ISSN: 2225-8329
Open access
Small and Medium Enterprise (SME) companies in Malaysia have been given an opportunity for not having their financial statements to be audited under audit exemption regulations. However, there are companies voluntarily demanding for financial audit. Thus, this study examined the factors influencing voluntary audit among SME companies in Malaysia. Three factors were chosen namely, firm size, related stakeholder, and internal control towards voluntary audit. Using a survey questionnaire as the research instrument on 122 of SMEs, the results show that there is a significant positive relationship of related stakeholders and internal control in influencing voluntary audit among SME companies in Malaysia. Firm size however shows an adverse result by the significant negative relationship towards voluntary audit. The findings also prove that all the three factors have significant influence on SMEs in demanding for voluntary audit with related stakeholder appears as the strongest predictors in this study. This study achieved all of the three objectives. It provides further understanding from the SMEs viewpoint and the agreeableness to demand for voluntary audit despite the exemption provided by the regulators. Furthermore, the study also provides significant implications to the practical view for SME companies and accounting firms, and to academic view as the study may contribute to the researchers and educators on the view of voluntary audit after the regulation has taken place.
Abdel-Khalik, A. R. (1993). Why do private companies demand audit? A case for organizational loss of control. Journal of accounting, auditing & finance, 8(1), 31-52.
ACCA. (2020). Internal Control. Available at:
https://www.accaglobal.com/ca/en/student/exam-support-resources/fundamentals-exams-study-resources/f1/technical-articles/internal-controls.html
Allee, K. D., & Yohn, T. L. (2009). The demand for financial statements in an unregulated environment: An examination of the production and use of financial statements by privately held small businesses. The accounting review, 84(1), 1-25.
Bulatovic, M., & Treis, O. (2016). The impact of firm characteristics on voluntary auditing in Sweden.
Cheng, W. K., Beh, C. W., Lim, S. M., Teoh, Y. Y., & Thong, J. M. (2019). Reasons against audit exemption among SME companies in Malaysia (Doctoral dissertation, UTAR).
Carey, P., Simnett, R., & Tanewski, G. (2000). Voluntary demand for internal and external auditing by family businesses. Auditing: a journal of practice & theory, 19(s-1), 37-51.
Chan, W. M. (2012). Exemption of annual audit for small companies: A review. Pertanika Journal of Social Sciences & Humanities (JSSH), 20(1), 1-10
Clatworthy, M. A., & Peel, M. J. (2013). The impact of voluntary audit and governance characteristics on accounting errors in private companies. Journal of Accounting and public policy, 32(3), 1-25.
Collis, J. (2008). Directors’ views on accounting and auditing requirements for SMEs. Londres: Department of Business, Enterprise and Regulatory Reform.
Collis, J. (2010). Audit exemption and the demand for voluntary audit: A comparative study of the UK and Denmark. International journal of auditing, 14(2), 211-231.
Collis, J., Jarvis, R., & Skerratt, L. (2004). The demand for the audit in small companies in the UK. Accounting and business research, 34(2), 87-100.
Corporate Law Reform Committee. (2007). A consultative document on creating a conducive legal and regulatory framework for businesses. Available at: https://www.ssm.com.my/files/clrc/consultation_documents/cd7.pdf
Dedman, E., Kausar, A., & Lennox, C. (2014). The demand for audit in private firms: recent large-sample evidence from the UK. European Accounting Review, 23(1), 1-23.
Department of Statistics Malaysia (2018). Small and medium enterprises (SMEs) performance 2017. Available at:
https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=159&bul_id=cEI0bklpZHJaTlhRNDB3d2ozbnFIUT09&menu_id=TE5CRUZCblh4ZTZMODZIbmk2aWRRQT09
Deumes, R., & Knechel, W. R. (2008). Economic incentives for voluntary reporting on internal risk management and control systems. Auditing: A Journal of Practice & Theory, 27(1), 35-66.
