A Guide to the Different Types of Audits in Malaysia

A Guide to the Different Types of Audits in Malaysia


Introduction

The world of finance and business can be complex, and audits play a critical role in keeping things transparent and accountable. In Malaysia, all sorts of organisations—from businesses to non-profits and government agencies—need audits to ensure their financial statements are accurate. This isn’t just about ticking boxes; it’s about maintaining integrity and building trust with everyone involved.

Whether you’re running a business, managing finances, or overseeing operations, understanding audits is key to ensuring everything’s on the right track. This article will give you a straightforward guide on audits in Malaysia, as outlined in the Companies Act 2016.

What Is an Audit Report?

Think of an audit report as an official assessment of a company’s financial health. An independent auditor, who is like a financial detective, looks closely at the company’s financial records. They check everything for accuracy, make sure it’s complete, and confirm that it all looks fair. They then give their professional opinion on whether the financial statements are a true and fair representation of the company’s financial situation. It’s like getting a health check-up but for your company’s finances, and it needs to follow certain financial reporting standards (MFRS or MPERS).

Why Do You Need an Audit Opinion?

The main reason for an audit opinion is to give people confidence in a company’s financial numbers. It’s an assurance that these numbers are free from big errors or fraud. Investors, creditors, and other stakeholders rely on this to make smart, informed decisions, so this opinion is actually really important.

When Is an Audit Report Required?

You’d be surprised how many different entities need an audit report in Malaysia. Here’s the lowdown:

  1. Public Companies: If your company is listed on the stock exchange, then an annual audit of your financial statements is a must. This is according to the Companies Act 2016. The audited report is then presented at your Annual General Meeting (AGM) and submitted to the Companies Commission of Malaysia (SSM).
  2. Private Companies: Even if you’re not a public company, you may still need an audit depending on your company’s size. Companies that reach a certain revenue or asset threshold must go through this process. The Practice Directive No 10/2024 outlines these specific thresholds (need to fulfil at least 2 out of 3 criteria), so it’s good to check on that. For example, if your company’s revenue for the financial period 01.01.2025 – 31.12.2025 is RM0.5 million, total assets as of 31.12.2025 are RM2 million and you employ 9 full-time staff, then you qualify for an audit exemption for the FYE 31.12.2025.
  3. Non-Profit Organisations (NPOs): If your NPO receives public or government funding, audits are necessary to ensure funds are used correctly and compliantly.
  4. Government Entities: Government-linked companies and agencies undergo audits to ensure public funds are being used appropriately, according to government accounting standards.
  5. Banks and Financial Institutions: These entities are heavily regulated and require strict audits to comply with central bank regulations and maintain the public’s trust in their operations.

In short, these audit report requirements help ensure everyone plays by the rules and remains transparent.

Different Types of Audit Reports

While we focus on the types of opinions here, it’s useful to know there are different types of audits too. This could include a financial statements audit, internal audits, compliance audits, or even an operational audit. Each type serves a specific purpose for a business.

Understanding Audit Opinions

When an auditor completes their work, they issue an opinion on your financial statements. These opinions can be categorised as follows:

  1. Unqualified Opinion (Clean Opinion): This is the best opinion you can get! It indicates that the auditor has found no material misstatements or issues with the financial statements, and they present a true and fair view of the company’s financial position in compliance with applicable financial reporting framework. This gives stakeholders and investors great confidence in your company.
  2. Qualified Opinion: A qualified opinion means that the auditor has found certain exceptions to the accounting principles where the information is incomplete or misstated, but the overall financial statements are still fairly presented. These issues are typically disclosed in the report, and the company must address them.
  3. Adverse Opinion: An adverse opinion is a serious matter. It indicates that the auditor has found significant misstatements or issues in the financial statements that materially affect the true and fair view of the company’s financial position. This opinion suggests that the financial statements do not comply with the relevant accounting standards and should not be relied upon by stakeholders.
  4. Disclaimer of Opinion: This means the auditor could not form an opinion on your financials, usually due to lack of evidence or if they were unable to complete their investigation thoroughly.

How To Get a “Clean” Audit Opinion

A “clean” (unqualified) audit opinion is what every business aims for. Here’s how to increase your chances, and it might be good to seek help from expert firms like KS Chia on this:

  1. Keep Great Records: This means maintaining detailed, accurate, and up-to-date financial records. This helps the auditors quickly understand your company’s situation.
  2. Stay Compliant with Regulations: Make sure your financial statements comply with all Malaysian accounting standards like MFRS, MPERS, or IFRS, depending on your business requirements.
  3. Communicate with Your Auditor: Engage with auditors early, give them what they need promptly, and address any concerns as soon as they pop up.
  4. Implement Strong Internal Controls: Effective internal controls are vital for preventing errors or fraud. It protects your financial information and also gives the auditor confidence in your systems.
  5. Fix Any Problems Quickly: If any issues come up during the audit, it’s essential to tackle them head-on and fix them quickly before the audit is completed.
  6. Be Prepared for Discussions: Be ready to discuss the financial statements with your auditor and provide explanations as necessary.

