Audit Exemption for Sdn Bhd in 2026: Who Qualifies and What You Still Lodge

Can a Sdn Bhd skip the audit in 2026?

Yes, if it qualifies. Every company must normally appoint an auditor each year, but the Companies Act 2016 lets the Registrar exempt categories of private companies (section 267(2)). SSM's Practice Directive 10/2024 sets out who qualifies, and a qualifying Sdn Bhd may elect not to have its financial statements audited.

The limits are being raised in three phases. The phase that applies depends on when your financial year begins, not when it ends:

Phase	Financial year beginning	Revenue	Total assets	Employees
1	1 Jan 2025 to 31 Dec 2025	Up to RM1 million	Up to RM1 million	Up to 10
2	1 Jan 2026 to 31 Dec 2026	Up to RM2 million	Up to RM2 million	Up to 20
3	On or after 1 Jan 2027	Up to RM3 million	Up to RM3 million	Up to 30

Financial years that began on or before 31 December 2024 still follow the older Practice Directive 3/2017. These are the rules as of October 2026; check SSM's audit exemption page for updates before you rely on them.

How does the 2-out-of-3 test work?

Your company must meet at least two of the three limits in the current financial year and in each of the two financial years immediately before it. One small year is not enough; the test looks back over three years.

Three details settle most cases:

• For 2026, the earlier years use the Phase 2 limits. For a financial year starting in 2026, SSM tests the 2024 and 2025 years against the Phase 2 maximum of RM2 million, not the lower Phase 1 figures. A company with RM1.6 million revenue in 2024 is not ruled out for 2026.
• The start date fixes the phase. With a 30 June year-end, the year from 1 July 2025 to 30 June 2026 is a Phase 1 year even though it ends in 2026; the next year, starting in July 2026, is Phase 2. With a 31 March year-end, the year that began on 1 April 2024 still falls under the old rules.
• Any two of three will do. A company that owns its premises may fail the total assets limit and still qualify on revenue and employees.

There is no application to SSM: the company assesses itself. Keep a one-page working of all three figures for each of the three years in your year-end file, because it is the evidence behind the directors' decision.

How do you count revenue, total assets and employees?

Take each figure from that year's financial statements and payroll records:

• Revenue: the revenue (turnover) line in the income statement for the financial year.
• Total assets: everything on the balance sheet before deducting what the company owes, including cash, receivables, stock, equipment, vehicles and property.
• Employees: full-time paid workers, counted at the end of the financial year. Full-time means at least 6 hours a day for at least 20 days a month, or at least 120 hours a month.

Directors and shareholders who work full time in the business are not counted, and neither are unpaid family members. Staff working fewer hours than the full-time test are also left out. If your headcount is close to the limit, check the payroll on the last day of the year rather than relying on an average, because a year-end hiring drive can tip the count.

If you are unsure where these figures sit, our guide on how to read a profit and loss statement and balance sheet shows where revenue and total assets appear.

Does your company qualify? Three worked examples

Example 1: Klang Valley trading company, financial year 1 January to 31 December 2026

All three years are measured against the Phase 2 limits (RM2 million, RM2 million, 20 employees).

Year	Revenue	Total assets	Employees at year end	Limits met
2024	RM1.6 million	RM2.5 million	12	2 of 3
2025	RM1.8 million	RM2.7 million	15	2 of 3
2026	RM1.9 million	RM2.9 million	17	2 of 3

Total assets are above RM2 million because the company owns its warehouse, but revenue and employees pass in all three years. It may elect audit exemption for its 2026 financial statements.

Example 2: Penang hardware trader, financial year 1 January to 31 December 2026

Year	Revenue	Total assets	Employees at year end	Limits met
2024	RM2.3 million	RM2.2 million	22	0 of 3
2025	RM1.9 million	RM1.8 million	18	3 of 3
2026	RM1.7 million	RM1.6 million	16	3 of 3

The 2024 year fails, so the 2026 accounts must still be audited. The window then rolls forward: for a financial year starting in 2027, the test covers 2025, 2026 and 2027. If 2027 looks like 2026, all three years sit comfortably inside the limits, so the company can plan for exemption from its 2027 financial year and confirm it with its company secretary.

Example 3: JB contractor incorporated in 2025

The company started trading straight after incorporation. In 2026 it has revenue of about RM800,000 and 6 employees, well under every limit, but it does not yet have two preceding financial years behind it. It does not qualify straight away, so its early accounts are audited. A company that had stayed dormant since incorporation would be treated differently.

Which companies cannot use the audit exemption?

The exemption is for private companies only, and some of those are excluded whatever their size:

• Subsidiaries of public companies, and private companies jointly controlled by a public company.
• Exempt private companies that lodge an EPC certificate with SSM instead of their financial statements.
• Foreign companies registered in Malaysia.
• Newly incorporated companies that are trading, until they have the two preceding financial years the test requires.

Dormant companies are the exception that helps. A company that has been dormant since incorporation, or was dormant in both the current and the immediately preceding financial year, qualifies. Dormancy does not switch off the other duties, though; our guide to dormant company obligations in Malaysia lists what is still required.

What must you still prepare and lodge without an audit?

Audit exemption removes the auditor's report, not the accounts. An audit-exempt Sdn Bhd must still:

1. Prepare financial statements under approved accounting standards; most private SMEs use MPERS, with MFRS as the alternative.
2. Circulate them to members within 6 months of the financial year end.
3. Lodge the unaudited financial statements, the directors' report and a certificate of compliance with SSM within 30 days of circulation.
4. Carry on with every other deadline, including the annual return and Form C with LHDN within 7 months of year-end.

Unaudited does not mean unchecked. With no auditor testing the numbers, the quality of your bookkeeping carries more weight: directors approve the statements, LHDN can still examine the tax return, and lenders read the accounts closely. Reconciled bank accounts, a fixed asset register and a proper year-end close matter more, not less. Our year-end closing checklist covers what to tidy first, and the Sdn Bhd annual compliance calendar shows how these deadlines fit together.

Can shareholders or a bank still insist on an audit?

Yes. Members holding at least 5% of the voting shares, alone or together, can require the company to be audited by written notice. The notice must be given during the financial year and no later than one month before the year ends, so the board knows before the books close.

Outside parties can insist too. Banks, licensing bodies and grant agencies may still ask for audited accounts, for example when you apply for financing, renew a licence or claim a grant. Before you drop the audit, check your loan agreements and ask your bank directly. Some companies that qualify choose a voluntary audit for exactly this reason.

If you do switch, tell your company secretary and current auditor early so the change is handled cleanly for the coming year.

How WeCount helps

WeCount keeps your monthly books, bank reconciliations and management reports up to date, and tracks revenue, total assets and year-end headcount so you can see well before year-end whether the 2-out-of-3 test is likely to pass. At year-end we hand a clean, documented set of records to the accountant, auditor or tax agent handling your statements and tax return. WeCount is not an audit firm or company secretary: regulated audit, tax-agent and professional accountancy services are delivered through appropriately authorised partners where required. Learn more about our monthly bookkeeping service.