Much more than just checking the numbers
We believe the statutory audit should be viewed as a chance, not a cost. This is your chance to take a look under the hood of your business and make sure everything is running as it should – and if it’s not, it’s your chance to identify the issues and take steps to fix them.
Purpose of an Audit
Typically, the owners of a company (ie. the shareholders) do not closely participate in the day-to-day management of the company. The owners employ someone who’s competent to manage the company on their behalf and maximise their return on investments.
Therefore, auditors are generally appointed by the owners to independently examine the financial reports prepared by the management. An audit underpins the trust between management and owners (as well as other stakeholders – banks, investors, suppliers and customers).
The primary purpose of a FS audit is to enhance the degree of confidence in the financial statements, so that users can rely on the financial statements to make economic decisions. These users may include:
– to assess the risk and return of their investment
– to assess your business value and profitability
– to assess your business’s financial health and stability to ensure a steady supply
Suppliers / Banks / Lenders
– to assess your business’s credit worthiness in deciding whether to extend a loan or credit
– to assess whether your business meets the conditions attached to the government grants/subsidies
– to review whether the tax declared is correct
Benefits of an Audit
An audit of FS can help a company to:
- Enhance the accuracy and credibility of financial information
- Identify weaknesses in internal controls and ways to improve internal controls
- Ensure compliance with relevant laws and statutory regulations
- Detect and prevent fraud to safeguard shareholders’ interests
- Improve your credit rating in obtaining bank loans and dealing with external stakeholders
How are Audit Fees calculated?
The Malaysia Institute of Accountants (MIA) has published Recommended Practice Guide (RPG) 7: A Guide to Charging for Professional Assurance Services to set out the basis for establishing a reasonable level of statutory audit fee, with effect from 1 March 2010.
The MIA decided to withdraw RPG 7 with effect from 1 June 2015 in order to uphold the spirit of the Competition Act (CA) 2010 and not breach any of its provisions. However, it still become part of our guideline in establishing our audit fees.
Audit Fee Schedule
The general method of determining audit fees is based on either Turnover or Total Assets. Methods used are according to nature of business. For example, it is more appropriate to use Gross Turnover method for a trading company, whereas Total Asset method for an investment holding company.
|Gross Turnover or Total Assets
|The first 100,000||100,000||1.000%||1,000||1,000|
|The next 150,000||250,000||0.438%||657||1,657|
|The next 250,000||500,000||0.313%||783||2,440|
|The next 500,000||1,000,000||0.188%||940||3,380|
|The next 1,500,000||2,500,000||0.125%||1,875||5,255|
|The next 2,500,000||5,000,000||0.100%||2,500||7,755|
|The next 5,000,000||10,000,000||0.094%||4,700||12,455|
|The next 10,000,000||20,000,000||0.100%||10,000||22,455|
Where it is not appropriate to use Total Assets or Gross Turnover basis, we may adopt Total Operating Expenditure basis to determine audit fees.
|Total operating expenditure
|The first 50,000||50,000||2.500%||1,250||1,250|
|The next 150,000||200,000||1.250%||1,875||3,125|
|The next 800,000||1,000,000||0.625%||5,000||8,125|
|The next 1,000,000||2,000,000||0.250%||2,500||10,625|
A FS audit is an examination of a company’s financial statements carried out by an independent auditor, with a view to express an opinion on whether the financial statements fairly present the company’s financial position and performance in accordance with the financial reporting framework relevant to their country.
Financial statements are a set of financial reports that convey information about a business’s financial health and recent results.
The complete set of financial statements contains 5 elements:
- Balance Sheet
- shows what your business owns and what it owes as well your business’s worth, at a particular point in time
- Income Statement
- shows how much you made (revenue) and how much you spent (costs), over a particular period
- Statement of Changes in Equity
- shows the changes in your business’s net worth, over a particular period
- Statement of Cash flows
- shows where money came from and where it went, over a particular period
- Notes containing a summary of significant accounting policies and other explanatory information.
Under the Companies Act 2016 , the Directors of a company are primarily responsible for the preparation and fair presentation of the FS, including the oversight of the financial reporting process.
