PAS3363 - Topic 4 - Financial Reporting - NZ

PAS 3363: Accounting Theory & Practices
TOPIC 4
Financial Reporting System in
Malaysia
INSTITUTIONAL FRAMEWORK
 The accounting profession play a key role in enhancing investor confidence
& upholding public interest.
 However, this role cannot be carried out satisfactorily in isolation, therefore
the support of other key institutions is vital.
 Public sector:
 Accountant General’s Office oversees public sector acc. aspects
 Auditors General’s Department undertakes the audit of public sector
entities
 Private sector:
 Securities commission regulate the public listed co’s.
 Central Bank regulates the financial institutions
 Companies Commission of Malaysia regulates all companies
 MASB – accounting standard setting authority
 MIA – provide leadership for accounting profession
2
INSTITUTIONAL FRAMEWORK
Ministry of Finance
Accountant Financial Reporting Securities Companies

General of M’sia Foundation Commission Commission of
Malaysia
M’sian Institute of
Central Bank
Accounting
M’sian Accounting
Standard Board
Public Sector Ent Private Corporate Sector
Auditor General of
Malaysia
The Accounting Profession

Provide accounting, auditing, and assurance services 3
The Corporation / M’sian Accounting
Public Acc Firm Standard Board
Accountant General Securities

of Malaysia Commission
KEY PLAYERS IN
FR PROCESS
M’sian Institute of Bank Negara
Accountants Malaysia
Companies
Auditor General of
Commission of
Malaysia
Msia
4
KEY PLAYERS
ACCOUNTANT GENERAL OF MALAYSIA
 Accountant General of Malaysia strives to improve public sector accountability
by providing excellent accounting services & management information to
various users.
 Among the functions are:
a) Establishing accounting standard for public sector;
b) Provide consultancy on accounting & financial matters to public sector
agency;
c) Preparing monthly accounting financial information;
d) Provide support services (consultancy & training) on micro accounting
system to all government agencies;
e) Managing the Pension Trust Fund, accounting for payments & receipts;
f) Prepare Annual Public Accounts according to provisions & tabled in
Parliament.
5
KEY PLAYERS
AUDITOR GENERAL OF MALAYSIA
 The role of the Auditor General of Malaysia is to aid accountability by
conducting independent audits on the account of Federal Government,
State Government, and Federal Statutory Bodies.
 The mission of AGM is “to be recognised as a key contributor towards
financial management excellence & enhances good governance in the
public sector”.
 Among the objectives of AGM are:
a) To prepare quality & timely audit reports to Parliament & State
Legislatures;
b) To carry out audit activities & prepare reports in an independent &
balanced manner;
c) To fulfill the needs & expectations of stakeholders & auditees;
d) To manage audit activities efficiently & effectively.
6
KEY PLAYERS
SECURITIES COMMISSION [SC]
 SC was set up under the Securities Commission Act 1993.
 SC is a self-funding statutory body with investigation & enforcement powers.
 The function of SC is to promote a strong & healthy securities market and to
maintain the confidence of investors.
 The other functions are:
a) Supervising exchanges, clearing houses & central depositories;
b) Registering the prospectuses for all securities other than unlisted
recreational clubs;
c) Approving authority for corporate bond issues;
d) Regulating all matters relating to securities and futures contracts, unit
trust schemes, & take-over and mergers of firms;
e) Licensing and supervising all licensed persons;
f) Ensuring proper conduct of market institutions and licensed persons.
7
KEY PLAYERS
CENTRAL BANK [BANK NEGARA MALAYSIA]
 The main objectives of the BNM establishment are:
 Issue currency & keep reserves safeguarding the value of the currency;
 Act as a banker & financial adviser to the Government;
 Promote monetary stability & a sound financial structure; and
 Influence the credit situation to the advantage of the country.
 The BNM also is responsible to ensure that the availability money & credit in
the economy are consonant with national macroeconomic objectives.
 The BNM acts as a banker for currency issue, keeper of international
reserves, & safeguard the value of the Ringgit.
 BNM has been vested with comprehensive legal powers under the following
legislation:
 Central Bank of Malaysia Act 1958 (Revised 1994);
 Banking & Financial Institutional Act 1989 (BAFIA); etc.
8
KEY PLAYERS
THE COMPANIES COMMISSION OF MALAYSIA (Suruhanjaya Syarikat
Malaysia-SSM)
 The SSM is a statutory body formed as a result of a merger between the
Registrar of Companies (ROC) & the Registrar of Businesses (ROB) in
Malaysia which regulates companies & businesses.
 SSM came into operation on 16 April 2002.
 The main activity of SSM is to serve as an agency to incorporate companies
& register businesses as well as to provide company & business information
to the public.
 SSM fulfills its function to:
 Ensure compliance with business registration & corporate legislation
through comprehensive enforcement & monitoring activities;
 Enhancement & promotion of the supply of corporate information;
 Acting as agent of Government & provide services in collecting &
enforcing payment of prescribed fees.
9
KEY PLAYERS
 SSM is responsible for the administration and enforcement of the following
legislation:
 Companies Act 2016 (Act 125);

 Registration of Businesses Act 1956 (Act 197);
 Trust Companies Act 1949 (Act 100);
 Kootu Funds (Prohibition) Act 1971 (Act 28);
 Limited Liability Partnerships Act 2012 (Act 743).
10
KEY PLAYERS
MALAYSIAN ACCOUNTING STANDARDS BOARD (MASB)
 The MASB was established in 1997 under the Financial Reporting Act 1997.
 The MASB is an independent standard setting body with representation from
all relevant parties in the standard setting process in Malaysia, including
preparers, users, regulators, academics, & the accounting profession.
 The functions of the MASB the determination & issuance of accounting
standards for the preparation of financial statements which are required to be
prepared or lodged under any law administered by the following regulators:
(a) the Securities Commission.
(b) Bank Negara Malaysia.
(c) the Companies Commission of Malaysia.
 The standards issued or adopted by the MASB are legally binding upon any
published financial statements.
11
KEY PLAYERS
MALAYSIAN ACCOUNTING STANDARDS BOARD (MASB)
 The functions of the MASB are:
 Issue new accounting standards as approved accounting standards;
 Review, revise or adopt as approved accounting standards existing
standards;
 Issue statements of principles for financial reporting;
 Sponsor or undertake development of possible accounting standards;
 Conduct public consultations in order to determine the contents of
accounting concepts, principles & standards;
 Develop a conceptual framework for the purpose of evaluating proposed
accounting standards.
12
KEY PLAYERS
FINANCIAL REPORTING FOUNDATION (FRF)
 The FRF, as a trustee body, has responsibility for the oversight of the
MASB's governance.
 The functions of the FRF are:
 to oversee the carrying out of the functions of the MASB under the FRA
1997, such as providing views to the MASB on any matter which the
MASB seeks to undertake;
 to review the performance of the MASB;
 to be responsible for all financing arrangements for the operations of the
MASB.
 The FRF comprises of twelve members appointed by the Minister of
Finance.
13
KEY PLAYERS
MALAYSIAN INSTITUTE OF ACCOUNTANTS (MIA)
 In 1967, MIA was established under the Accountants Act 1967 as the statutory
accountancy body that regulates, develops, supports & enhances the integrity
& status of the profession while upholding the public interest.
 MIA’s mission is “to develop, support & monitor quality & expertise consistent
with global best practices of the accountancy profession for the interest of
stakeholders.
 MIA’s strategic objectives:
 Develop & enhance the competency of Accountancy Professionals to meet
market demand;
 Advance & enhance the status of members & the accountancy profession in
Malaysia;
 Support & regulate the practice of the accountancy profession in Malaysia
consistent with global standards & best practices.
14
KEY PLAYERS
 MIA’s Functions: Section 6 of the Accountants Act 1967 (the Act) states that
the functions of the Institute shall be:
 To determine the qualifications of persons for admission as members;
 To provide for the training and education by the Institute or any other body,
of persons practising or intended to practice the profession of accountancy;
 To approve the MIA Qualifying Examination(QE), to regulate & supervise
the conduct of that Examination;
 To regulate the practice of the profession of accountancy in Malaysia;
 To promote, in any manner it thinks fit, the interest of the profession of
accountancy in Malaysia;
 To render pecuniary or other assistance to members or their dependents as
it thinks fit with a view to protecting or promoting the welfare of members.
15
PARTICIPATION OF ACCOUNTING PROFESSION
IN STANDARD SETTING. WHY?
 Accounting professionals should set accounting standards because:
 The accountants become the negotiator and consultant for the
government, society and market groups.
 Accountants are the professional people in accounting matters
and have the in-depth knowledge and expertise needed to be
aware of, understand, and solve any matter brought to their
attention.
 Accountants have always held control over accounting standard
setting as a part of the traditional boundaries of its discipline.
 Auditors is more concern about the uncertainties associated with
any revision to the current accounting standards and able to find
any loopholes or shortcomings in the standards issued.
16
FINANCIAL REPORTING SYSTEM
As at 1 January 2015, Malaysian entities are subject to three sets of accounting
frameworks which are issued by MASB.
1) MALAYSIAN FINANCIAL REPORTING STANDARDS (MFRS)
 MFRS framework is mandatory for all entities other than private entities for
annual periods beginning on or after 1 January 2012.
 Private entities are private companies which are incorporated under the
Companies Act 2016, that are not required to prepare or lodge any FS under
any law administered by the SC or BNM.
 However ‘Transitioning Entities’ are excluded from applying MFRS.
 These ‘Transitioning Entities’ are entities that are in the scope of MFRS
141 for ‘Agriculture’ & ‘Agreement for Construction of Real Estate’,
including its parent, significant investor and venture.
 These ‘Transitioning Entities’ have an option to either apply the MFRS
framework or the old FRS Framework.
17
FINANCIAL REPORTING SYSTEM
2) MALAYSIAN PRIVATE ENTITY REPORTING STANDARDS (MPERS)
 MPERS framework is to be applied only by private entities.
 A private entity that has not opted to apply MFRSs shall apply the MPERS
for financial statements with annual periods beginning on or after 1
January 2016.
3) FINANCIAL REPORTING STANDARDS (FRS)

