TOPIC 1

FINANCIAL REGULATORY
FRAMEWORK IN MALAYSIA

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 LEARNING OUTCOMES:
At the end of the chapter, students should be
able to:
1. Explain the development of financial regulatory
framework in Malaysia
2. Explain the current financial reporting regime (1997)
3. Discuss on statutory regulations on financial
accounting and reporting
4. Explain the reporting requirements of various types
of entity
5. Describe the accounting and reporting practices –
Stewardship and Decision Useful Reporting
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 LEARNING OUTCOMES:
6. Explain the link between MASB and MFRS Framework
with the global standards and the global capital market.
7. Use the professional judgement and estimates in
applying IFRS – principles based standards
8. Briefly describe the role of accountants in society
pertaining to public interest and ethics

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 Historical Perspective
• The origin of financial reporting in Malaysia cannot
be traced precisely. The first documented financial
reporting regulations were those of the Companies
Ordinances of 1940, 1946 and 1956 before Malaysia
(then Malaya) achieved her independence on 31
August, 1957.
• These Ordinances continued to be used until the
establishment of Malaysian Companies Act in 1965
replaced them. The Act contains the Ninth Schedule
which specifies the disclosure requirements in the
financial statements of Malaysian companies.
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 Historical Perspective
• Prior to 1999, the Act’s main concern is that the
accounts should be true and fair (Stewardship
Accounting). However, after 1999, the focus is on
providing information that is useful to users in
making economic decisions (Decision Useful
Accounting).
• Apart from the Act’s requirements, development and
advancement of financial reporting were left mostly
to the accounting profession.

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 Historical Perspective
• In 1958, the Malaysian Institute of Certified Public
Accountants (MICPA) was established as a company
limited by guarantee. It is a private sector accountancy
body that regulates the practices of its members who
carry the title of a certified public accountant (CPA).
MICPA issued the first accounting guidance which dealt
with a specimen company accounts in 1968.
• In 1967, the Malaysian Institute of Accountants (MIA)
was established in 1967 under the Accountants Act 1967.
MIA operates largely as a private sector accountancy
body. Its regulations cover the practices of the whole
accounting profession in Malaysia.

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 Historical Perspective
• In 1978, MICPA was admitted as a member of the
International Accounting Standards Committee
(IASC). In that year, MICPA adopted four IASs (IASs 1
to 4). In 1984, the first Malaysian Accounting
Standard (MAS 1) on ‘Earnings Per Share’ was issued.
• In 1987, MIA and MICPA started to jointly issue
accounting standards. The process of adoption of
IASs and development of MASs continued until 1997.
• In 1997, the Malaysian Accounting Standards Board
(MASB) was established to take over the role of
standard setting in Malaysia.
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 Historical Perspective
• On 1 March 1993, the Securities Commission
Malaysia (SC) was established under the Securities
Commission Act 1993.
• SC discharges many regulatory functions. Please refer
to www.sc.com.my for details.
• SC’s ultimate responsibility is protecting the investor.
• SC encourages and promotes the development of the
securities and futures markets in Malaysia.

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 Current Financial Reporting Regime
• In Dec 1996, Malaysian Government announced its
intention to establish a new financial accounting and
reporting regime.
• This intention was subsequently endorsed in Parliament
when the Financial Reporting Act 1997 (FRA 1997) was
passed and gazette on 6 March 1997.
• Two bodies were formed under this act:-
i. Financial Reporting Foundation (FRF)
ii. Malaysian Accounting Standard Board (MASB)
• These two bodies are backed by FRA1997 to ensure
smooth conduct of the functions of FRF and MASB.
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 Financial Reporting Foundation
• The FRF comprises twelve (12) members who are
appointed by the Minister of Finance.
• Eight (8) of the members are ex-officio representing the
Minister of Finance, the Central Bank, the Securities
Commission, the Audit Oversight Board, the CCM, the
Bursa Malaysia Berhad, the MIA and the MASB.
• The four (4) other members who possess knowledge and
experience in matters of financial accounting and in one
or more of the following fields; accountancy, law,
business, or finance.

