Cutting audit costs may lead to greater losses than gains
As published in Nanyang Siang Pau (6th April 2026) translated into English
(Kuala Lumpur, 5th April) As the regulatory environment becomes increasingly stringent and business operations grow more complex, audit and compliance costs are becoming an increasingly important issue in corporate financial management.
Faced with rising compliance requirements, some companies may be inclined to control expenses by cutting their audit or compliance budgets. However, industry experts warn that this approach could actually increase long-term business risks.
Grant Thornton Malaysia pointed out that in today’s business environment, companies should not only view audit and compliance purely as administrative costs, but rather re-examine their strategic value from the perspectives of risk management and corporate governance.
The firm believes that if companies can establish a more efficient audit and compliance framework, they can not only reduce the risk of non-compliance, but also improve operational processes and enhance the confidence of investors and regulators.
Mr Hooi Kok Mun, National Audit Practice Leader of Grant Thornton Malaysia said in an interview with this newspaper, that although companies generally feel that audit and compliance costs are rising, from an international perspective, the Malaysian market is still in a “catch-up phase.”
He said a partner from a U.S. firm once told him that some audit fee levels in Malaysia were comparable to those in Bangladesh.
“While I do not deny that costs are indeed rising, we must understand that Malaysia as a whole is still catching up to international standards.”
Cost Pressure More Pronounced for Public Interest Entities
He pointed out that the rise in audit and compliance costs in recent years is mainly due to the increasingly complex regulatory requirements and business environments.
“We are seeing companies become increasingly dependent on technology and data, while expectations around governance, risk, and internal controls have also risen significantly. This means businesses need to invest more resources into technology systems and talent with the right capabilities.”
Not all companies face the same level of cost pressure.
Hooi Kok Mun noted that Public Interest Entities (PIEs) including listed companies, banks, and insurance firms have experienced a more noticeable increase in audit costs.
These entities typically have more complex business structures and are subject to stricter regulatory requirements, thus demanding a higher level of expertise from auditors.
“Especially for companies operating in complex industries, fee increases tend to be more significant because the number of firms capable of providing such audit services is limited.”
In contrast, while SMEs are also facing higher compliance costs, the increase may not be as significant as that experienced by larger companies.
“Personally, I believe the increase in costs faced by SMEs is not as pronounced as that faced by larger enterprises.”
Looking ahead, he believes audit and compliance costs may continue to rise over the next two to three years, although the pace of increase may gradually stabilise.
Audit Fees Unlikely to Significantly Disrupt Corporate Finances
Although rising costs have become a key concern for businesses, Hooi Kok Mun believes that audit fees overall have not yet reached a level that would materially affect financial planning or cash flow management.
“I do not think that the increase in audit and compliance costs will seriously affect a company’s financial planning or cash flow management.”
However, he has also observed that some companies, when faced with cost pressures, would consider switching to a lower-fee auditing firm.
“Every company’s situation is different, so there is no one-size-fits-all solution.”
Weak Internal Controls Could Lead to Greater Losses
He stressed that when making such decisions, companies must still ensure they are meeting the expectations of stakeholders, including investors, suppliers, customers, and regulators.
Grant Thornton Malaysia noted that companies that simply cut audit or compliance budgets may in fact incur higher costs in the long run.
According to the firm’s analysis, weak internal controls can lead to various risks for businesses, including loss of assets, regulatory violations, data security issues, and even business disruptions.
Hooi Kok Mun added that companies that neglect the development of internal control systems may face greater financial risks in the future.
“A lack of internal controls may not only result in financial leakage, but also cause disruption in business operations, ultimately leading to even greater long-term losses.”
Entrepreneurial Mindset May Be a Blind Spot
Hooi Kok Mun observed that some local companies remain relatively cautious when it comes to investing in internal controls and technology systems. Many still view compliance expenses as a passively incurred cost.
“Some companies may, due to a strong entrepreneurial mindset, be accustomed to viewing compliance spending purely as a cost rather than a strategic investment.”
However, he believes this mindset needs to change.
“Strong controls and compliance mechanisms help ensure that a company can continue operating steadily as it expands. Without these foundations, businesses may pay a much higher price in the future.”
Should Be Viewed as a Long-Term Value Driver
Grant Thornton Malaysia noted that companies that establish a robust audit and compliance framework can actually create value in multiple ways.
For example, by strengthening compliance mechanisms, companies can prevent regulatory penalties and reduce potential business risks.
In addition, the compliance review process can help companies identify inefficiencies in their operational processes, thereby optimizing resource allocation and workflow efficiency.
For Chief Financial Officers (CFOs), Hooi Kok Mun believes compliance expenditure should be evaluated from a long-term strategic perspective.
“In the short term, these expenditures may be considered as fixed costs, but in the long run, they help businesses reduce risk and support sustainable growth.”
Five Strategies to Help Manage Costs
In response to rising audit and compliance costs, Grant Thornton Malaysia advises companies to control costs through more efficient management methods, rather than simply cutting audit expenses.
First, companies can adopt a risk-based compliance model, which involves identifying and assessing different risk factors and concentrating resources on high-risk areas.
Secondly, strengthening internal control systems can also help reduce audit costs. If a company's internal controls are sound, external auditors can reduce the amount of detailed testing required, thereby improving audit efficiency.
Third, companies can establish internal audit mechanisms or adopt outsourcing models when resources are limited, in order to identify potential problems in advance.
Fourth, companies can also integrate internal audit, risk management and compliance review functions to reduce duplication of work between different oversight mechanisms.
Fifth, automating some audit processes through technological tools, such as data analysis and continuous monitoring, can also help improve efficiency and reduce labor costs.
Compliance Must Be Viewed Strategically
With the regulatory environment becoming increasingly stringent, rising audit and compliance costs have become an unavoidable trend for businesses.
Hooi Kok Mun believes that if companies can view compliance expenditures from the perspective of risk management and governance, they can not only control costs more effectively, but also lay a more solid foundation for the company's long-term development.
“A sound audit and compliance framework can prevent compliance risks, improve operational efficiency, and enhance the confidence of investors and regulators.”
He stated that companies that view compliance as a mechanism for preserving value and mitigating risks, rather than simply as a cost, will be better able to maintain steady growth in complex business environments.
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![Hooi Kok Mun]()
Hooi Kok Mun Hooi Kok Mun sits in the Executive Committee (ExCo) and is the National Audit Practice Leader of Grant Thornton Malaysia.View Profile
