Introduction
Malaysia’s audit exemption framework has undergone major updates with the rollout of Practice Directive 10/2024 (PD 10/2024), effective for financial periods beginning on or after 1 January 2025. This update replaces the previous thresholds under Practice Directive 3/2017 (PD 3/2017) but maintains the same policy objective — to reduce the regulatory and financial burden on micro and small Sdn Bhd companies, while ensuring accountability and compliance.
This article explains the new rules, the 3-year phased thresholds, how eligibility is determined, what happens if a company loses eligibility, and why many companies still choose to audit their accounts.
📌 Amaze Advisory can help you determine eligibility, maintain compliance, and decide whether audit exemption or voluntary audit is the best fit for your company.
📞 salesteam@amazeadvisory.com |+6013-284 7678 / +6013-323 7678.
1. Background: Why Audit Exemption Exists
Audit exemption was first introduced in Malaysia on 4 August 2017 . The objective was clear:
- Reduce compliance costs for micro and small companies
- Improve ease of doing business
- Allow auditors to focus on higher-risk entities
- Improve overall audit quality due to auditor resource limitations
- Align Malaysia with global SME reporting practices
SSM highlighted that as of December 2024, Malaysia had 691,960 active companies but only 1,955 approved auditors, a ratio of 1 auditor to 354 companies — stressing the need to prioritise resources .
2. The New Audit Exemption Rules (PD 10/2024)
Under PD 10/2024, a private company may elect for audit exemption if it meets at least 2 of the following 3 thresholds, based on the phase applicable to that year :
- Turnover
- Total assets
- Number of employees
To qualify, the company must meet the thresholds for:
- Current financial year, and
- Immediate past financial year
(PD 10/2024 requires 2 years of data; newly incorporated active companies do not qualify until they have 2 years of records) .
Dormant companies, however, automatically qualify if dormant for either:
- since incorporation; or both current and immediate past financial year .
3. The New 3-Phase Threshold (2025–2027)
The thresholds increase progressively over 3 years:
Audit Exemption Thresholds (PD 10/2024)
From page 3 of the FAQ
| Year | Turnover | Total Assets | Employees |
| 2025 (Phase 1) | RM1,000,000 | RM1,000,000 | 10 |
| 2026 (Phase 2) | RM2,000,000 | RM2,000,000 | 20 |
| 2027 (Phase 3) | RM3,000,000 | RM3,000,000 | 30 |
These thresholds apply to:
- The current year, and
- The immediate previous yearWhen determining qualification.
4. Comparison: PD 3/2017 vs PD 10/2024
| Criteria | PD 3/2017 (Old) | PD 10/2024 (New) |
| Effective Period | Applies to financial periods beginning on or before 31 Dec 2024 (SSM FAQs). | Applies to financial periods beginning on or after 1 Jan 2025. |
| Qualifying Basis | Three categories: Dormant, Zero-Revenue, Threshold-Qualified. | Unified criteria based on turnover, assets and employees. |
| Thresholds (small entity test) | Threshold-Qualified companies must meet all 3: • Revenue ≤ RM100,000 • Assets ≤ RM300,000 • ≤ 5 employees (for current & past 2 years) | Must meet any 2 out of 3 criteria for current & past 2 years: • Max Revenue • Max Total Assets • Max Employees. |
| Threshold Values | Threshold-Qualified:
• Revenue ≤ RM100,000 • Assets ≤ RM300,000 • Employees ≤ 5. |
Phased over 3 years (from 1 Jan 2025):
Phase 1 (2025): RM1m / RM1m / 10 employees Phase 2 (2026): RM2m / RM2m / 20 employees Phase 3 (2027): RM3m / RM3m / 30 employees |
| Qualifying Rule | Must meet all thresholds simultaneously for current & past 2 years for threshold-qualified category. | Must meet at least 2 out of the 3 thresholds for current & past 2 financial years. |
| Dormant Companies | Eligible if dormant since incorporation OR dormant in both current & immediate past financial year. | Still eligible under new criteria (dormant still exempt). |
| Zero-Revenue Companies | Eligible if no revenue for current & past 2 years AND assets ≤ RM300,000. | New directive doesn’t specifically cite zero-revenue as a separate category but dormant/very small entities are covered under the unified test if they meet the thresholds. |
| No Audit Until Financial Data | Under PD3/2017, a newly incorporated active company generally couldn’t qualify until having relevant past financial years (except dormant). | Under PD10/2024, similarly you need current + past two years’ data to test against thresholds to qualify. Still must wait until sufficient financial history (except for dormant). |
| Excluded Companies | • Public companies (incl listed) • Subsidiary of a public company • Foreign companies • (No special EPC carve-out in PD3/2017 but excluded by rule) | Same exclusions plus a private company that has lodged an Exempt Private Company (EPC) certificate under Section 260 may not be eligible for audit exemption unless it elects not to lodge that certificate. |
| Other Conditions | A company otherwise qualifying may be required to audit if required by shareholders holding ≥5% or directed by Registrar. | Same overriding right for shareholders/Registrar to require audit. |
5. Who Cannot Adopt the Audit Exemption
Based on PD 10/2024 and FAQ:
❌ Subsidiaries of public companies
Even if thresholds are met, subsidiaries of public companies are automatically excluded .
