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Letter to the Editor - FMM Supports Audit Exemption for Certain Categories of Private Companies

The Federation of Malaysian Manufacturers (FMM) welcomes the Companies Commission of Malaysia’s (SSM) initiative to exempt statutory audits for certain categories of private companies in line with the Companies Act 2016 objectives to further simplify compliance; reduce costs of doing business; and enhance internal control governance and corporate responsibility.

Any measure which would lower the costs of doing business as opposed to the many cost increases being imposed on the manufacturing sector is a step in the right direction. Not all companies need mandatory auditing. While there may be concerns of slackening in financial discipline, FMM is strongly of the view that relieving business cost burden, wherever appropriate, should take priority. Responsible SME businesses should not be deprived of such support and pre-judged unfairly.

Furthermore, SMEs are still required to submit to SSM their financial statements annually and the statements must comply with the approved accounting standards. In this respect, the concerns could be addressed through close monitoring on the quality and timely submission of these financial statements; and the giving of warnings to take corrective actions or face disqualification of exemption,especially repeat offenders.  

FMM is more concerned about the eligibility conditions,which have been tightened significantly from annual revenue of not more than RM300,000 and total assets below RM500,000 to annual revenue not more than RM100,000 and total assets below RM300,000 according to the Practice Directive 3/2017 dated August 4, 2017. Setting the qualifying limit too low makes the exemption inaccessible to the more capable SMEs,especially those in the manufacturing sector which should be supported in the reduction of the costs of doing business.

This issue is important for small companies. Mandatory audits for these companies serve no purpose, resulting in unnecessary additional costs. It would be good if SSM could compare and share the percentages of SMEs manufacturers who are among the estimated 50,000 companies eligible for the exemption and those disqualified because of tighter thresholds. SSM should review and raise these thresholds, or at least maintain at the Practice Directive 1/2017 levels so that more SMEs could qualify.

FMM also hopes that Section 77A of the Income Tax Act which requires submission of company tax returns based on audited accounts has been synchronised to facilitate SSM’s audit exemption.

August 18, 2017

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