An audit is a systemic examination of a company’s financial records, accounts, business, transactions, and supporting documents. Conducted by an independent and licensed auditor, the goal of an audit is to verify that financial statements present a true and fair view of a company’s financial position. In Malaysia, statutory audits are required under the Companies Act 2016 for most companies.
The importance of an audit for Malaysian businesses cannot be overstated. Firstly, audits help ensure compliance with legal and regulatory frameworks. Every registered company, except for certain exempt private companies, must submit audited financial statements annually to the Companies Commission of Malaysia (SSM). Failure to do so can result in fines and other penalties for directors and company officers.
An audit enhances credibility. Investors, lenders and other stakeholders are more likely to trust a company that has independently audited financial statements. It provides assurance that the business is operating transparently and that its financials are not misleading. This can significantly improve the company’s access to capital, credit facilities, or investment opportunities.
Additionally, audits serve as a tool for management. Through an audit, weaknesses in internal controls, financial reporting practices or accounting systems can be identified. This allows businesses to improve operational efficiency and reduce risks associated with fraud or mismanagement.
In the Malaysian context, audits also support accurate tax reporting. By verifying financial figures, businesses are less likely to make errors in tax filings, reducing the risk of audits or penalties by the Inland Revenue Board (LHDN). Having audited financials also facilitates smoother communication with authorities and financial institutions.
From a strategic perspective, audits provide valuable insights into a company’s financial health. These insights can be used to guide decision-making, assess the viability of expansion or identify cost-saving opportunities. Over time, consistent audits can reveal financial trends, helping management to track performance and set future goals.