Audit exemption among SMEs in Malaysia

Abstract

PurposeAudit helps both shareholders and stakeholders to make informed decisions about future directions, based on how the company is performing. The issue of audit exemption among small companies has been addressed in studies in the UK, Australia and Singapore, together with several others, while Malaysia still legally obligates all companies, irrespective of their size, to be audited annually. The purpose of this exploratory study is to explore the factors associated with a push for audit exemption among small to medium‐sized enterprises (SMEs) in Malaysia.Design/methodology/approachA survey of SMEs in Malaysia's Klang Valley is conducted to examine their perceptions of audit value, audit burden and audit costs, and their implications for the acceptance of the current audit provisions.FindingsAfter follow‐ups the survey yields a response rate of 83 percent, with 360 valid responses received. The results indicate that all three factors have a significant relationship with the level of acceptance of audit exemption. Their preferred audit exemption threshold is also presented.Research limitations/implicationsThe results from this study provide useful information for policy makers, auditors and directors of small companies in regards to audit exemption.Originality/valueThe results of the study provide new information for policy makers, auditors and directors of small companies, with implications for future regulation on audit exemption.