As an integral component of the legal and regulatory framework affecting companies, an audit provides reasonable assurance as to the truth and fairness of a company's financial information. It increases the reliability of accounts due to independent third-party verification.
In Malaysia, the laws governing audits and auditors are the Companies Act 2016, the provisions of the Listing Requirements of the Stock Exchange and the Bye-laws (on professional conduct and ethics) issued by the Malaysian Institute of Accountants.
Currently, every company must have its accounts audited and must appoint an auditor or auditors. Hence, private or public companies shall appoint auditors for each financial year.
In Malaysia, for a person to act as an auditor, they must be a chartered accountant as defined under the Accountants Act 1967 and approved as a licensed auditor.
Approval as a Company Auditor is subject to Section 263 of the Companies Act 2016, which is:-
Company auditors to be approved by Minister charged with responsibility for finance 263. (1) Any person may apply to the Minister charged with the responsibility for finance to be approved as a company auditor for the purposes of this Act.
(2) The Minister may if he is satisfied that the applicant is of good character and competent to perform the duties of an auditor under this Act, upon payment of the prescribed fee, approve the applicant as a company auditor.
(3) Any approval granted by the Minister under subsection (2) may be made subject to such limitations or conditions as he thinks fit and may be revoked at any time by him by the service of a notice of revocation on the approved person.
(4) Every approval under this section, including renewal of approval of a company auditor, shall be in force for a period of two years after the date of issue unless sooner revoked by the Minister.
(5) The Minister may delegate all or any of his powers under this section to any person or body of persons charged with the responsibility for the registration or control of accountants in Malaysia.
(6) Any person who is aggrieved with any decision of the Minister or with the decision of any person or body of persons to whom such Minister has delegated all or any of his powers under this section may appeal to the Court.
(7) For the purposes of this section, “person” means a chartered accountant as defined under the Accountants Act 1967 [Act 94].
First Auditor and Appointment of Auditor
The first auditor is appointed by the board of directors. The board also has the authority to appoint an auditor where there is a casual vacancy.
However, the shareholders in a general meeting (For private limited companies, the members shall appoint an auditor by ordinary resolution) may appoint an auditor if the board does not appoint the auditor.
The auditors may also be appointed by the Registrar where the company fails to do so, provided there is an application in writing made by any member of the company.
What are the Roles, Powers and Duties of Auditors?
Every auditor of a company shall report to the members on the financial statements and on the company’s accounting and other records relating to those financial statements, and if it is a holding company for which consolidated financial statements are prepared, shall also report to the members on the consolidated financial statements.
An auditor of a company shall have a duty to form an opinion on the following matters:
whether he has obtained all the information and explanations that he required;
whether proper accounting and other records, including registers, have been kept by the company as required by this Act;
whether the returns received from branch offices of the company are adequate; and
whether the procedures and methods used by a holding company or a subsidiary in arriving at the amount taken into any consolidated accounts were appropriate to the circumstances of the consolidation,
and the auditor shall state in his report the particulars of any deficiency, failure or shortcoming in respect of any matter referred to in this subsection.
Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies
Under subsection 267(2) of the CA 2016, the Registrar may exempt the following categories of private companies from having to appoint an auditor:-
Dormant companies
Zero-Revenue Companies
Threshold-Qualified Companies
Any company that elects to be exempted from the audit must prepare its unaudited financial statements under applicable approved accounting standards under the CA 2016.
The unaudited financial statements shall be lodged together with the directors’ report, the statement by directors and statutory declaration under the CA 2016 accompanied by the Audit Exemption Certificate within thirty (30) days from the circulation date of the unaudited financial statements and reports.
Other Conditions
A company that is eligible for audit exemption shall be required to audit its accounts if it receives a notice in writing requiring the company to audit its accounts during a financial year but not later than one (1) month before the end of that financial year from:–
any member(s) eligible to vote and holding in aggregate of not less than 5% of the total number of issued shares of the company or any class of those shares;
not less than 5% of the total number of members eligible to vote in of the company; or
the Registrar who directs the company to have its accounts audited.
Also, where a company which is exempt from audit requirements ceases to be so qualified, it shall thereupon cease to be so exempt but it shall remain so exempt in relation to accounts for the financial years in which it qualifies.
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