 FRS framework which is the Malaysian version of IAS, which has been the
main accounting standards framework for non-private entities before the
introduction of MFRS framework.
 But the eligible entities will no longer be able to apply FRSs for financial
statements with annual periods beginning on or after 1 January 2017.
18
ENFORCEMENT OF ACCOUNTING
STANDARDS
 The Financial Reporting Act 1997 does not grant the MASB an enforcement
role.
 The enforcement of approved accounting standards falls to the following
parties as stated below:
 According to Section 27 of the Financial Reporting Act 1997,
companies that are required to lodge their financial statements with the
Registrar of Companies, Bank Negara Malaysia and Securities
Commission, must prepare their financial statements in accordance
with approved accounting standards issued by the MASB.
19
DISCLOSURE BASED REGULATION (DBR) by
SECURITIES COMMISSION
 DBR is a market-based approach to regulation which focuses on the
quality of information disclosed by issuers when they issue, offer or list
securities so as to enable investors to make informed investment
decisions.
1993 1996
Merit-based Disclosure-based regulation
regulation (MBR) regime (DBR) regime
 Under MBR, the SC regulates the offering of securities by assessing the

investment merits & pricing of the offering.
 Under DBR, the onus of assessing and determine the investment merit
of any securities rests with the investors whose money is being put at
risk. While the SC regulates the disclosure of material information.
20
MBR vs. DBR
Under MBR Under DBR

 Authorities regulate  Authorities regulate disclosure
securities offerings of information in securities
offerings
 Issuers & advisers disclose  Issuers & advisers disclose to

