EXEMPTION.pdf (SSM)
- Companies Act 2016 (Act 777), reprint 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)
- Malaysian Business Reporting System (MBRS) — https://www.ssm.com.my/Pages/Services/Other-Services/MBRS.aspx (SSM)

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