FAQs About Audit Reports

Let’s address some common questions that businesses have about audits, especially when things aren’t straightforward:

What Happens If You’re Not Compliant (Non-Compliance)?

If the auditor finds non-compliance, it will be noted in the report. Here’s a breakdown of what it may mean:

  1. Qualified Opinion: If the non-compliance isn’t major, an auditor might issue a qualified opinion. This means some areas didn’t comply with standards but the overall financials are still considered okay.
  2. Management Recommendations: In cases where minor non-compliance is detected, the auditor may provide recommendations for improvement. These might involve improving internal controls, revising financial reporting practices, or aligning better with industry standards.
  3. Legal Implications: Serious non-compliance can lead to fines, penalties, or other legal actions. You may even be required to revise your statements.
  4. More Scrutiny: Non-compliance can cause a red flag for investors, creditors, and regulators. It can affect your reputation and potentially limit your funding.
  5. Potential Impact on Business Operations: In regulated sectors, severe non-compliance might limit your operations, perhaps even suspend your licenses.

What to Do if You Receive an Adverse Opinion?

This isn’t ideal but don’t panic. Receiving an adverse audit opinion can be worrisome; however, it signals that the auditor believes your financial statements do not give a true and fair view. Here’s how to approach it, with the confidence that it can be overcome:

  1. Understand Why: Dive into the auditor’s report to get a very clear understanding of the exact issues.
  2. Talk to Your Auditor: Discuss the findings with the auditor and ask for recommendations on how to correct them.
  3. Fix Your Statements: Take immediate steps to correct the issues which can mean restating your financials.
  4. Boost Your Controls: Improve your internal controls to prevent such issues from happening again in the future.
  5. Communicate Clearly: Keep your stakeholders informed and updated on your corrective actions and plans to improve.
  6. Check Legally: Involve legal counsel to ensure full regulatory compliance, as there might be legal implications.
  7. Follow Up Audit: When corrective measures are implemented, get another audit to ensure all issues are resolved and hopefully receive a better audit opinion.

Remember, an adverse opinion is not the end of the world. With swift, comprehensive action, you can regain trust and improve your business operations.

Why Choose KS Chia for Your Auditing Needs

At KS Chia & Associates, we are a trusted and professional audit firm in Malaysia, recognised for our expertise, reliability, and client-focused approach. Here’s why businesses across Malaysia choose us:

1. Registered and Trusted Audit Firm
We are a member firm of the Malaysian Institute of Accountants (MIA) and an approved auditor by the Ministry of Finance, ensuring compliance with Malaysia’s professional and legal standards.

2. Experienced and Qualified Audit Team
Our team consists of highly experienced accountants and certified auditors who uphold rigorous quality standards. With extensive experience in diverse industries, we provide reliable audit and assurance services tailored to your business needs.

3. Commitment to Excellence and Compliance
We stay up-to-date with the latest auditing and accounting standards, legal requirements, and professional practices in Malaysia. Our firm is committed to continuous improvement to deliver accurate, transparent, and professional audit reports.

4. Industry-Specific Expertise
We serve small and medium-sized businesses (SMEs) across various industries, including:

  • Advertising & Marketing
  • Engineering
  • Chemical & Pharmaceutical
  • Construction
  • And many more industries.

From start-ups to established businesses, we support companies at every stage of their development.

5. Client-Focused and Solution-Oriented
We believe in building strong relationships with our clients through teamwork, trust, and personalised solutions. Our audit team works closely with you to identify challenges and provide customised, practical solutions for your business.

Conclusion

In Malaysia, understanding audits is key for running a compliant, trustworthy, and successful business. Although an adverse audit opinion or non-compliance is a challenge, it also provides opportunity for improvement. Addressing it with a clear plan and corrective measures will lead to better financial reporting and stability. To make sure your business is always on the right track and you can achieve a clean audit opinion, get expert guidance from a reputable audit firm like KS Chia & Associates.

📞 Call us: +6 011 2366 5233 

📧 Email: enquiry@kschia.com.my

🌐 Visit: https://kschia.com.my/