Appointing an Auditor for a Malaysian Company

A signed engagement letter is not an appointment. Neither is an email confirming the fee. The appointment of an auditor is a statutory act with a named organ of the company doing the appointing, a deadline attached to it, and an offence provision for both the company and every director if it is missed.

Most first-year Sdn Bhd owners find this out when the auditor asks for a copy of the directors’ resolution and there isn’t one.

Who is allowed to audit your company?

Three separate permissions stack, and satisfying one does not satisfy the others.

Ministerial approval. Section 263 of the Companies Act 2016 says any person may apply to the Minister charged with responsibility for finance to be approved as a company auditor. Approval turns on the Minister being satisfied the applicant is of good character and competent. Three features of that approval get missed:

• it may be granted subject to limitations or conditions, and revoked at any time by notice, under s.263(3)
• every approval, including a renewal, is in force for two years from issue under s.263(4)
• the Minister may delegate the power to a body charged with the registration or control of accountants in Malaysia, under s.263(5)

An applicant who is refused may appeal to the Court under s.263(6).

Chartered accountant status. Section 263(7) defines “person” for the whole section as a chartered accountant as defined under the Accountants Act 1967. In other words, the licence sits on top of MIA membership. A person who is not a chartered accountant cannot be approved at all.

AOB registration, for public interest entities. If the company is a public interest entity or a schedule fund, the auditor must additionally be registered with the Audit Oversight Board under Part IIIA of the Securities Commission Malaysia Act 1993. This is a separate register kept by the Securities Commission, with its own criteria, and it does not follow from the s.263 approval.

The firm, not only the person

Where a firm is appointed, s.264(4) requires that all partners of the firm resident in Malaysia are approved company auditors, and that no partner is disqualified under s.264(1). Where the firm is not registered under any other law, a return of the full names and addresses of all partners must be lodged with the Registrar.

Section 265 then requires a new firm of auditors to notify the Registrar within 30 days of commencing business, giving the firm name, firm number, addresses, commencement date and the approval numbers of all partners. Any reconstitution of the firm must be notified within 30 days of the change.

The practical consequence appears on the signature page. Under s.265(5), a report by a firm is not duly made unless it is signed in the name of the firm and in his own name by a partner who is an approved company auditor, with the firm number and the partner’s approval number legibly written or printed beside the signatures. That is why an audit report ends with an AF number under the firm name and a number like 03000/09/2028 (J) under the partner’s. Both are checkable.

Consent comes before the appointment

Section 264(5) prohibits a company from appointing a person or a firm as auditor unless, prior to the appointment, that person has consented in writing, or in the case of a firm at least one partner has consented in writing.

Boards routinely pass the resolution first and collect the consent letter later. That is the wrong order, and the file will show it.

Section 264(6) adds a point that matters on succession: appointing a firm in the firm’s name takes effect as an appointment of the persons who are partners at the time of appointment. Section 264(7) deals with the limited liability partnership equivalent.

Who appoints, and by when

The two chapters of the Act split private and public companies.

Private company — s.267. The company must appoint an auditor for each financial year unless exempted by the Registrar under s.267(2), which is the hook Practice Directive 10/2024 hangs on.

The Board appoints under s.267(3):

• for a newly incorporated company, at least 30 days before the end of the period for the submission of the first financial statements to the Registrar
• to fill a casual vacancy

The members appoint by ordinary resolution under s.267(4), in later years during the period for appointing auditors, or where the Board has failed to appoint.

Section 267(6) defines that period as the 30 days before the end of the lodgement period for the previous year’s financial statements under s.259(1) — or, where those statements were lodged early, the 30 days before the day they were actually lodged. Lodging early therefore pulls the appointment window forward.

Section 267(5) closes the loop: an auditor may only be appointed under subsection (3) or (4). There is no third route, and s.267(7) makes the company and every director liable for a contravention.

Correction worth making. A number of guides state that the first auditor must be appointed 30 days before the circulation of the first financial statements. The Act says 30 days before the end of the period for their submission to the Registrar. Circulation under s.258 and lodgement under s.259 are different dates 30 days apart, so the two readings give different deadlines.

To work the date backwards for a new company: the first financial statements are due within 18 months of incorporation under s.248(1)(a), circulation within six months of the financial year end under s.258, and lodgement within 30 days of circulation under s.259(1).