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 The functions of Financial Reporting Foundation

 To provide its views to the MASB on any matters which

the MASB seeks to undertake or implement.
 To review the performance of MASB.
 To be responsible for all financing arrangements for the
operations of MASB including approving the budget for
MASB.
 To perform such other functions as the Minister of
Finance may prescribe by order published in the Gazette.

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The functions of Malaysian Accounting Standard Board
 The issue new accounting standards.
 To review, revise or adopt existing standards.
 To issue the statements of principles for financial
reporting.
 To sponsor or undertake the development of possible
accounting standards.
 To conduct public consultation.
 To develop conceptual framework.
 To perform such other functions as the Minister of
Finance may prescribe by order published in the
Gazette.

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• Regulatory Bodies over companies:-
• 1. Companies Commission of Malaysia
• 2. Securities Commission of Malaysia
• 3. Lembaga Hasil Dalam Negeri
• 4. Bursa Malaysia Berhad
• 5. Bank Negara Malaysia
• Regulatory body over accountant:-
• 1. Malaysian Institute of accountants (MIA)
• Regulatory body over auditor:-
• 1. Audit Oversight Board (AOB)

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 Statutory Regulations
• 1. COMPANIES ACT 1965 (CA 1965)
• 2. INCOME TAX ACT 1967 (ITA 1967)
• 3. FINANCIAL REPORTING ACT 1997 (FRA 1997)
• 4. SECURITIES COMMISSION'S GUIDELINES
• 5. BURSA MALAYSIA LISTING REQUIREMENTS
• 6. BANK NEGARA MALAYSIA'S GUIDELINES

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1. COMPANIES ACT 1965 (CA 1965)
 The principle legislation governing the formation and
operation of companies in Malaysia.
 It provides formal rules on accounting and requirement
for true and fair view reporting.
 The provision under the act protects the right and
interest of shareholders in particular and investors in
general.
 The Company Commission of Malaysia (CCM) enforces
and administers the Companies Act.

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 The requirements of Company Act 1965

 Every company must keep proper accounting records to

enable a true and fair view of the business operation.
 All accounts must be recorded and kept to enable them
to be properly audited.
 All accounts must be recorded within 60 days of
completion of transactions and be kept for 7 years after
the completion of such transactions.
 Audited accounts must be presented by the directors to
the shareholders in the company’s annual general
meeting.

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 2. INCOME TAX ACT 1967 (ITA 1967)

 Mainly concerned with ascertaining of chargeable

income and tax payable under the act.
 As taxation is a business expense that needs to be
reflected in the SOPL, compliance with ITA 1967 is
legally enforceable.

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3. FINANCIAL REPORTING ACT 1997 (FRA 1997)

• FRA 1997 was passed and gazette on 6 March 1997.

• Section 27 deals with compliance with approved
accounting standards (AAS) of Malaysian Accounting
Standards Board (MASB).
• Basically, FRA 1997 provides the enforcement authority
to the standards issued by MASB.

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4. THE SECURITIES COMMISSION'S GUIDELINES

• The Securities Commission (SC) is a self-funding public

sector statutory body.
• Established under the Securities Commission Act 1993.
• It has investigative and enforcement powers.
• It reports to Minister of Finance.
• The SC requirements are focused on public companies.

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 Securities Commission's Objectives

 To promote and maintain fair, efficient, secure and

transparent securities and futures markets.
 To facilitate/promote the overall development of an
innovative and competitive capital market through the
regulation and enforcement of all matters relating to the
securities industry.

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Securities Commission's Regulatory functions

 To regulate issue of securities and

designation of future contracts.
 To regulate all matters relating to unit
trust schemes.
 To regulate take over and mergers of
company.

