Companies Act: A New Era for Audited Financial Statements

In June 2024, private limited companies in the Maldives were racing to meet the deadline for submitting their annual financial statements to the Maldives Inland Revenue Authority (MIRA). However, this year's submissions were far from routine. This was the first-time companies filed their financial statements under the recently introduced Companies Act (Law Number: 07/2023), which came into effect on 1 January 2024.

The Old versus the New
Prior to 2024, the repealed Companies Act required all private limited companies, regardless of size or revenue, to appoint an auditor and submit audited financial statements on an annual basis. This blanket requirement has been replaced by a new approach under the new Companies Act.

The New Audit Threshold
According to the new Companies Act, a company must submit audited financials only when "required to do so." While the Act is silent on the specifics of this requirement, section 102 (b) of the Income Tax Regulations provide the required clarity.

According to the said regulation, a private limited company with annual revenue exceeding MVR 10 million must submit the audit report to MIRA. This means that companies with revenue below this threshold are exempt from this requirement and may instead opt to submit unaudited financial statements.

Key Takeaways for Private Limited Companies
If your company has less than MVR 10 million in revenue, you are not required to engage an auditor or submit audited financial statements.

More than MVR 10 million in revenue requires your company to appoint an auditor and submit audited report.

This change represents a significant departure from the previous regime, potentially reducing the administrative burden on smaller businesses while ensuring that larger companies, with greater economic leverage, maintain the rigor of audited financial reporting.

Why This Matters
The deadline of 30 June served as the first major test for this new framework. The transition to a revenue-based threshold for auditing requirements could have significant implications for businesses, especially SMEs in the Maldives:

●     Cost savings: Smaller businesses can avoid the expenses associated with audits.

●     Streamlined Processes: Lower administrative burden for businesses below the threshold.

●     Focused Oversight: Resources can be directed towards auditing larger companies with a greater economic impact.

Need Help?

If you are a private limited company in the Maldives and have questions about how the new Companies Act and MIRA regulations will affect your auditing obligations, we recommend that you seek professional help.

Our firm is well-versed in these changes and can provide tailored guidance to help your company stay compliant while optimizing its financial reporting processes.