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Chapter 1 : An Overview of the financial reporting in Malaysia

.: A Historical Perspective :.
1. Companies Ordinance 1940 , 1946 and 1956
2. Malaysian Companies Act 1965

Malaysian
Companies Act
1965
established the
reporting
requirement,rules
and regulation on
accounting
-

Ninth Schedulespecifies disclosure


requirement in
financial statement

Providing information that is useful to users in making economic


decision
3. Malaysian Institute of Certified Public Accountants (MICPA) 1958
- Private sector accountancy body that carry title certified public
accountant (CPA)
- First accounting guidance in 1968
- 1978 MICPA adopt International Accounting Standards (IASs)
after be member of Internationall Accounting Standard
Committee (IASC)
- 1978 (IASs 1 to 4) were adopted
- 1984 issued Malaysian Accounting Standard (Mas1) on Earning
Per Share
- Proses adopting IASs & Develop MASs continued until 1997
when MASB established
4. Malaysian Institute in Accountants (MIA) 1967 under Accountant
Act 1967
- Private sector accountancy body , and its regulations cover the
practices of the whole accounting profession in Malaysia
- 1987 MIA were elevated to that of a national accountancy body
& begin issue accounting standards
5. Securities Commission Malaysia (SC) established on 1/3/1993
under SC Act 1993
- Has investigative and enforcement power
- SCs ultimate responsibility is protecting the investor
- SC encourages and promotes the development of the securities
and futures markets in Malaysia
.: The Current Financial Reporting Regime :.
- 1996 Malaysian Government announced to establish new
financial aacounting & reporting
- 6/3/1997 Financial Reporting Acr 1997 was gazette
- Two body established :
i)
Financial Reporting Foundation FRF
ii)
Malaysian Accounting Standards Board MASB
- Function FRF set in section 4(1) FRA :

a) To provide its view to MASB on any matters that MASB


seeks to undertake or implement in relation to the MASBs
function of issuing, reviewing,developing app acc standard
b) Review the performance MASB
c) Be responsible for all the financing arrangement for the
operation of MASB including approving budget MASB
d)
Perform other function as Minister of Finance may
prescribe by order published in the Gazette
Function of MASB :
a)
Issue new accounting stand as app acc stand
b)
Review,revise,adopt as app acc stand, existing acc
stand
c)
Issue statement of principle for financial reporting
d)
Sponsor/undertake development of possible acc stand
e)
Conduct such public consultation as may be necessary
in order to determine the contents of acc concepts, principles &
standards
f)
Develop a conceptual framework for the purpose of
evaluating proposed acc stand
g) Make such changes to the form and content of proposed acc
stand as it considers necessary
h) Perform such other function as minister of finance may
prescribe by order published in the Gazette
.: Statutory Regulations on Financial accounting and Reporting :.
Financial Reporting Act 1997
- Financial statements are required to be prepared or lodge under
any law administered by the SC, Central bank or Registrar
Companies & app accounting standard have been issued or
adopted by MASB
.Companies Act 1965
- For proper accounting record , account must be recorded and
kept :
~ in such manner to make them easy to audit
~ within 60days of completion of transaction to which they relate
~ for 7 years after the completion of the related transaction/
operation
~ at registered office
- Local parent company must ensure within 2years after any
corporation become subsidiary, the financial year of that
subsidiary coincide with financial year
- First annual general meeting of shareholders should held not
later than 18months after date of incorporation
- Annual general meeting must held once in every calendar year &
not more than 15months from the last annual general meeting
- Directors of every company must present this statement:
~ audited profit & loss acc
~ audited balance sheet
~ directors report on the state of affairs of company & group must
accompany the financial state
- Audited financial state&auditors report must sent to all
shareholder not less than 14days b4 annual general meeting

Every company must lodge its annual return with the


Commissioner of Companies within 1month or 2month if branch
register outside Malaysia after annual general meeting
- Particular in ann.return of companies having a share/not should
up to date of general meeting/date not late than 14day after meet
Income tax Act 1967
- Income tax payable is tax expense & charged in income
statement
- Extent unpaid is current liability in balance sheet
- Recipient shareholder record dividend income at gross mount &
taxed on the gross income
Regulation by The SC
- Capital Markets and Services Act 2007(CMSA) enacted to
secure Securities Industry Act 1983&Futures Industry Act 1993
to regulate&sediakn matter brkaitn aktvt,markets& intermediaries
in capital market&consequential&incidental thereto
- CMSA has to submit
~ copy of audited annual acc within 2weeks from date
~ interim&periodic report segera lps figure available
~ listed corporation&director should kept such acc report
~ corporation shall retain the record for 7years after completion
of transaction
The Audit Oversight Board
- AOB established under part 111A of SC Act 1993
- Mission: bantu SC overseeing auditor of public interest entities &
protect interest investor by promote confidence in quality &
reliability of audited financial state of public interest entities
- AOB suruh semua auditor berdaftar
- AOB ad kuasa utk pantau program on registered auditor to asses
extent of their compliance with recognized auditing&ethical stand
Regulation by Bursa Malaysia
- Exchange holding co. incorporated under Section15 CMSA2007
to regulate co. listed on its exchange
- Not have legal power to enforce compliance
- Page 14
Regulation by Bank Negara Malaysia
- BNM/GP3: classification of non-performing loan & provision for
substandard,bad & doubtful debt
- BNM/GP8: guideline on financial reporting for licensed institution
- GP3 dikenalkan 1985 to streamlining method of income
recognition and loan loss provisioning for the purpose of financial
reporting by financial institution
- GP8 dikenalkan dec1988 to standardize format of financial report
for bank & finance co.
.: Accounting Standard Pronouncement in Malaysia :.
Pronpuncement b4 current financial reporting regime
- Before MASB, MIA and MICPA diorang blh control member
diorang je
- Diorang follow International Acc Stand (IASs) & Malaysian Acc
Stand (MASs)

