Chapter01 BUKU OXFORD

CHAPTER
MALAYSIAN REPORTING
ENVIRONMENT
Learning Outcomes
At the end of this chapter, you should be able to:

Explain the importance of accounting
Explain what is an economic entity
Explain the different types of businesses
Explain the history and development of accounting in
Malaysia
Explain the roles of the bodies that regulate the financial
reporting practices in Malaysia
FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 3
What is Accounting?
 Accounting is known as the language of business.

 It provides pertinent information helpful in making economic
decisions.
 Economic decisions are decisions that would result in the
provision of resources such as money, materials, machinery,
land, buildings and labour that a business entity uses to provide
goods and services.
 As resources are limited, one must make decisions to use
available resources to optimize returns.
 Accounting involves the process of identifying, recording and
communicating information about an economic entity which can
be used to make informed judgements and decisions.
What is an Economic Entity?
 An economic entity may be an individual, a business, a co-

operative or a non-profit organization.
 A business is formed with the intention of making profits
through selling of goods and rendering of services to
members of an economic system.
 Examples of business entities involved in the production of
goods are Sime Darby Berhad, Top Glove Berhad, and
Adabi Sdn. Bhd.
 Examples of business entities that provide services are
AirAsia Berhad, KPJ Healthcare Berhad and Maybank
Berhad.

What is an Economic Entity?
(cont.)
 Non-profit organizations such as public service agencies and
charitable foundations are established to provide services to
various segments of society with no intentions of earning
profits.
 Examples of some non-profit organizations are the National
Science Centre, Mercy Malaysia and Yayasan Salam
Malaysia.
 Every entity, regardless of its objectives, must establish a
system of keeping records of its economic activities and
measuring results of its accomplishments. Accounting
provides the means for tracking such activities and
measuring results.
Development of Financial
Reporting in Malaysia
 The Companies Act 1965 was the first legislation that set
out what information companies should provide.
 The Ninth Schedule of the Companies Act 1965 outlines
the minimum information that companies are legally
required to disclose.
 The initiative to adopt the International Accounting
Standards (IASs) started in 1978 by the Malaysian
Association of Certified Public Accountants (MACPA).

Reporting in Malaysia (cont.)
 In 1979, Malaysia became a member of the International

Accounting Standard Committee (IASC).
 The MACPA later joined forces with the Malaysian
Institute of Accountants (MIA) to carry on adopting the
IAS and also to develop local standards known as the
Malaysian Accounting Standards (MAS).
 Most of the IAS issued by the lASC and International
Financial Reporting Standards (IFRS) issued by its
predecessor, the International Accounting Standards
Board (IASB) have been adopted in Malaysia.

 The introduction of the Financial Reporting Act 1997

marked a new era in the development of financial
reporting in Malaysia, with the establishment of the
Financial Reporting Foundation (FRF) and the Malaysian
Accounting Standards Board (MASB).
 Compliance with MASB approved accounting standards
were made mandatory on companies for financial
reporting purposes.
 The Companies Act 1965 was also amended to
incorporate the same requirements.

 The MASB initially adopted 24 of the extant IAS and MAS

issued prior to the establishment of MASB by the Councils
of MIA and MACPA. The standards were known as the
MASB Standards.
 Beginning October 2005, MASB changed the name of its
standards to Financial Reporting Standards (FRS).

 The Two Tier Reporting Framework was introduced in

February 2006.
 Smaller companies which are called Private Entities are
allowed to choose between applying the FRS or the
Private Entity Reporting Standards (PERS).
 Other companies which are not private entities will use
the FRS.

 A private entity is a private company, incorporated under the

Companies Act 1965, and is not required to prepare or lodge
any financial statements under any law administered by the
Securities Commission or Bank Negara Malaysia; and 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
Bank Negara Malaysia.
 The PERS consist of the old MASB Standards prior to the
issuance of the FRS.
 Disclosure requirement under PERS is relatively simpler
compared to FRS and considered less taxing for smaller
companies.
 On 1 August 2008, the FRF and MASB announced their plan to

fully converge with IFRS beginning 1 January 2012.
 Inline with the convergence plan, MASB issued a new set of
MASB approved standards called the Malaysian Financial
Reporting Standards (MFRS) to replace the FRS beginning 1
January 2012.
 With the issuance of the MFRS, Non-Private Entities will apply
MFRS while Private Entities may choose either the MFRS or
PERS.
 On 14 February 2014, the FRF and MASB announced the
introduction of the Malaysian Private Entity Reporting Standards
(MPERS) which shall replace the PERS beginning 1 January
2016.
 The MPERS is similar to the set of mini IFRS issued by IASB for
small and medium-sized entities known as the IFRS for SMEs,
with slight changes made to the IFRS for SMEs for it to become
MPERS in order to incorporate Malaysia’s business environment.
 Beginning 1 January 2016, Private Entities may choose to apply
the MFRS or MPERS.
 To improve financial reporting by the public sector and in line with
the Government’s Economic Transformation Plan, the Federal
Government of Malaysia will gradually move from modified cash
basis accounting to accrual basic accounting beginning year end
2015.

