Rethinking Audit Exemptions in Malaysia

Many have shared their opinion on Malaysia's proposal to increase the audit exemption threshold. Here is my perspective, offered from a more conceptual viewpoint.

Why do we need financial reporting in the first place?

General purpose financial statements exist to address the information asymmetry faced by their primary users: existing and potential investors and lenders. The IFRS Foundation frames these statements around exactly those users. A statutory assurance report adds credibility to the figures, so those users can rely on them.

Seen this way, the value of an audit depends on how much information asymmetry there is to resolve in the first place.

When is a statutory audit least necessary?

For closely-held companies, there may not be significant information asymmetry to begin with. Owners and managers sit close to the business, which reduces the need for external assurance.

For small entities, failure is unlikely to have a material effect on the wider economy. Where both conditions hold, mandatory assurance adds limited value while still consuming cost and effort.

Why is raising the threshold a positive move?

I believe it is a positive step. Easing the requirement releases cost and resource that can be put to better use across the market.

Group	What the exemption changes
Companies	Saved cost and resources that can be redirected towards growth, innovation and core operations
The profession	Scarce audit capacity is freed to focus on larger, higher-risk entities
Individual accountants	More exposure to quality engagements where their knowledge truly matters
Small practices	Pressure to merge or consolidate, pooling resources and expertise to create more value

What does it mean for the accounting profession?

For a profession under pressure, the exemption could be the most effective strategic response to talent scarcity. It helps in three ways:

• It relieves talent scarcity by releasing audit resources that are in short supply.
• It channels effort towards larger entities, where the risk of financial misstatement is higher and the audit work more impactful.
• It gives individual accountants more exposure to quality engagements where their knowledge truly matters.

This mirrors a wider shift in the role of accountants and their future, where skilled time moves towards judgement rather than routine compliance.

Will small audit practices survive?

Some small practices may have to merge or close. In the long term, this is not necessarily a bad outcome.

Through market consolidation, practices can pool their resources and expertise, creating more value for the business community they serve and further justifying the profession's role.

Is the proposed threshold the right measure?

There is a caveat. A financial performance threshold, and the proposed threshold amount, may not be the most appropriate proxy for the information needs of financial statement users.

On the same reasoning, I would encourage ACRA to revisit Singapore's current audit exemption threshold and the filing requirements for private entities, capturing these benefits while continuing to meet the objective of statutory audits and the public filing of general purpose financial statements.