No Audit Required? Understanding SSM’s New 2-Out-of-3 Criteria
The Suruhanjaya Syarikat Malaysia (“SSM”) has introduced a new audit exemption framework for private companies in Malaysia through Practice Directive No. 10/2024. The revised criteria will take effect for financial periods commencing on or after 1 January 2025.
The objective of the new framework is to reduce compliance costs for smaller private companies while maintaining proper financial reporting responsibilities under the Companies Act 2016.
Introduction of the New “2-Out-of-3” Threshold Test
Under the previous framework, audit exemption was generally categorised into:
- Dormant companies
- Zero-revenue companies
- Threshold-qualified companies
Beginning from 2025, SSM has streamlined the exemption requirements into a single “2-out-of-3” threshold test.
A private company will qualify for audit exemption if it satisfies at least two (2) out of the following three criteria:
- Annual revenue threshold
- Total assets threshold
- Number of employees threshold
Phased Implementation of Thresholds
The revised thresholds will be implemented progressively over three phases.
Phase 1 – Financial Periods Beginning On or After 1 January 2025
A company qualifies if it meets at least two of the following:
- Revenue not exceeding RM1 million
- Total assets not exceeding RM1 million
- Number of employees not exceeding 10
Phase 2 – Financial Periods Beginning On or After 1 January 2026
A company qualifies if it meets at least two of the following:
- Revenue not exceeding RM2 million
- Total assets not exceeding RM2 million
- Number of employees not exceeding 20
Phase 3 – Financial Periods Beginning On or After 1 January 2027
A company qualifies if it meets at least two of the following:
- Revenue not exceeding RM3 million
- Total assets not exceeding RM3 million
- Number of employees not exceeding 30
Companies Eligible for Audit Exemption
The revised framework generally applies to private companies incorporated under the Companies Act 2016. Certain private companies with corporate shareholders may also qualify, subject to compliance with the applicable requirements.
Companies Not Eligible for Audit Exemption
The audit exemption does not apply to certain entities, including:
- Public companies
- Subsidiaries of public companies
- Foreign companies
- Exempt private companies that lodge an Exempt Private Company (“EPC”) certificate under Section 260 of the Companies Act 2016
- Companies otherwise excluded under the Practice Directive
Financial Reporting Obligations Still Apply
Although eligible companies may be exempted from statutory audit requirements, they are still required to:
- Prepare financial statements in accordance with approved accounting standards
- Maintain proper accounting records
- Lodge their financial statements with SSM
The exemption only removes the requirement for the financial statements to be audited by an approved company auditor.
For the official Practice Directive and further guidance, refer to: