Why audit matters to SMEs

The publication of this booklet is timely in light of the current market discourse on the issue of audit exemption of dormant and small private companies.

The booklet provides a quick guide in illustrating the value of an audit to various stakeholders and emphasises the benefits derived from the decision to have accounts audited.

The main message of the booklet conveys that the cost of audit to an entity should not be considered in isolation of the benefits to be derived by that entity.

An audit is an important undertaking designed to yield a reasonable level of assurance, through independent verification, of important financial information.

Whatever cost savings that may be achieved, the benefits of having an audit outweigh them.

MIA is of the view that a comprehensive analysis needs to be carried out and appropriate dialogues conducted with all relevant stakeholders, given the far-reaching consequences of audit exemption across the regulatory and financial reporting ecosystem.

Currently, all companies enjoying the privilege of limited liability must subject their businesses to mandatory audits to safeguard the interest of third party users and other stakeholders.

An audit can be considered to be a service to the public at large and it is a small price to pay for the limited liability protection that a company enjoys.

The booklet illustrates the value of an audit to various stakeholders and emphasises the benefits derived from the decision to have accounts audited.

Among others, audit brings financial discipline, which is especially important as under the new Companies Act 2016, increased liabilities will be imposed on company directors for failing to prepare adequate financial statements.

The penalty imposed under the new Act is a fine not exceeding five hundred thousand ringgit or imprisonment for a term not exceeding three years or both.

Furthermore an external audit ensures proper tax returns are filed with the Inland Revenue Board (IRB).Section 77A(4) of the Income Tax Act requires tax returns furnished by companies to be based on audited accounts.

Proper tax returns based on audited accounts could actually save SMEs from penalties which could exceed their audit fees.