to authorities investors
 Authorities review  Investors determine

investment merits of investment merits of offerings
offerings
MARKET INTEGRITY &

INVESTOR PROTECTION
21
RATIONALE FOR MOVE TO DBR
 With effect from 2001, the SC has embarked on a full DBR.
 The framework of the securities laws in Malaysia is based on DBR.
Characteristics of DBR can be classified as a system of law which
requires companies to make a public announcement of material
information.
 The main reason for move to DBR is to enhanced regulatory
focus on investor protection.
 The objective of DBR is to promote greater efficiency &
transparency.
 The shift to DBR would:
 increase the efficiency of the market by removing the
deficiencies which exist in an MBR environment;
 inculcate higher standards of disclosure, due diligence &
corporate governance as well as accountability among
promoters & directors of public companies, on their advisers to
investors; and
 facilitate market discipline on pricing and valuation of securities.22
RATIONALE FOR MOVE TO DBR
 With effect from 2001, the SC has embarked on a full DBR.
 The framework of the securities laws in
Malaysia is based on disclosure-based regulations (DBR).
Characteristics of DBR can be classified as a system of law which
requires companies to make a public announcement of material
information.Jul 4, 2016
 The main reason for move to DBR is to enhanced regulatory focus on investor
protection.
 The objective of DBR is to promote greater efficiency & transparency.
 The shift to DBR would:
 increase the efficiency of the market by removing the deficiencies which exist in
an MBR environment;
 inculcate higher standards of disclosure, due diligence & corporate governance
as well as accountability among promoters & directors of public companies, on
their advisers to investors; and
 facilitate market discipline on pricing and valuation of securities.
23
3 TENETS OF DBR
1) DISCLOSURE
 It is the responsibility of directors of PLCs to ensure that all material
information required by the public to make investment decisions is provided
accurately, in full & on a timely basis.
 In disclosing such information, the directors must ask themselves the
following questions:-
 Has any important piece of information been omitted?
 Is any part of the information misleading?
 Is the information complete & accurate?
 Disclosure of information therefore benefits investors by facilitating them to
make investment decisions.
 Companies intending to offer securities to the public are required to fully
disclose information about the affairs of the companies & the securities
which are being offered, in the offering documents or prospectuses.
24
3 TENETS OF DBR
2) DUE DILIGENCE
 In preparing the information to be disclosed to the public, directors of PLCs
must undertake a due diligence exercise to verify & ensure that the
information to be released is accurate & timely.
 Due diligence is a process by which inquiries are conducted to ensure that
information to be disclosed is true, sufficient, & timely.
 Due care must also be given to ensure that there is no omission of
material information.
 Material information is information which would reasonably be expected
by rational investors to facilitate their investment decisions.
 Information that can affect the trading activities & prices of the company's
securities must be released immediately.
 The onus then lies with the investor to consider and weigh the
informationprovided before making decisions.
25
3 TENETS OF DBR
3) CORPORATE GOVERNANCE
 The timely, accurate & transparent disclosure of material information is an integral
component of ensuring good corporate governance.
 Corporate governance is the process & structure used to manage the business
affairs of the company towards enhancing business prosperity & corporate
accountability with the ultimate objective of realizing long term shareholder value.
 BODs of PLCs need to be open about the businesses they direct & this includes
transparency in corporate activities & transactions.
 Apart from compliance with laws & regulations, there are also codes of best
practices which the directors are expected to observe. Among the codes to be
observed are:
a) The Malaysian Code on Corporate Governance (MCCG), issued by the
Finance Committee on Corporate Governance;
b) The Company Director's Code of Ethics issued by the Registry of
Companies.
26
BENEFITS OF DBR
 DBR enhance high levels of corporate governance and transparency
amongst all groups (issuers, front-line authorities);
 DBR requires legislation, rules & regulations to be comprehensible, &
practical in terms of implementation, and interpreted consistently;
 Improved diligent enforcement of rules, regulations & breaches of
regulations to be brought to account.
 Improved communication between the SC & market players; and
 Enhanced transparency of the SC will ensure DBR is implemented as
smoothly as possible;
 DBR requires investors to be sophisticated in terms of their ability to
evaluate investment proposals.
27
DISCUSSION
1) Why is a strong accounting profession crucial for capital market development?
Discuss.
2) Malaysian Accounting Standard Board (MASB) is established under the Financial

Reporting Act 1997 as an independent authority. Discuss the functions of MASB.
3) Describe guidelines issued by Securities Commission in relation to company’s

financial reporting.
4) Who are the key players in the accounting regulatory process and what is their role
in protecting public interest and enhancing investor confidence? Discuss
5) Explain the elements of disclosure based reporting (DBR) and analyse the
usefulness of the reporting.
28

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PAS3363 - Topic 4 - Financial Reporting - NZ

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PAS 3363: Accounting Theory & Practices

Accountant Financial Reporting Securities Companies

The Accounting Profession

Accountant General Securities

 Companies Act 2016 (Act 125);

3) FINANCIAL REPORTING STANDARDS (FRS)

 Under MBR, the SC regulates the offering of securities by assessing the

Under MBR Under DBR

 Issuers & advisers disclose  Issuers & advisers disclose to

 Authorities review  Investors determine

MARKET INTEGRITY &

2) Malaysian Accounting Standard Board (MASB) is established under the Financial

3) Describe guidelines issued by Securities Commission in relation to company’s

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