Public company — s.271. The Board appoints at any time before the first annual general meeting, or to fill a casual vacancy. Members appoint by ordinary resolution at the AGM. Under s.273 the auditor holds office until the conclusion of the next AGM unless re-appointed.

If nobody appoints. Sections 268 and 272 let the Registrar appoint an auditor on the written application of any member. It is a remedy for deadlock, not a convenience.

How long the office lasts

For a private company, s.269(1)(b) is the clock: the auditor ceases to hold office 30 days from the circulation of the financial statements to members, unless re-appointed.

Where the office falls vacant that way and members have appointed nobody, s.269(3) deems the outgoing auditor re-appointed — unless he was appointed by the Board, the constitution requires an actual re-appointment, the members have resolved that he should not be re-appointed, or the deemed re-appointment is prevented under s.270.

Section 270 gives members holding at least 5% of the total voting rights the right to block a deemed re-appointment by notice, in hard copy or electronic form, authenticated by each member giving it, and received by the company at least 30 days before the circulation of the financial statements.

Under s.269(1)(a) an incoming auditor does not take office until the previous auditor ceases to hold office, unless he is the first auditor — with exceptions in s.269(2) for joint and additional auditors. You cannot quietly run two sole auditors in parallel.

Independence: what section 264 actually disqualifies

Section 264(1) makes it an offence to knowingly consent to be appointed, to knowingly act, or to prepare a report required to be prepared by an approved company auditor, where the person:

Disqualification	Detail
Not approved	Is not an approved company auditor
Indebtedness	Owes the company, or a corporation related to it under s.7, more than RM25,000
Officer link	Is, or whose spouse is, an officer of the company
Partner or employer link	Is a partner, employer or employee of an officer; or a partner or employee of an employee of an officer
Shareholder link	Is, or whose spouse is, a shareholder of a corporation whose employee is an officer of the company
Registers	Is responsible for, or is the partner, employer or employee of a person responsible for, keeping the register of members or debenture holders
Bankruptcy	Is an undischarged bankrupt inside or outside Malaysia, except with leave of the Court
Conviction	Has been convicted of an offence involving fraud or dishonesty punishable with imprisonment of three months or more

Two qualifiers change the answer in practice. Section 264(2) treats a person as an officer if he was an officer or promoter of the company, or of a related corporation, at any time in the preceding twelve months — so a finance director who left in March cannot audit the December accounts. Section 264(3) confirms that being appointed auditor of a corporation does not by itself make a person an officer of it.

Contravention of s.264(1) or (4) carries a fine up to RM100,000 on conviction under s.264(8).

Sitting above all of this is the MIA By-Laws (On Professional Ethics, Conduct and Practice), which incorporate the international independence standards. Those are stricter than s.264 and bind the auditor rather than the company — but they are the reason a firm will decline an engagement that s.264 would technically permit.

Fixing the fee

Section 274 assigns the power. An auditor appointed by members has remuneration fixed by the members by ordinary resolution or as they determine; one appointed by the Board has it fixed by the Board, and failing that by the company; one appointed by the Registrar has it fixed by the Registrar or the Board, failing which by the company. Remuneration includes expenses and non-cash payment.

Separately, s.275 lets 5% of members, or holders of 5% of issued share capital, demand particulars of everything paid to the auditor for non-audit services — a shareholder tool that gets almost no attention.

Common mistakes

• Treating the engagement letter as the appointment. The appointment is a resolution of the Board or the members; the engagement letter is a contract.
• Passing the resolution before the written consent exists, contrary to s.264(5).
• Using the circulation date to compute the first-auditor deadline. s.267(3)(a) runs off the submission period, not circulation.
• Forgetting that early lodgement moves the appointment window, under s.267(6)(b).
• Assuming a chartered accountant can sign an audit report. Only an approved company auditor can, and only with the approval number printed beside the signature.
• Ignoring the twelve-month officer look-back in s.264(2) when a former finance officer joins the audit firm, or vice versa.
• Overlooking the RM25,000 indebtedness limit, which catches director loans routed through a related corporation.
• Relying on deemed re-appointment where the auditor was appointed by the Board, which is one of the four cases in s.269(3) where it does not apply.

What’s next

Once the auditor is appointed, the next thing worth planning is the engagement itself — acceptance, the request list, fieldwork and the report date all sit on a timeline that has to fit inside the six-month circulation deadline.