Doxopoulou, K. (2016). Voluntary Audit. School of Economics, Business Administration & Legal Studies. Available at:
https://repository.ihu.edu.gr//xmlui/handle/11544/14536
Frost, J. (2017). How to interpret R-squared in regression analysis? Statistics by Jim.
Ghani, E. K., Munir, S. M. I., Zam, Z. M., & Sukmadillaga, C. (2020). Factors influencing voluntary audit among small and medium enterprises: The Malaysian evidence. Humanities and Social Sciences Letters, 8(1), 23-35.
Ha, H. H., & Nguyen, A. H. (2020). Determinants of Voluntary Audit of Small and Medium Sized Enterprises: Evidence from Vietnam. The Journal of Asian Finance, Economics, and Business, 7(5), 41-50.
Haapamaki, E. (2018). Voluntary auditing: A synthesis of the literature. Accounting in Europe, 15(1), 81-104
Hair, J. F., Jr., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate Data Analysis: A Global Perspective (7th ed.). Upper Saddle River: Prentice Hall.
Haron, H., Ismail, I., Ganesan, Y., & Hamzah, Z. (2016). Audit exemption for small and medium enterprises: Perceptions of Malaysian auditors. Asian Academy of Management Journal, 21(2), 153.
Hay, D., & Davis, D. (2004). The voluntary choice of an auditor of any level of quality. Auditing: A journal of practice & theory, 23(2), 37-53.
Hinkle, D. E., Wiersma, W., & Jurs, S. G. (1998). Applied statistics for the behavioral sciences (4th Ed.). Boston, MS: Houghton Mifflin.
Ismail, H., & Boon, L. L. (2012). Mandatory Audit of Small Business in Malaysia: Owners’ Perspective. In 3rd International Conference on Business and Economic Research (3rd ICBER 2012) Proceeding, Bandung, Indonesia. Retrieved from https://core. ac. uk/download/pdf/153804406.pdf
Kamarudin, N., Abidin, Z. Z., & Smith, M. (2012). Audit exemption among SMEs in Malaysia. Asian review of accounting.
Kausar, A., Shroff, N., & White, H. (2016). Real effects of the audit choice. Journal of Accounting and Economics, 62(1), 157-181.
Khairinuddin, E. A. (2005). Audit Exemption of Small Private Limited Companies: A Malaysian Perspective from the Small and Medium Enterprises Viewpoint (Doctoral dissertation, Fakulti Perniagaan dan Perakaunan, Universiti Malaya).
Khairuddin, E. A., Devi, S. S., & Chan, W. M. (2012). Audit exemption for Malaysian SMEs: Does ownership matter? Journal of Accounting Perspectives, 5, 1-22.
Kline, R. B. (2005), Principles and Practice of Structural Equation Modeling. (2nd ed.). New York, NY: Guilford Press.
Knechel, W. R., & Willekens, M. (2006). The role of risk management and governance in determining audit demand. Journal of Business Finance & Accounting, 33(9?10), 1344-1367.
Shrestha, L. B. K., & Wai, H. H. (2011). Audit from Audit Exempted Small and Medium-sized Entities (SMEs) in Sweden.
Lennox, C. S., & Pittman, J. A. (2011). Voluntary audits versus mandatory audits. The accounting review, 86(5), 1655-1678.
Likert, R. (1932). The likert-type scale. Archives of Psychology, 140(55), 1-55.
Malaysian Institute of Accountants. (2016). Why Audit Matters to SMEs. Available at: https://www.mia.org.my/v2/downloads/resources/publications/smp/2016/12/14/MIA_Why_Audit_Matters_to_SMEs.pdf
Minnis, M. (2011). The value of financial statement verification in debt financing: Evidence from private US firms. Journal of accounting research, 49(2), 457-506.
Mohamed, W., Yasseen, Y., & Omarjee, F. Z. (2019). The perceptions of South African accounting practitioners on the post-implementation of IFRS for SMEs in an institutionalised environment. Journal of Economic and Financial Sciences, 12(1), 1-11.
