What are audit adjustments and what should I do when the auditor proposes them?
Audit adjustments are corrections the auditor proposes to your accounts, such as missing accruals, wrong cut-off or depreciation. Management decides whether to post them. If material errors are not corrected, the auditor may modify the opinion.
What they are. During the audit, the auditor may find that figures differ from what the evidence supports. Common causes include:
- expenses or income recorded in the wrong period (cut-off);
- missing accruals or prepayments;
- depreciation or impairment errors;
- stock valued above cost or net realisable value;
- unrecorded or unrecoverable debts;
- tax or director-balance misclassification.
Types
- Adjusting entries that change the numbers.
- Disclosure changes in the notes.
- Passed (unadjusted) differences the auditor considers immaterial.
What to do
- Ask for the list in writing with the reasoning and evidence.
- Check with your bookkeeper or accountant. Challenge anything that looks wrong.
- Post agreed entries in your ledger so the books match the accounts.
- Re-run any dependent items, such as tax computation (outside this section).
- Keep a record of what changed.
If you disagree. The directors are responsible for the financial statements (section 248), but the auditor is responsible for the opinion (section 266(2)). If a material error stays uncorrected, the auditor may qualify the report, and must explain reasons if not satisfied (section 266(2)(e)).
Learn from them. Repeat adjustments point to weak year-end procedures.
Legal basis
- Companies Act 2016, s.248
- Companies Act 2016, s.266(2)
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- Does every Sdn Bhd in Malaysia need to be audited?Not every one, but audit is the default. Section 267(1) of the Companies Act 2016 requires a private company to appoint an auditor for each financial year, unless it qualifies for and elects the audit exemption set by SSM's Practice Directive 10/2024.
- What is audit exemption for private companies in Malaysia?Audit exemption lets an eligible private company choose not to appoint an auditor for a financial year. It rests on section 267(2) of the Companies Act 2016 and SSM Practice Directive 10/2024. The company still prepares and lodges unaudited financial statements.
- What are the audit exemption thresholds for a Sdn Bhd in 2026?For financial periods starting 1 January to 31 December 2026 (Phase 2), a private company must meet at least two of three tests: revenue up to RM2,000,000, total assets up to RM2,000,000, and no more than 20 employees. Each test covers the current and past two years.
- How do I check if my Sdn Bhd qualifies for audit exemption?Pass at least two of three tests (revenue, total assets, employees) for the current financial year and the past two, using the limits for the phase your period falls in. Also confirm you are not an excluded company type, such as a subsidiary of a public company.
- Is a dormant company exempt from audit in Malaysia?Yes, if it has been dormant since incorporation or was dormant in both the current and immediately preceding financial year. A company is dormant when it carries on no business and has no accounting transaction, ignoring payments it must legally make.