The first question isn’t when you file the accounts. It’s when the company’s financial period began.
Malaysia’s audit-exemption limits are being phased in according to the commencement date of the financial period. A company with a year ending in 2026 may therefore fall under the 2025 phase if that period began in 2025.
The thresholds are also only part of the test. Company type, exclusions, historical figures and external audit requirements matter.
The phased thresholds
SSM Practice Directive 10/2024 provides these limits:
| Financial period begins | Revenue ceiling | Total assets ceiling | Employee ceiling |
|---|---|---|---|
| 2025 | RM1 million | RM1 million | 10 |
| 2026 | RM2 million | RM2 million | 20 |
| 2027 onward | RM3 million | RM3 million | 30 |
The company generally needs at least two qualifying criteria across the current financial year and the two immediately preceding years, subject to the directive’s provisions. Test each criterion over all three years; checking current-year revenue alone is not enough.
Fictional case study: two periods ending in 2026
Imagine a fictional company with a financial year ending 30 June 2026. Its period began on 1 July 2025, so the 2025 phase applies.
A second fictional company has a calendar financial year that began on 1 January 2026, so it looks to the 2026 phase.
The directors initially assume both companies use the same limit because both accounts end in 2026. Recording the commencement dates shows why that shortcut is wrong. Each company then completes the required historical worksheet and exclusions review before deciding whether it qualifies.
SSM’s FAQ, question 23, explains that the relevant phase’s limits are used for the comparison years. You don’t apply a different lower phase threshold to each older year.
Fictional case study: completing the three-year test
Assume a private company has calendar financial years, sufficient history, no excluded status and no separate audit requirement. Its financial period begins on 1 January 2026, so the 2026 limits apply to all three comparison years.
For this forward-looking illustration, assume the 2026 year has ended and these are its completed figures. Employee numbers have already been calculated under the definition below:
| Financial year | Revenue | Total assets | Employees | Criteria within the 2026 limits |
|---|---|---|---|---|
| 2024 | RM1.6 million | RM2.4 million | 12 | Revenue and employees |
| 2025 | RM1.8 million | RM2.5 million | 15 | Revenue and employees |
| 2026 | RM1.9 million | RM2.6 million | 18 | Revenue and employees |
Result: the company qualifies under the threshold route on these assumptions. Revenue stays at or below RM2 million and employees stay at or below 20 throughout the three years. Assets exceed the limit, but the other two criteria are satisfied.
Now change only the 2025 revenue to RM2.2 million. The company then fails the revenue test over the required history and also fails the assets test. Only the employee criterion remains satisfied, so it does not qualify under this route for 2026, despite having revenue below RM2 million in 2026 itself.
The directors retain the three-year assessment, financial statements and employee calculation with their decision. The lesson is to check the full history and exclusions before planning to omit the audit.
For an extended comparative financial period, FAQ question 29 says to use the full revenue for that period. Don’t annualise it simply to make the amount fit a ceiling.
Count employees using SSM’s definition
SSM’s Part L FAQ, updated 19 June 2026, explains the full-time test. It covers paid workers with at least 120 working hours a month, or at least six hours a day on 20 days a month. Count them at each relevant financial year end.
Eligible local, foreign, contract and probationary workers are included. Working directors and shareholders are excluded, as are family members or friends who are unpaid or receive irregular wages. Keep a calculation showing the inclusions and exclusions; the payroll system’s total headcount may be different.
Newly incorporated companies need special care
A newly incorporated, non-dormant private company doesn’t qualify immediately under this threshold route merely because its first-year figures are small.
FAQ question 27 explains that it lacks the two preceding financial years of information required. For example, a fictional new company with RM300,000 revenue, RM200,000 assets and three employees in its first period still doesn’t qualify immediately on those figures alone.
Dormant companies have a separate route: the directive covers dormancy since incorporation or throughout the current and immediately preceding financial year. Its definition requires no business activity and no accounting transactions, apart from the specified costs of complying with legal obligations. Having no sales alone does not establish dormancy.
Company-level figures and exclusions
FAQ question 28 explains that the financial criteria are applied at company level for a private holding company and its private subsidiaries, subject to the other conditions. This differs from the ownership analysis used for e-Invoice exemption.
The directive excludes public and foreign companies, private subsidiaries of public companies, and an exempt private company choosing to lodge a section 260 certificate in place of financial statements. That last route is different from electing audit exemption and lodging unaudited statements.
FAQ question 25 also excludes a private company jointly controlled by a public company. An associate of a public company can qualify if it meets all the applicable conditions; the associate label alone does not exclude it. Check the actual structure. Other laws, third-party obligations, a qualifying member request or a Registrar direction can still require an audit even where the size tests are met.
Audit exemption doesn’t remove the accounts
A qualifying company still needs proper records, financial statements, approvals and lodgement documents. It may also need financial information for tax, finance providers or other parties.
The related guide Does an Audit-Exempt Company Still Need Accounts? explains the work that remains after eligibility is established.
A sensible assessment order
- Identify the company and financial-period commencement date.
- Screen exclusions and any separate audit requirement.
- Select the applicable phase.
- Gather all three required financial years.
- Calculate revenue, assets and employees using the directive.
- Check that at least two criteria are satisfied across all required years.
- Document the conclusion and supporting evidence.
- Plan the unaudited-statement and lodgement work if the company qualifies and chooses exemption.
Avoid the shortcut “revenue is below RM2 million, so no audit is needed.” Revenue is only one criterion, 2026 is only one phase, and qualification can be displaced by other requirements.
Sources checked on 24 September 2026 against Practice Directive 10/2024, Part Q dated 19 May 2026 and Part L updated 19 June 2026. The worked qualification assumes a private company with no exclusion or separate audit requirement.
Sources referred to in this guide (3)
We’ve taken reasonable steps to verify the cited sources and check this information as at the source-check date. We can’t guarantee 100% accuracy, completeness or that it remains up to date. This is general information and does not replace professional accounting, tax or legal advice tailored to your circumstances. How these guides were prepared.