Statutory Audit
An audit is a systematic and independent examination of books, accounts, statutory records, documents and vouchers of an organisation to ascertain how far the financial statements as well as non-financial disclosures present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly maintained by the concern as required by Malaysia law (e.g. Companies Act 2016).
Any subject matter may be audited. Audits provide third party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other areas which are commonly audited include: secretarial & compliance audit, internal controls, quality management, project management, water management, and energy conservation.
As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of risk management, control, and the governance process over the subject matter.
Due to strong incentives (including taxation, misselling and other forms of fraud) to misstate financial information, auditing has become a legal requirement for many entities who have the power to exploit financial information for personal gain.
In Malaysia, every company (Sdn. Bhd.) is required to appoint an auditor for their companies regardless of whether the company is active or dormant, large or small. Every companies in Malaysia must have their accounts audited by approved company auditors every year and submit their audited report to Companies Commission Malaysia (CCM).
Financial audits are performed to ascertain the validity and reliability of information, as well as to provide an assessment of a system’s internal control. As a result of this, an auditor can express an opinion of the person / organisation / system (etc.) based on the audit evidence obtained.
Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements – a concept influenced by both quantitative (numerical) and qualitative factors.
Company Audit
An approved company auditor must be a member of Malaysian Institution of Accountant (MIA) and he must be approved by Ministry of Finance to practice as company auditors in Malaysia.
The Ministry will grant an audit license for approved company auditors in Malaysia for a period of two (2) years and the audit license is renewable.
Appointing Auditors
During the filling process, companies must use the services of a professional accountant qualified under the Accountants Act 1967, which must confirm that the applicant’s statements comply with the approved accounting standards.
Private exempt companies are not required to file audited accounts; an exempt private company is defined as a private company having not more than 20 members, none of whom are corporations having a direct or indirect interest in its shares.
The criteria for audit exemption for certain companies are:
- The company is dormant – this means the business has no accounting transactions occurring and its operations have halted;
- Zero-revenue companies – these are companies that do not generate any revenue during the current financial year, as well as the past two financial years. Further, its total assets do not exceed 300,000 ringgit (US$72,600) in the current financial year and the previous two financial years; and
- Threshold-qualified companies – these are companies that have revenue that does not exceed RM 100,000 (US$24,200) during the current financial year as well as the previous two financial years. Secondly, its total assets do not exceed RM 300,000 (US$72,600) in the current financial year and the previous two financial years, and it ended the current financial year and the previous two financial years with no more than five employees.
However, an exempt company, which is solvent, may still need to audit its accounts if it receives written notice from the Ministry of Finance.
Any company opting for audit exemption must submit to the Registrar together with the necessary certificate. In addition, the must be submitted with:
- A written statement that the company is qualified for audit exemption; and
- There have been no requests from shareholders demanding an audit.
The unaudited financial statements must be submitted together with the director’s report, and statements by other directors.
The certificate that substitutes the attachment of the audited accounts must either be in Bahasa Malaysia or English. If presented in any other language, a translation must be provided.
Fiscal Periods
The Companies Act of 2016 does not specify a date for the fiscal year; this is left to the discretion of the company.
Private companies are obliged to prepare their financial statements not more than six months from the financial year-end. For public companies, financial statements are prepared within 30 days of an AGM (within six months from the company’s financial year).
Most companies in Malaysia choose to have their fiscal period end either on the last day of the year or on the last day of a quarter.
Accounting Standards
All companies in Malaysia are required to prepare their financial reports in accordance with the following two sets of reporting standards:
- The Malaysian Financial Reporting Standards (MFRS), designed for companies with public accountability; and
- The Malaysian Private Entities Reporting Standards (MPERS), designed for private companies with annual periods beginning on or after January 1, 2016.
MFRS standards are almost on a word-by-word basis in alignment with IFRS and SMEs are permitted to use the MPERS standards.
It should be noted that foreign companies listed in Malaysia are able to apply either the Malaysian Accounting Standards Board approved accounting standards or acceptable internationally recognized accounting standards. Similarly, Malaysian companies are able to use IFRS in their financial statements if they wish to do so.
Annual Report
The documents required during an annual audit are similar for both foreign companies operating in Malaysia and Malaysia-incorporated companies. These include the following:
- Director’s report;
- Financial statements;
- Principal business activities;
- Statement by directors on the financial statements;
- Total paid-up capital;
- A statutory declaration by the director or officer primarily responsible for financial management; and
- Auditor’s report.
Auditors Responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statement.
As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by directors.
- Conclude on the appropriateness of directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the financial statements of the Company, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.