Montero, E. L., Lopez, R. G., & Guzman, S. M. A. (2020). Financial auditing benefits: Perspective of the SMEin Celaya, Guanajuato. Acta Universitaria, 30(1), 1-15.
Mustapha, M., & Yaen, C. H. (2013). Demand for voluntary audit by small companies in Malaysia. Management and Accounting Review (MAR), 12(2), 73-88.
Mustapha, M., Yaen, C. H., & Ismail, H. (2015). Agency theory and demand for audit by small businesses. Sains Humanika, 5(2).
Niemi, L., Kinnunen, J., Ojala, H., & Troberg, P. (2012). Drivers of voluntary audit in Finland: to be or not to be audited? Accounting and business research, 42(2), 169-196.
Norhisham, B. A. (2017). Malaysia introduces audit exemption for certain private companies. 267(1), 2016–2018. Available at: https://www.inhousecommunity.com/article/malaysia-introduces-audit-exemption-certain-private-companies/
Nunnally, J. C. (1978). Psychometric theory. 2nd edn: McGraw-Hill: New York.
Ojala, H., Collis, J., Kinnunen, J., Niemi, L., & Troberg, P. (2016). The demand for voluntary audit in micro-companies: Evidence from Finland. International Journal of Auditing, 20, 267-277.
Othman, R., Abidin, Z. Z., & Thirumanickam, N. (2013). Directors? View on Exemption from Statutory Audit. Asian Journal of Empirical Research, 3(10), 1277-1290
Porter, B., Simon, J., & Hatherly, D. (2003). Principles of external auditing. John Wiley & Sons.
PricewaterhouseCoopers. (2018). What is an audit? Available at: https://www.pwc.com/m1/en/services/assurance/what-is-an-audit.html
Raximova, G. M., Abdulxayeva, S., & Pirimkulov, O. M. (2020). Features of Audit of Small and Medium-Sized Enterprises. Theoretical & Applied Science, (6), 101-105.
Seven Pillars Institute. (2018). Agency Theory. Available at: https://sevenpillarsinstitute.org/ethics-101/agency-theory-2/
SME Corporation Malaysia. (2018). Annual Report 2018/2019. Available at: https://www.smecorp.gov.my/index.php/en/resources/2015-12-21-11-07-06/sme-corp-malaysia-annual-report
Suruhanjaya Syarikat Malaysia. (2017). Audit Exemption For Selected Categories of Private Companies, Available at: https://www.ssm.com.my/Pages/Publication/Press_Release/2017/Audit-Exemption-For-Selected-Categories-Of-Private-Companies.aspx
Tauringana, V., & Clarke, S. (2000). The demand for external auditing: managerial share ownership, size, gearing and liquidity influences. Managerial Auditing Journal.
Tavakol, M., & Dennick, R. (2011). Making sense of Cronbach's alpha. International journal of medical education, 2, 53.
The Malaysian Reserve. (2020). SMEs’ contribution to GDP to fall in 2020. Available at: https://themalaysianreserve.com/2020/07/24/smes-contribution-to-gdp-to-fall-in-2020/
The Star Online. (2017). Who needs to be audited? Available at: https://www.thestar.com.my/business/business-news/2017/01/14/who-needs-to-be-audited
Varici, I. (2013). The relationship between information asymmetry and the quality of audit: An empirical study in Istanbul Stock Exchange. International Business Research, 6(10), 132.
Weik, A., Eierle, B., & Ojala, H. (2018). What drives voluntary audit adoption in small German companies? International Journal of Auditing, 22(3), 503-521.
Yusarina, M. I., Zuraidah, M. S., Lee, T. H., & Mazurai, M. (2012, November 9-12). Audit exemption in Malaysia: A study on the clients’ level of acceptance. 13th Annual Conference of Asian Academic Accounting Association, Kyoto, Japan.
In-Text Citation: (Suman & Ismail, 2023)
To Cite this Article: Suman, S. A., & Ismail, A. H. (2023). Factors Influencing Voluntary Audit among SME Companies in Malaysia. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(1), 115–135.
Copyright: © 2023 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode