INTRODUCTION TO COMPANIES

Financial Accounting & Reporting 5 1

Week 1

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COURSE OUTLINE – KEY POINTS
 Main Reference
 Jane Lazar (2018), Company & Group Financial Reporting, 9th Edition, Pearson
 Tan Liong Tong (2017) Financial Accounting and Reporting in Malaysia (Vol.1), 6 th Edition
CCH
 Assessments (to be finalised)
 Continuous Assessment : 50%
 Kuiz / Quiz : 5% (Minggu / Week 4)
 Ujian / Test : 20% (Minggu / Week 9)
 Tugasan /Assignment : 15% (Minggu /Week 12)
 Pembentangan/ Presentation : 10% (Minggu /Week 13)

 Peperiksaan Akhir /Final Examination : 50%

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OVERVIEW
1. What are Companies
2. Liability of Companies
3. Classification of Companies
4. Formation of Companies
5. Constitution of Companies
6. Bursa Malaysia Securities Berhad Requirements

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1. WHAT ARE COMPANIES
 Legal entities incorporated under the Companies Act 2016 (previously CA 1965) requires all
businesses to be registered under Companies Commission of Malaysia (CCM) headed by the
Registrar of Companies (ROC).
 Definition of company CA2016 : company can be formed with a minimum of 2 persons
registering as shareholders for the purpose of conducting business.
 Characteristics of companies : separate and distinct existence apart from the natural persons
created it and enjoy limited liability.

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2. LIABILITY OF COMPANIES
What is Liability
 A liability is something a person or company owes, usually a sum of money. 
 Liabilities are settled over time through the transfer of economic benefits including money,
goods, or services. ... Most companies will have these two line items on their balance sheet, as
they are part of ongoing current and long-term operations

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2. LIABILITY OF COMPANIES
(CONT’D)
 Types:

i. Limited liability
Liability of members limited to the amount contributed / share capital

Example: Shareholder subscribed RM10,000 share capital and paid only RM8,000, thus
his liability is limited to RM2,000 on his unpaid capital
Limited liability companies must have “Berhad” or “Bhd”
Example: Airasia Berhad, Digi Berhad

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2. LIABILITY OF COMPANIES
(CONT’D)
Liability of companies can be limited by:
a. Shares
 liability limited to the outstanding amount due
 if company being liquidated, creditors have no right to seize the shareholders assets
(separate legal entity)
b. Guarantee
 has members rather than shareholders and company has no share capital
 Members would ‘guarantee’ to contribute to the obligations if company being
liquidated

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 2. LIABILITY OF COMPANIES
(CONT’D)
 Types:

ii. Unlimited liability

 No limit in the liability of the shareholders
 Creditors can seize personal assets in settling outstanding debts
 Example: sole trader, enterprise, partnerships, private unlimited sendirian berhad
companies and unlimited berhad companies

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2. LIABILITY OF COMPANIES
(CONT’D)
Types of Companies Summarised

No Type Explanation Category Explanation

1 Limited By shares
Liability
By guarantees
2 Unlimited
Liability

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 3. CLASSIFICATION OF COMPANIES
 Two basic types of companies

i. Statutory companies – incorporated under the Acts of Parliament (not covered)

ii. Registered companies under CA2016 and can be grouped into:
a. Public companies
b. Private companies
c. Exempt private companies
d. Foreign companies
e. Investment companies
f. Government-linked companies (GLCs)

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 3. CLASSIFICATION OF COMPANIES
(CONT’D)
i. Public company
 Members – minimum 2 and no limit of maximum members
 Advantage – can offer its shares and debentures to public in raising capital
 Example: Public Bank Berhad, Sime Darby Berhad
 If listed in stock exchange (Bursa Malaysia) will be listed companies

ii. Private company

 Members – restricted to a maximum of 50 and cannot transfer shares
 Family owned business / small businesses (ownership between family members)

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3. CLASSIFICATION OF COMPANIES
(CONT’D)
iii. Exempt Private company
 Members – not more than 20 members
 Shares cannot be held directly / indirectly by other company
 Not required to file annual financial statements to the ROC

iv. Foreign company

 Incorporated outside Malaysia but operate business in Malaysia.
 Lodge certain documents to ROC as required under CA2016

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3. CLASSIFICATION OF COMPANIES
(CONT’D)
v. Investment company
 Public company engaged with investments in marketable securities for profits, and not
for exercising control

vi. Government-linked company

 Corporate entities which government owns some or all the shares of the company
 Example : Pos Berhad, Telekom Malaysia, Keretapi Tanah Melayu

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3. CLASSIFICATION OF COMPANIES
(CONT’D)
Classification of Companies Summarised

No Type Identification/ Characteristics

1 Public
2 Private
3 Exempt private
4 Foreign
5 Investment
6 Government-linked companies (GLCs)

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 4. COMPANY FORMATION
 Any two or more persons can apply to form a company by subscribing their names to a
memorandum required by ROC and form company’s constitution.
 Constitution comprise of
i. Memorandum of Association – regulates company’s relation with external parties,
example : name of the company, location of registered office, activities the company may
operate, amount of authorized capital etc
ii. Article of Association – rules covering the internal affairs of the company such as the rights
of shareholders and the power and duties of the management of the company

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4. COMPANY FORMATION (CONT’D)
 Both Memorandum & Articles of Association must be signed by at least 2 persons, i.e. first
directors of the proposed company snd to be lodged to Companies Commission of Malaysia
(CCM) or Suruhanjaya Syarikat Malaysia (SSM)
 Upon approval by CCM, only then the company could commence business and make public
offerings (issue shares to raise funds)
 Statutory/Mandatory - Records and Annual Returns
 A limited company must maintain a statutory record by updating info of the company such
as members, directors, company secretary, auditors, minutes of meetings etc. Done by the
Company Secretary.
 A limited company must file the Annual Return made up to the date of the Annual General
Meeting (AGM)
 Annual return to be filed to the CCM not later than 2 weeks after the AGM date.

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4. COMPANY FORMATION
(CONT’D)
 Financial Reporting Requirements
Comply with:
 CA2016 – Approved accounting standards
 Malaysian Accounting Standards Board (MASB) – prior 2006 comply to MASBs, post
2006 – comply to Financial Reporting Standards adopted from the International Financial
Reporting Standards (IFRS)

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5. CONSTITUTION OF A COMPANY
 Previously known as the Memorandum and Articles of Association (M&A)
 All companies must have their set of constitution, but if a company limited by shares has no
constitution; the rights, powers, duties and obligations of the company, each director and each
member must abide to the rules provided in CA2016.
 Company constitution can modify the rights, powers, duties and obligations of the company,
each director and each member.

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5. CONSTITUTION OF A COMPANY
(CONT’D)
 Contents of the constitution
 Objects of the company
 Capacity, rights, powers or privileges of a company
 Matters addressed in CA2016 and other matters the company wish to include

 2 Main Statutes governing company financial reporting in Malaysia:

i. CA 2016 and
ii. Financial Reporting Act 1997

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 5. CONSTITUTION OF A COMPANY
(CONT’D)
No Statute Key Points
1 CA2016 a. Accounting records to be kept/maintained
b. Annual returns to be submitted to authorities
c. Financial statements and reports to be prepared by the directors and managers
2 FRA 2 independent bodies formed Purpose:
1997 a. Financial Reporting Foundation (FRF) Oversee the activities of MASB
-
b. Malaysian Accounting Standards Board Issue new standards, review, revise or adopt
(MASB) existing standards, issue statement of principles,
develop conceptual framework etc.

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5. CONSTITUTION OF A COMPANY
(CONT’D)
Brief Overview of FRA 1997
1. MASB issue financial reporting standards
2. Regulatory bodies such as Bank Negara, Securities Commission,
Companies Commission of Malaysia must apply the financial reporting
standards in preparing and presenting the financial statements.

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6. BURSA MALAYSIA SECURITIES
BERHAD (KLSE) REQUIREMENTS
1. Listed companies required to provide additional disclosures on the performance of the
company by :
 Issue preliminary statement of results within 6 months of the financial year end
 Issue half yearly performance report within 3 months of the half year end

2. Annual Report
 Reports and financial results to be sent to shareholders 14 days before AGM
 Main document of financial and general information of the company for internal & external
users regarding the past & present achievements of the company and the future plans.

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6. BURSA MALAYSIA SECURITIES
BERHAD (KLSE) REQUIREMENTS
(CONT’D)
Annual report comprise of
i. Chairman Statement
ii. Corporate Governance Statement
iii. Audit Committee Report
iv. Statement on Internal Control (SIC)
v. Social Responsibility Statement
vi. Financial Statements

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6. BURSA MALAYSIA SECURITIES
BERHAD (KLSE) REQUIREMENTS
(CONT’D)
i. Chairman Statement
 highlights corporate activities, strategies, researches, labour relations, main achievements
and company performance, focuses on future goals, growth, employees, dividends etc.
ii. Corporate Governance Statement
 Companies comply with Malaysian Code of Corporate Governance (the Code) issued by
Ministry of Finance.
 The code intended to set out the principles and the best practices where a company may
adopt corporate governance.
 Directors are responsible in maintaining the Code

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6. BURSA MALAYSIA SECURITIES
BERHAD (KLSE) REQUIREMENTS
(CONT’D)
iii. Audit Committee Report
 Independent directors and senior management executives assist the board of directors
responsible on the corporate accounting and reporting

iv. Statement on Internal Control (SIC)

 SIC is a public accountability document that describes the effectiveness of internal
controls in an organisation and is personally signed by the Accounting Officer required
by the Code

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6. BURSA MALAYSIA SECURITIES
BERHAD (KLSE) REQUIREMENTS
(CONT’D)
v. Social Responsibility Statement
 Disclosure on the engagement between the company and the society at large and to the
environment.
 Voluntary disclosure

vi. Financial Statements

 Includes
 Director’s report – directors responsible for the activities and the financial statements
of the company
 Auditor’s report – Independent opinion on the financial statements of the company,
any qualification section in the financial statements, ability of company to meet
obligations
 Financial Statements – SFP, CIS, CFS and SCE
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