MIA ,MICPA conduct review of financial state prepared & audit


by their member
- Two professional body stop issue acc stand after financial
reporting act gazette in March 1997
Pronouncement under current financial reporting regime
~ Due Process MASB b4 2004
~ Due Process MASB after 2003
- MASB start convergence work in2004 to align its stand with IASB
- MASB stand rename Financial Reporting Stand(FRSs) in 2004 &
FRS represent FRS Framework
- Aug2008 FRF&MASB announce plan to bring Malaysia to full
convergence with IFRS 1Jan2012
(Stage 1: seek public comment on IASB)
- Due date for public to submit comment on MASB one month
before IASB comment deadline to allow MASB working grou &
MASB Board consider the comment before submit to IASB
(Stage 2: deliberation on WG level on IASB draft pronoun)
- Pronoun deliberated in WG meeting to provide comment&
recommendation to issue raise in pronoun MASB
(Stage 3: Deliberation at MASB)
- The comment tabled at MASB for deliberation & consideration ,
after that comment letter prepared&submit to IASB
(Stage 4: Issuance of Stand by IASB)
- WG deliberate on changes made if any & make recommendation
on IFRS .
(Stage 5: Issuance of standard by MASB)
- MASB consider WG recommend & after delibration app IFRS
adopt as FRS
- Copy FRF present to FRF members for comment b4 FRS issued
as app acc stand in MAS
Private entity reporting Stand
- 2006 MASB announce their private entity in MAS need not
comply with FRSs
- PERS is a set of acc stand issue or adopt by MASB for
application by all private entity. The private entity for this purpose
is company incorporated under CA1965 :
~ not required prepare or lodge any financial state under any law
administered by SC or BNM
~ not subsidiary or jointly controlled by an entity which is required
to prepare or lodge any financial state under any law
administered by SC or BNM
Future Pronoun-IFRS-compliant Financial Reporting Stand
- MASB issue an omnibus Exposure Draft MASB EB75, IFRScompliant financial reporting stand (FRSs)

C2: CONCEPTUAL FRAMEWORK.


.: Reason need acc Framework :.
- Provide starting point
- Formulation of high-quality & consistent reporting stand
- Identify a foundation for financial reporting
- Identify objective of financial reporting
- Identify desirable qualitative characteristic of FR
- Serve reference point for resolving acc issue
- Make preparer&other users understand better of FR
.: MASbs Conceptual Framework for FR :.
- July 1998, MASB issue discussion paper MASB DP1, framework
for preparation&presentation of FS.
- July 2007 discussion paper finalized as MASB Framework
- Purpose of Framework :
Help MASB develop future MFRS &its review of existing MFRS
Help prepare financial state in applying MFRS& dealing with
topic that have yet to form the subject of an MFRS
Help auditor forming opinion as to whether financial state
follow the MFRS
Help user of financial state interpret info contained in financial
state prepared
Provide info about the formulation of MFRS to who are
interested in work of MASB
- The framework deals with
Objective of financial state
Qualitative characteristic that determine usefulness of info in
financial state
Definition,recognition & measurement of element from which
financial state are constructed
Concept of capital & capital maintenance
.: The objective of General Purpose of Financial Reporting :.
- To provide information to follow law & regulation
- Provide info to all users including meeting the social need of
society
- Provide info to specific groups of users
.: Economic Resources and Claims :.
- Economic Resources asset
- Claims : Equity and Liabilities
- The info help user to identify the strength and weakness of
entitys financial , help use assess the reportings liquidity and
solvency
- Info about priorities&payment requirement of existing claim help
user predict how future cash flow will be distributed among those
with claim against the reporting entity
.: Changes in ER&C :.
- Changes result from entitys financial performance & other
transaction
- Info financial performance help user understand the return that
entity produced on its economic resources
- Provide indication how well management discharged its
responsibilities

Info variability and components of return important in assessing


the uncertainty of future cash flow
- Info reporting entitys past financial performance&how its
management discharged its responsibilities is helpful in predict
the entitys future return on its economic resources
.: Financial performance reflected by Accrual Accounting :.
- AA show effect of transaction&other event&circumstance on a
reporting entitys economic resources&receipt&payment occur in
diff period
- AA provide better basis for assessing the entitys past and future
performance than info solely about cash receipt&payment during
period
- It explain that changes in reporting entitys economic resources
and claims other than obtaining additional resources directly from
capital providers are useful in assessing that entitys past and
future to generate net cash flow
.: Financial performance reflected by past cash flow :.
- Help user to assess the entitys ability to generate future net cash
inflow
- Help user understand a reporting entitys operations, evaluate its
financing&investing activities, asses liquidity or solvency and
interpret other info about FP
.: Changes in ER&C not resulting from FP :.
- Issuing additional ownership share
- Info this type of change is necessary to inform user why the
reporting entitys ER&C changed & the effect of changes
.: Qualitative Characteristic of useful Financial Info :.
- Fundamental Qualitative
How information affect the decision making process of users
Info is relevant when it influence the economic decision by help
them evaluate past,present&future event,corfim,correct their past
Financial info has predictive value if it can be used as an input to
processes employed by user to predict future outcome
Confirmatory value it provide feedback about previous evaluation
Judgement need to decide the info is relevant to user or not
Materiality
An entity-specific aspect of relevance base on nature or
magnitude or both of items to which the info relate in contect of
an individual entitys financial report
Completeness
A complete depiction include all info necessary for user to
understand the phenomenon including the descripyions and
explainations
Neutrality
Without bias in selection presentation of financial info
Info should be not bias so user can free make their judgement
Info should base on fact and supportive evidence rather than
personal opinion
Free from error

There are no error or omission in description of phenomenon&


process used to produce reported info
.: Step Applying fundamental qualitative characteristic :.
Identify economic phenomenon that has potential to be useful to
user of reporting entity
Identify the type of info about the phenomenon that most relevant
if it available and can be faithfully represented
Determine whether info is available and can be faithfully
represented

~ ada arising yg ta masuk income state tp masuk equity (gain


arising from revaluation of fixed asset)
Expenses
~ decrese in economic benefit during the accounting period in the
form of outflow or depletion of asset
~ expenses arise in ordinary course of busines(cost of good sold)
~loses realize or unrealized
Capital Maintenance and adjustment
~ revaluation of asset and liabilities give rise to increase or
decrease income state
.: recognition of the element of financial state :.
Comparability
- Concerned with what an entity discloses as item in the
Info can is more useful if can be compared with similar info in
statement of financial position or income state
same entity & similar info in other entity for another period
- Recognition criteria :
Can compared with other company
It is probable that any future economic benefit associated with
Characteristic comparability is achived when financial state
the item will flow to or from entity
present in consistent way
The item that has cost or value that can be measured with
Verifiability
reliability
Help user that info faithfully represent the economic phenomena
.: measurement of the elements of financial statement :.
it purpose to represent
- Concerned with how much an entity allocate to amount
It mean , diff knowledgeable&independent observer can agree
recognized as elements in the statement of financial position or
Direct : counting cash to verify amount of depicted
income state
Indirect : checking input to a valuation model&recalculating the
Proses of determining the monetary amount at which the
output using same method
element of financial state are to be recognized and carried in
Timeliness
income state
Having info available to decision-makers in time to be capable of
influencing their decision
Understandability
Financial info can be read and understood by user
Ta bermakna benda complex tayah tunjuk dlm financial info , jd
tugas reader utk make sure depa ada acc skill utk paham
Element of financial position
Assets
~ A resouces controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to
the entity
~ beli kereta secara installment . kereta milik bank tp sbb kita ad
control so kereta tu asset kita
~ past event ( transaction mesti dh buat baru dikira asset)
~ Future economic benefit ( potential to contribute benefit )
Liabilities
~ present obligation of the entity arising from past transaction
Equity
~ Residual interest in the assets of an entity after deducting all its
liabilities ( asset-liability=equity)
Element of Performance
Income
~ an increase economic benefits during the accounting period in
the form of inflows or enhancement of asset .
~ revenue arising from ordinary course of bisnes (sales)

C3 : PPE
.: Introduction :.
- PPE : long-term assets which arise from investment decidion of
reporting entities
- PPE classified as tangible when :
Use in production , supply of goods or service , rental to other ,
administrative purpose
Use more than one period
.: Recognition of PPE :.
- PPE recognized as asset if :
It is probable that future economic benefits associated with the
item will floe to the entity
The cost of the item to the entity can be measured reliably
- Classification PPE depend on nature and use of the item
.: Measurement at Recognition :.
PPE purchased for cash
Initial cost :
Purchased price
XXXX
(-) : Trade discount
(XX)
Initial Price
XXX
(-) : Cash Disconut
(X)
Import duty
XX
Delivery fees
XX
Electrical Installation cost
XX
Maintenance cost
XX
Training cost
XX
Pre-production testing
XX
Cost of the ..
XXX
.: Subsequent Cost on PPR :.
- It is an expenditure on asset after it is brought into use

C4 : INVENTORY
Assets
~ A resouces controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to
the entity
- PPE classified as tangible when :
Use in production , supply of goods or service , rental to other ,
administrative purpose
Use more than one period
.: Recognition of PPE :.
- PPE recognized as asset if :
It is probable that future economic benefits associated with the
item will floe to the entity
The cost of the item to the entity can be measured reliably
Definition inventories :