Audit Exemption for Malaysian SMEs: Does Ownership Matter?

Abstract

Small and medium-sized enterprises (SMEs) are playing an increasingly important role in the process of industrialization in the developing world. To support SMEs, many developed countries, such as Australia, New Zealand and the United Kingdom, have implemented an audit exemption regime for SMEs, while, in Malaysia, the policy makers and regulators have announced that the audit for SMEs will remain a legal obligation that they will revisit sometime in the future. Thus, this paper aims to shed light on this issue by exploring the relationship between the ownership structure of SMEs and audit exemption. The objective is to determine whether SMEs will still opt for an audit if it becomes voluntary, and, if they do, what would be the reason for the sampled SMEs to behave in such a manner? This research is exploratory in nature and employs the questionnaire survey method to collect data from a random sample of 200SMEs in both the manufacturing and service industries. The survey results indicate that there is a significant difference between the ownership structure of firms and the decision of SMEs to opt for voluntary audit. Moreover, the lack of resources is significantly related to opting for a voluntary audit. Therefore, based on the resource-based theory, SMEs in Malaysia mainly opt for auditing, not to fulfil a mandatory obligation but to compensate for their lack of tangible (professional/qualified accountants) and/or intangible (accounting and business expertise) resources. This study provides new insights into the way Malaysian SMEs view auditing. It highlights the implications of the policy directives of the Malaysian regulators and the accounting fraternity. Furthermore, the Malaysian experience is useful for consideration by other developing nations that are contemplating moving towards an audit exemption regime.