Auditing

Company Formation in Malaysia Note #1: Company Statutory Audit

It is a requirement under the Companies Act of Malaysia that every private limited company doing business in Malaysia must appoint an approved company auditor for auditing its accounts and reporting to the members of the company annually. In other words, an annual audit in Malaysia is mandatory for every private limited company doing business in Malaysia, regardless of the size of the company.

A business registered as a sole proprietor or partnership doing business in Malaysia is not required by law to have its financial statements audited annually.

Company Formation in Malaysia Note #2: What Is Audit? Is it important for the company formed in Malaysia?

An audit in Malaysia involves performing procedures in order to obtain audit evidence about the amounts and disclosures in the financial statements. In the audit of financial statements, the objective is to enable the auditor “to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework”.

In Malaysia, the financial statements are required to be prepared in accordance with the Private Entity Reporting Standards for private limited companies and the Companies Act 2016.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

The financial statements are to be properly drawn up in accordance with Private Entity Reporting Standards and the Companies Act 2016 in Malaysia so as to give a true and fair view of the financial position of the Company.

Company Formation in Malaysia Note #3: Differences between Accounting & Auditing

Many people in Malaysia are confused between what is auditing and accounting. We should be clear however that an audit differs significantly from accounting.

Accounting is a process that creates financial statements and other financial information that is useful for the management. The Companies Act provides that the directors of the companies are ultimately responsible for the preparation and fair presentation of the financial statements.

An audit does not create accounting information but involves examining accounting information. An audit of financial information enhances the credibility and reliability of financial information and statements. Reliable information is necessary for users of the financial information such as investors, creditors and financial institutions.

Therefore, an auditor must be independent as one of the objectives of an audit is to provide an objective and independent report on the reliability of information. Users of financial statements can have reasonable assurance that audited financial reports in Malaysia are free from material misstatements or omissions.