Under the Companies Act 2016 Malaysia, all public listed companies, private limited companies (except those companies meet the requirements of audit exemption) and branch offices in Malaysia are required to appoint an approved auditor to audit the accounts of the company.
Every Sdn Bhd in Malaysia shall not later than 18 months from the date of incorporation and subsequently once every calendar year circulate to its shareholders, a copy of Audited Financial Statements made up to a date not more than 6 months from its financial year end.
By virtue of Practice Directive No. 3/2017, it has been confirmed that a Private Company (ie. Sdn Bhd) may not need to appoint an auditor in a Financial Year.
A Sdn Bhd which falls within the following categories, may opt for Audit Exemption:
- Dormant Company;
- Zero Revenue Company;
- Threshold Qualified Company.
What is a Dormant Company?
(1) You have incorporated a company but you have not been active since the day of incorporation; OR
(2) There are no financial transaction(s) made throughout the current financial year and preceding financial year.
For the purpose of qualifying under this category the company must not carry any business and does not have any accounting transaction. But expenses incurred to comply with the law, such as Company Secretary Fee, filing fee and administrative fee does not fall under accounting transaction.
Which means that if your company is dormant but you have expenditure incurred in order to comply with the law, you may still qualify for audit exemption.
(1) Company A was incorporated on 1 January 2018. Since 1 January 2018 until today Company A has not commenced any business activity. Company A may apply for audit exemption.
(2) Company B was incorporated on 1 January 2016. Assuming that its financial year ends on 31 December.
- In financial year ending 31 December 2017 there are financial activity
- In financial year ending 31 December 2018 there are NO financial activity
- In financial year ending 31 December 2019 there are NO financial activity
For financial year ending 31 December 2019, Company B may apply for Audit Exemption.
What are Zero Revenue Companies?
(1) no revenue in the current financial year and in the immediate past 2 financial years; AND
(2) total assets in the current Statement of Financial Position for the current financial year does not exceed RM300,000 as well as in immediate past 2 financial years.
(1) Company C was incorporated on 1 January 2017. Assuming that its financial year ends on 31 December.
- In financial year ending 31 December 2017 there are revenue
- In financial year ending 31 December 2018 there are NO revenue
- In financial year ending 31 December 2019 there are NO revenue
- In financial year ending 31 December 2020 there are NO revenue
- Total Assets for all above financial year end is less than RM300,000
Company C may apply for audit exemption for financial year end 2020 but NOT for financial year end 2017, 2018 and 2019.
What are Threshold Qualified Companies?
A company is regarded as a Threshold Qualified Company when:
(1) the company’s revenue does not exceed RM100,000 in the current financial year and in the immediate past 2 financial years;
(2) the total assets in the Statement of Financial Position for the current financial year does not exceed RM300,000 and in the immediate past 2 financial year; AND
(3) at the end of its current financial year and immediate past 2 financial year, does not have more than 5 employees.
(1) Company D was incorporated on 1st January 2017. Assuming that its financial year ends on 31 December.
- In financial year ending 31 December 2017 – revenue RM800,000
- In financial year ending 31 December 2018 – revenue RM80,000
- In financial year ending 31 December 2019 – revenue RM80,000
- In financial year ending 31 December 2020 – revenue RM80,000
- Total Assets for all above financial year end is less than RM300,000
- Number of Employee is always less than 5 in all financial year end above
Company D may apply for audit exemption for financial year end 2020, but NOT for financial year end 2017, 2019 and 2018
Please check with your Company Secretary. They will guide you through the application process.
No. One of the requirements to apply for audit exemption is that the Sdn Bhd must submit their unaudited financial statement. If you don’t do the accounting there is no financial statement. Plus you will need your financial statement to file your tax return for the Company. Therefore accounting is still required.
Ensure that your financial documents and accounting software are in order before the commencement of audit. This includes ensuring that all account balances are reconciled with supporting documentation.
That’s where an accountant comes in handy. Credo has a separate accounting team that will make sure your financials are in order and support you throughout the audit process.
We take then tension out of year-end financial reporting and tax season. You will always have audit-ready financials and don’t have to worry about responding to a long or non-stop list of audit queries/requests.