Life After Audit Exemption: What Your Company Still Owes

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.