(SSM UPDATE) SSM's Inspection on Section 245: A Reminder That Accounting Records Are Not Optional

(SSM UPDATE) SSM's Inspection on Section 245 : A Reminder That Accounting Records Are Not Optional

Introduction

You file your annual return on time. You lodge your financial statements when they are due. On paper, your company looks compliant.

Now ask yourself a harder question.

If an SSM officer walked into your registered office tomorrow and asked to inspect your accounting records, could you produce a clean, complete set that explains every transaction behind those financial statements? For a growing number of companies, that is no longer a hypothetical.

Why section 245 of the Companies Act 2016 matters

Section 245 of the Companies Act 2016 requires a company, its directors and its managers to keep accounting and other records that sufficiently explain the transactions and financial position of the company, and that allow true and fair financial statements to be prepared and conveniently audited.

Those records must be retained for 7 years, kept at the registered office or another place the directors think fit, and be open at all times for inspection by the directors.

This is easy to treat as an audit convenience. It is not. It is a standalone statutory duty that sits on the company and on every officer, and it applies whether or not your company is audited.

The penalty exposure

The exposure under the Companies Act 2016 is real. On conviction, the company and every officer in default may be liable to a fine not exceeding RM500,000 or imprisonment for a term not exceeding 3 years, or both.

Note who carries that risk. The offence bites on the company and on every officer in default, so a director cannot pass the liability down to the bookkeeper or the outsourced accountant. The statutory responsibility stays with the company and its officers.

What SSM is actually doing

This is where the picture has shifted from passive expectation to active monitoring.

In its Corporate Compliance Division updates covering 1 January 2025 to 31 October 2025, SSM recorded 89 physical inspections on accounting records under section 245 of the Companies Act 2016, read together with section 69 of the Limited Liability Partnerships Act 2012.

Those inspections sat within a far wider compliance programme, including targeted physical and data inspections of exempt private companies under section 47, extensive internet monitoring, and large scale data monitoring across the register.

SSM is not only checking that financial statements are filed. It is going behind the filing to test whether the records that should support those statements actually exist and hold together. Over the same period, the compliance rate for financial statements sat noticeably below the rate for annual returns, which tells you the regulator knows exactly where the soft spots are.

Read against SSM's published enforcement posture, the message is that records are being tested for substance, not form. A company that files a tidy set of accounts but relies underneath on fragmented workpapers, missing invoices or unreconciled ledgers may still be exposed.

Governance implications

Treat section 245 as a board level control, not a back office chore.

Directors should be able to point to documented processes for bookkeeping, source document retention, month end and year end close, and periodic review of the integrity of the accounting records.

Where the finance function is outsourced, the board still owns the outcome, so keep evidence of oversight and supervision rather than assuming the service provider has it covered.

A well organised compliance file today is often the cheapest defence against an enforcement letter tomorrow.

Practical steps for companies

The sensible move is to tighten your own controls before SSM tests them for you. At a minimum:

Check that source documents, invoices, receipts, vouchers and bank statements are retained systematically and can be located quickly, not reconstructed under pressure.

Confirm that your ledgers reconcile to your bank statements and to your tax records, and that the workpapers behind your financial statements are complete and accessible.

Refresh your document retention policy against the 7 year requirement, and assign clear ownership of the statutory records, especially where a finance team or a shared service provider handles several entities at once.

For directors, the goal is simple. Be able to demonstrate not merely that records are kept, but that they are kept properly.

KTP's View

Section 245 has quietly moved from the background to the front line. SSM is inspecting accounting records on the ground, and the exposure behind a weak set of books is a fine of up to RM500,000, up to 3 years in prison, or both, resting on the company and its officers personally.

The risk is no longer theoretical, and the cost of poor record keeping now runs beyond an awkward audit finding. In this enforcement climate, strong accounting records are not just good housekeeping. They are a legal safeguard, and the time to put them in order is before the inspection, not after it.

Source: Companies Commission of Malaysia (SSM), Corporate Compliance Updates, presented by En. Ahmad Husainy Shuid, Senior Manager, Corporate Compliance Division, SSM. Compliance activity figures cover the period 1 January 2025 to 31 October 2025. Available at ssm.com.my.

This article is general information and is not advice on any specific company or transaction. For a position on your own records or compliance exposure, speak to professionals directly.

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