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Areas addressed by the Securities Commission
 Corporate Disclosure Policy: requires companies to
maintain a high level of disclosure.
 Post Listing Obligations: requires companies to submit
reports such as annual reports, interim reports and
related party transactions.
 Accounting standards and valuation of assets: requires
public company to comply with the statutory and
regulatory framework of accounting (AAS, Companies Act
and SC’s revaluation rules).

 Hence, it has statutory power to enforce compliance.

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5. THE BURSA MALAYSIA LISTING REQUIREMENTS

• The Bursa Malaysia (formerly known as Kuala Lumpur

Stock Exchange) is an exchange holding company
incorporated under Section 15 of the CMSA 2007 to
regulate companies listed on its Exchange.
• Bursa Malaysia requirements apply only to public listed
companies.
• Unlike the Companies Commission, the Securities
Commission or Bank Negara Malaysia, the Bursa
Malaysia does not have the legal power to enforce
compliance. It can, however, rely on the power it has to
delist, suspend or publicly reprimand errant listed
companies for any non-compliance with its regulations.
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 Bursa Malaysia Reporting requirements
 Annual Reports prepared in accordance with Malaysian
Financial Reporting Standards (MFRS) and Ninth
Schedule.
 Auditors’ and directors’ reports are to be submitted to
the Bursa Malaysia 4 months from the year end.
 The printed annual report shall be issued to shareholders
within a period not exceeding 6 months from the year
end.
 For interim reporting, comply with quarterly reporting
requirement.

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 6. BANK NEGARA MALAYSIA'S GUIDELINES
• Bank Negara Malaysia issued two sets of guidelines on
financial reporting practices of financial institutions
established under the Banking and Financial Institutions
Act 1989 (BAFIA 1989).
• They are as follows:
i. BNM/GP3: Classification of Non-Performing Loans
and Provision for Substandard, Bad and Doubtful
Debts; and
ii. BNM/GP8: Guidelines on Financial Reporting for
Licensed Institutions.

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 THE AUDIT OVERSIGHT BOARD
• The AOB was established under Part 111A of the
Securities Commission Act 1993. Part 111A was
incorporated in the Securities Commission Act by the
Amendment in 2010 and the Act comes into force on 1
April 2010.
• The AOB’s mission is to assist the Securities Commission
in overseeing the auditors of public interest entities and
to protect the interests of investors by promoting
confidence in the quality and reliability of audited
financial statements of public interest entities.
• -

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 THE AUDIT OVERSIGHT BOARD
• The AOB requires all auditors of public interest entities to
be registered.
• The AOB has statutory power to conduct inspections and
monitor programmes on registered auditors to assess the
extent of their compliance with recognized auditing
and ethical standards, including compliance with
accounting standards.
• The AOB is also empowered by Securities Commission
Act to sanction any registered auditors for failure to
comply with any provisions on Part 111A of the Act,
notices or guidelines issued by the SC.

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Accounting Standard Pronouncements in Malaysia

• 1978– 1997- First adoption of IAS under

MIA/MICPA.
• 1997 -2005 – Renamed the standards as MAS.
• 2005-2012 – Renamed the standards as FRS
( Malaysia GAAP)
• 2012- convergence with IFRS = MFRS

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Accounting Standard Pronouncements in Malaysia
• Beginning 1 January 2005, MASB Standards were renamed
Financial Reporting Standards 'FRS' in line with similar move by
other countries in this region to change the name of their
standards.”
• In November 2011, MASB published the MFRS Framework, an
IFRS-compliant set of accounting standards applicable to all
non-private entities with effect from 1 January 2012.
• MFRS Framework became mandatory for all companies for
annual periods beginning on or after 1 January 2014. Including
IC 15 (Issue committee) Construction of Real Estate and MFRS
141.

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REPORTING REQUIREMENTS BY TYPES OF ENTITY
 A business entity in Malaysia may take the form of:
 Non-incorporated entity
1. Sole proprietorship
2.Partnership
 Incorporated entity
1. Private company (Sdn Bhd)
2. Public company (Bhd)
i. Unlisted public company
ii. Listed public company

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Reporting Requirements: Non-Incorporated Entity
• To comply with Approved Accounting Standards
(AAS) in the preparation and presentation of its
financial statements.
• To submit its financial statements to the Director
General (DG) of Inland Revenue (IR) for the purpose
of determining assessable income under the Income
Tax Act.
• No external reporting or submissions are required.
• Financial statements do not have to be audited
unless its constitution requires that the statements
be audited.
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Reporting Requirements: Incorporated Entity
 Private Company/entity
 Definition: entity incorporated under CA1965 not required to
prepare or lodge any financial statements under any law
administered by the Securities commission or Bank Negara.
• To comply with AAS in the preparation and presentation of its
financial statements.
• To comply with CA. Its financial statements must be audited,
should reflect true and fair view and should be submitted to
the CCM within 6 months of its financial year-end.
• To submit its financial statements to the Director General
(DG) of Inland Revenue (IR) for the purpose of determining
assessable income under the Income Tax Act.

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Reporting Requirements: Incorporated Entity
Unlisted Public Company
All the reporting requirements of a private
company are applicable. Additionally:
• It must comply with the SC’s corporate
disclosure policy concerning high standards of
disclosure and dissemination of information.
• If it is a bank or financial institution licensed
under BAFIA, it must comply with the Bank
Negara Malaysia’s guidelines.

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Reporting Requirements: Incorporated Entity
 Listed Public Company
Reporting requirements are more extensive as it has to
comply with:
• Approved Accounting Standards
• Companies Act
• Securities Commission’s guidelines
• Bursa Malaysia Listing Requirements
• Income Tax Act
• Bank Negara Malaysia’s guidelines (bank or financial
institution)

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Reporting Requirements: Incorporated Entity
More specifically, a listed public company should submit:
• Quarterly financial statements to the SC and the BM.
• Other interim and periodic financial reports to the SC.
• The final audited financial statements to the SC, the BM,
the CCM, and the DG of IR.
• Financial statements that have been drawn up to show a
true and fair view and are in compliance with AAS.

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Reporting Requirements: Non-profit organization
• NPOs are generally defined as associations, charities, and other
voluntary organizations formed to further cultural, religious or
public service objectives (Bottiglieri et al., 2011).
• NPOs are supported by public donations as well as from other
revenue generating activities such as obtaining grants from funders,
contracting with government to provide services and charging for
services rendered.
• NPOs with revenue of more than RM1 million can be registered as
companies limited by guarantee and must be registered with the
Companies Commission of Malaysia (CCM) and is held accountable
by the Companies Act of 1965.
• For NPOs with revenue less than RM1 million, they must be
registered with the Registry of Societies Malaysia (ROS),within the
Ministry of Home Affairs, and are held accountable by the Societies
Act of 1966.
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Reporting Requirements: Non-profit organization
• In relation to disclosure and reporting requirements,
there is no specific accounting standard for the NPOs.
• Nevertheless, NPOs are encouraged to comply with the
International Financial Reporting Standards issued by
International Accounting Standard Board and adopted by
the Malaysian Accounting Standard Board or reporting
standards applicable for private entities in the
preparation and presentation of their financial
statements.
• The government financial system and procedures are based
on Federal Constitution, Financial Procedure Act 1957,
Treasury instructions, Treasury circulars, Government
Accounting Standards 2002, and International Public Sector
Accounting Standards (IPSASs).
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 Malaysian Private Entities Reporting Standard
(MPERS) for SMEs
• The MPERS is based on the IASB’s International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs) issued in
July 2009.
• Private entities have the option to apply in its entirety either:
(a) the MPERS, or
(b) the MFRSs
• A private entity is a private company incorporated under the Companies
Act 1965 that:
• (a) is not itself required to prepare or lodge any financial statements under
any law administered by the Securities Commission or the Bank Negara
Malaysia; and
• (b) is not a subsidiary or associate of, or jointly controlled by, an entity
which is required to prepare or lodge any financial statements under any
law administered by the Securities Commission or the Bank Negara
Malaysia

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 Big GAAPs versus Small GAAPs
• Generally Accepted Accounting Principles
(GAAP) is considered to be the standard for
financial accounting in the US. GAAP is used to
guide accountants through the business of
recording, summarizing and preparing
financial statements.
• The issue of Big GAAP and Small GAAP is the
issue of whether there should be two separate
standards for private companies and public
companies.
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The State-of-The-Art Accounting and Reporting Practices
• Prior to 1999, the reporting practices in Malaysia can be
described as stewardship reporting where emphasis was
on ensuring that accounts show true and fair view.
• Nevertheless, the issue of true and fair is often a matter
of subjective judgement.
• After 1999, the focus shifted from stewardship reporting
to decision useful reporting. Companies are required to
provide information that is useful to external users in
making economic decision.
• The shifts are strongly influenced by the SC’s policy
statement which is also consistent with most accounting
frameworks accepted in the more developed economies.

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 Role of IASB
• The International Accounting Standards Board (IASB)
is the independent, accounting standard setting body
of the IFRS Foundation.
• IASB was founded on April 1, 2001 as the successor
to the International Accounting Standards Committee
(IASC).
• It is responsible for developing International Financial
Reporting Standards (the new name for International
Accounting Standards issued after 2001), and
promoting the use and application of these
standards.
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 Application of IFRS as Financial Reporting Standards

• The convergence process started in 2006 and by year 2012,

the MFRS issued by MASB is fully converged with IFRS issued
by IASB.
• MFRSs are word-for-word IFRSs issued by the IASB except for
the nomenclatures.
• The key differences between MFRSs and IFRSs are that in the
former;
(a) FRS 2012004/MASB32 Property Development Activities
(locally set standard) will continue to be the extant standard
for accounting for property development activities and not IC
15;
(b) there is no equivalent standard to MFRS 141.
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 Benefits of Convergence
• Global investors would have better understanding of
financial statements prepared by companies in Malaysia,
allowing for better comparison between companies.
• Help to enhance national reputation as Malaysian
Standards are in compliance with international
accounting standard and comparable within IFRS
jurisdiction.
• Provide greater credibility and transparency as financial
statements prepared are understood by global investors.
• Malaysia multinational companies benefit from reduced
translation risk when consolidating international
subsidiaries into single set of consolidation accounts.

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 Role of Accountants in Society
• Financial statements are generally prepared by accountants and verified
by the auditors. Hence, accountants and auditors have to overcome
ethical dilemmas, allowing for the right choice and standards that,
although it may not benefit the company, yet will benefit the public who
relies on the accountant/auditor's reporting.

• Among the roles of accountant:

• To prepare financial statements that shows the true and fair view about
the business as such assisting the users especially the shareholders in
making decision
• 2. To uphold ethical standards accepted within the accounting profession.
• 3. To assist the company with corporate strategy, provide advice and help
businesses to reduce costs, improve their top line and mitigate risks.
• 4. To exercise professional judgment in performing their roles so that
when times get challenging, they do not undertake actions that will result
in the profession losing the public’s trust as protectors of public interest.
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 REFERENCES
• Tan Liong Tong (2014) Financial Accounting
And Reporting in Malaysia (Vol. 1), 5th Edition
CCH
• MASB websites, www.masb.org.my
• Weygandt, Kimmel & Kieso (2014), Accounting
Principles 11th Edition – Chapter 9, Wiley

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QUIZ

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 AUTHORS
Noorain Omar
noorain@kedah.uitm.eu.my

Maisarah Abd Rahim

maisarahrahim@kedah.uitm.edu.my

Faculty of Accountancy
UiTM Cawangan Kedah

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