❌ Exempt Private Companies (EPC) that lodge EPC certificates
If an EPC opts to lodge a certificate, it cannot claim the exemption. If it instead files financial statements, it may qualify if thresholds are met .
❌ Companies subject to other laws requiring audits
If licensing or industry rules require audited financials (e.g. financial services, regulated industries), PD 10/2024 does not apply .
❌ Companies receiving notices from shareholders or Registrar
Any written notice requiring audit overrides the exemption option .
6. Compliance Requirements for Audit-Exempt Companies
Even if exempt from audits, the company must still:
1. Prepare Financial Statements
Must comply with MPERS or MFRS, and be circulated to members according to statutory deadlines .
2. File Unaudited Financial Statements
Must lodge with SSM within 30 days of circulation (Section 254 CA 2016) .
3. Maintain Accounting Records
7-year record-keeping requirement still applies.
4. File Tax Returns
LHDN clarified that if a company is not required to lodge audited accounts with SSM, subsection 77A(4) ITA does not apply — unaudited accounts are accepted for tax filing purposes .
5. Monitor eligibility annually
If thresholds are exceeded, the company must resume auditing in the following year.
📌 Amaze Advisory can help you determine eligibility, maintain compliance, and decide whether audit exemption or voluntary audit is the best fit for your company.
📞 salesteam@amazeadvisory.com |+6013-284 7678 / +6013-323 7678.
7. Why Many Companies Still Choose to Conduct Audits
Even though PD 10/2024 expands audit exemption availability, many SMEs still voluntarily conduct audits due to:
1. Loan Applications
Banks generally require audited financial statements as part of credit evaluation. Unaudited accounts may delay or limit loan approval.
2. Government Tenders & Grants
Government agencies and GLCs often require audited accounts for:
- Vendor registration
- Tender submissions
- Grant applications
This requirement is recognised by SSM itself in FAQ 21: audited financials support risk management and reliability for agencies reviewing proposals .
3. Corporate Governance & Investors
Audited accounts provide transparency for:
- Shareholders
- Potential investors
- JV partners
4. Vendor Registration with MNCs
Most multinational companies require audited accounts to assess:
- financial stability
- solvency
- creditworthiness
5. Long-Term Planning
Audited accounts offer better accuracy for:
- financial analysis
- budgeting
- tax optimisation
Conclusion:
Audit exemption reduces compliance cost, but many companies still benefit from the assurance, credibility, and financing advantages that audited accounts provide.
📌 Amaze Advisory can help you determine eligibility, maintain compliance, and decide whether audit exemption or voluntary audit is the best fit for your company.
📞 salesteam@amazeadvisory.com |+6013-284 7678 / +6013-323 7678.
8. Audit Exemption Timeline Summary
Step 1 – Determine Applicable PD
- If your financial period begins on or before 31 Dec 2024, PD 3/2017 applies.
- If your financial period begins on or after 1 Jan 2025, PD 10/2024 applies.
Step 2 – Identify which Phase applies (2025–2027)
Use the threshold table provided earlier.
Step 3 – Assess current and previous financial year
Check if you meet at least 2 out of 3 thresholds.
Step 4 – Prepare unaudited financial statements
According to MPERS/MFRS.
Step 5 – Lodge with SSM within 30 days of circulation
Required even if unaudited.
9. Easy-to-Understand Summary for Business Owners
What is audit exemption?
A scheme that allows qualifying Sdn Bhd to submit unaudited financial statements instead of audited ones.
Who qualifies?
Private companies meeting any 2 of 3 thresholds (turnover, assets, employees) under Phase 1–3 (2025–2027).
Who does NOT qualify?
- Subsidiaries of public companies
- EPCs that lodge EPC certificates
- Companies governed by other laws requiring audits
- Companies asked to audit by shareholders/Registrar
Do you still need financial statements?
Yes — unaudited financial statements are still mandatory.
Should you still audit voluntarily?
Yes if you need:
- Bank loans
- Government tenders
- Vendor registration
- Investor confidence
Do dormant companies qualify?
Yes, if dormant for both current and previous year.
Conclusion
The transition from PD 3/2017 to PD 10/2024 represents a major shift in Malaysia’s audit exemption landscape, with a phased approach that emphasises genuine SMEs. While the financial relief is significant, businesses must still comply with financial reporting obligations and assess whether a voluntary audit is beneficial for long-term growth, financing, and credibility.
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✔️ Phone: +6013-284 7678 / +6013-323 7678
Contact Amaze Advisory today and take the first step toward building your business in Malaysia.
Disclaimer: This article is provided for general informational purposes only and does not constitute professional advice; readers should seek advice from their own accountant or adviser, and Amaze Advisory Global Sdn. Bhd. accepts no responsibility or liability for any reliance placed on this information.
