Exemption of Annual Audit for Small Companies: A Review

In Malaysia, all companies are required to have their accounts audited. However, the application of this mandatory requirement on small companies is currently under review, and the issue is whether audit firms could survive should voluntary audit be implemented. Salleh et al. (2008) surveyed the perception of small audit firms on this issue. Most of the respondents perceived that the benefits derived from statutory audit outweighed its costs, and thus, mandatory audit should be retained. Nonetheless, the views of other stakeholders of statutory audits are also pertinent. This paper reviews the previous research on the issue of voluntary audit in Malaysia and other countries, some of which surveyed the perceptions of the directors and management of small companies. These studies revealed that companies which perceived that they would benefit from the audit would continue to have their accounts audited. Thus, clients of audit firms which produced quality audit work might continue to have their accounts audited, and such audit firms, immaterial of their sizes, could survive even if audits for small companies were made voluntary.