Audit and Compliance in Malaysia: A Guide for Foreign Investors

All companies incorporated in Malaysia must have their accounts audited by a Ministry of Finance-approved auditor as mandated by the Companies Act of 2016. These companies are required to, under the Companies Act, keep their accounting books up to date.

Under the Act, private companies were no longer obligated to hold AGMs, and thus the election of auditors, the retirement or election of directors, and the lodgment of audited annual returns are no longer tied to the holding of an AGM and are dealt separately. Public companies are still required to hold an AGM.

Foreign investors should use the services of registered local advisors to ensure they stay compliant with these regulations.

Appointing auditors

During the filling process, companies must use the services of a professional accountant qualified under the Accountants Act 1967, which must confirm that the applicant’s statements comply with the approved accounting standards.

Private exempt companies are not required to file audited accounts; an exempt private company is defined as a private company having not more than 20 members, none of whom are corporations having a direct or indirect interest in its shares.

Audit exemption criteria

The Companies Commission of Malaysia is proposing a change to the criteria for audit exemptions. Previously, companies could be exempt based on being dormant, having zero revenue, or meeting certain thresholds.

The proposed updated criteria are now more inclusive:

• Zero-revenue companies: Companies with zero revenue and total assets not exceeding 500,000 ringgit (US$106,359) for the current and previous two financial years can qualify for audit exemption; and
• Threshold-qualified companies: Companies with annual revenue and assets below 3 million ringgit (US$638,154), and not more than 30 employees at the end of the current and past two financial years are eligible​ for audit exemption.

Currently, the criteria for audit exemption for certain private companies are:

• The company is dormant – this means the business has no accounting transactions occurring and its operations have halted;
• Zero-revenue companies – these are companies that do not generate any revenue during the current financial year, as well as the past two financial years. Further, its total assets do not exceed 300,000 ringgit (US$63,993) in the current financial year and the previous two financial years; and
• Threshold-qualified companies – these are companies whose revenues do not exceed 100,000 ringgit (US$21,331) during the current financial year and the previous two financial years. Secondly, the company’s total assets do not exceed 300,000 ringgit in the current financial year and the previous two financial years, and it ended the current financial year and the previous two financial years with no more than five employees.

However, an exempt private company, which is solvent, may still need to audit its accounts if it receives written notice from the Ministry of Finance.

Any company opting for audit exemption must submit to the Registrar together with the necessary certificate. In addition, they must be submitted with:

• A written statement that the company is qualified for audit exemption; and
• There have been no requests from shareholders demanding an audit.

The unaudited financial statements must be submitted with the director’s report, and statements by other directors.

The certificate that substitutes the attachment of the audited accounts must either be in Bahasa Malaysia or English. If presented in any other language, a translation must be provided.

Mandatory register of beneficial ownership

Effective since April 1, 2024, Malaysian incorporated companies must maintain a register of beneficial owners. This register must be kept at the company’s registered office or another notified place in Malaysia. The information will be accessible to designated authorities.

Fiscal periods

The Companies Act of 2016 does not specify a date for the fiscal year; this is left to the discretion of the company.

Private companies must prepare their financial statements not more than six months from the financial year-end. For public companies, financial statements are prepared within 30 days of an AGM (within six months of the company’s financial year).

Most companies in the country choose to have their fiscal period end either on the last day of the year or on the previous day of a quarter.

Accounting standards

Companies doing business in Malaysia are required to prepare their financial reports in accordance with the following two sets of reporting standards:

• The Malaysian Financial Reporting Standards (MFRS), are designed for companies with public accountability; and
• The Malaysian Private Entities Reporting Standards (MPERS), are designed for private companies with annual periods beginning on or after January 1, 2016.

MFRS standards are almost on a word-by-word basis in alignment with IFRS and SMEs are permitted to use the MPERS standards.

It should be noted that foreign companies listed in Malaysia are able to apply either the Malaysian Accounting Standards Board-approved accounting standards or acceptable internationally recognized accounting standards. Similarly, Malaysian companies are able to use IFRS in their financial statements if they wish to do so.

Annual reports

The documents required during an annual audit are similar for both foreign companies operating in Malaysia and Malaysia-incorporated companies. These include the following:

• Director’s report;
• Financial statements;
• Principal business activities;
• Statement by directors on the financial statements;
• Total paid-up capital;
• A statutory declaration by the director or officer primarily responsible for financial management; and
• Auditor’s report.

Penalties for non-compliance

For private limited companies, non-compliance in relation to the late submission of financial statements could lead to a fine of up to 2,000 ringgit (US$425) while the non-submission of audited financial statements could lead to 30,000 ringgit (US$6,380) or imprisonment of up to five years.

• Previous Article Singapore and Cambodia Launch Digital Corridor to Boost SME Trade
• Next Article New Guidelines for Beneficial Ownership Reporting in Malaysia