 Inline with the move to accrual accounting, the Malaysian

Public Sector Accounting Standards (MPSAS) have been
introduced to support public sector financial reporting.
 The MPSAS were developed based on the international
accounting standards, i.e. International Public Sector
Accounting Standards (IPSAS) issued by the International
Public Sector Accounting Standards Board.

Private Entity (PE) or
Non-Private Entity (Non PE)
Example 1 Public
Sistem Televisyen Malaysia company
Berhad (Parent company) (Non PE)
Subsidiary Subsidiary Subsidiary

company company company
Metropolitan Natseven TV CH-9 Media

TV Sdn Bhd Sdn Bhd Sdn Bhd
Private company Private company Private company

(Non PE) (Non PE) (Non PE)
Use MFRS
Example 2 Public
Maybank Berhad company
(Parent company) (Non PE)

Maybank Maybank Asset Etiqa International

Islamic Managemant Holding Sdn Bhd
Berhad Sdn Bhd
Public company Private company Private company
(Non PE) (Non PE) (Non PE)
Use MFRS
Example 3 Adabi Consumer Industries Private

Sdn Bhd company
(Parent company) (PE)

Product Adabi Baktisan Pertama

Optima Distribution Sdn Bhd
Sdn Bhd Sdn Bhd
Private company Private company Private company
(PE) (PE) (PE)
Use either MFRS or PERS/MPERS

Reporting Entity
Reporting Entity
All entities such as sole proprietorship, partnership or corporation that prepare financial
reports and submit to the regulatory bodies responsible for monitoring their activities.
Sole Proprietorship Partnership Company

Owned by a single owner Owned by two or more individuals, A business owned by two or
Registered under the owner’s but not exceeding twenty more individuals
personal name, such as Zamani Governs by the Partnership Act Established as a separate
Enterprise or a trade name, such 1961 and typically has a partnership legal entity under the
as Bangi Kopitiam agreement that sets out the terms Companies Act 1965
Not required to submit financial and conditions of the partnership A shareholder of a company
reports to any regulatory bodies Subjected to minimal rules and has limited liability and the
Owners of sole proprietorships regulations ownership is transferable
submit financial statements of Owners of a partnership submit A company is required to
their business to the Inland financial statements of their business submit its annual report to the
Revenue Department to to the Inland Revenue Department to Companies Commission of
determine their taxable income determine their individual taxable Malaysia and several other
income regulatory bodies

Regulatory and
Professional Bodies
Regulatory bodies
A regulatory body is an organization responsible for monitoring the activities of entities or individuals.
Regulatory bodies are formed or given power under the terms of an Act.
Their activities include imposing requirements, restrictions and conditions, setting standards in relation to any activity, and securing compliance, or
enforcement.
Examples of regulatory bodies are Securities Commission Malaysia, Bank Negara Malaysia and Malaysian Institute of Accountant.

Regulatory and
Professional Bodies (cont.)
Professional bodies
Professional bodies plays a role in supporting the financial reporting process.
Examples of professional bodies are MICPA, ACCA, CIMA and CTIM.


Financial Reporting
Environment in Malaysia

Malaysian Accounting
Standards Board
 The MASB is established under the Financial Reporting Act 1997, as an

independent authority to develop and promote high quality accounting and
reporting standards that are consistent with international best practices for
the benefit of users, preparers, auditors and the public in Malaysia.
 The MASB also contributes directly to the international development of
financial reporting.
 The MASB comprises eight members appointed by the Minister of Finance,
and includes the Chairman of the MASB, the Accountant-General and six
other members who are well-versed and experienced in financial
accounting and reporting, and in one or more of the fields of accountancy,
law, business and finance. In addition, the Minister of Finance has
appointed three advisors to the MASB, each from the Bank Negara
Malaysia, the Securities Commission and the Registrar of Companies.

Malaysian Accounting
Standards Board (cont.)
 The MASB, together with the Financial Reporting Foundation (FRF), make up
the frameworks for financial reporting in Malaysia.
 The FRF is a trustee body that has responsibility for the oversight of the MASB's
performance, financial and funding arrangements, and as an initial source of
views for the MASB on proposed standards and pronouncements, but has no
direct responsibility with regards to standard setting.
 The Financial Reporting Foundation (FRF) comprises representation from all
relevant parties in the standard setting process, including preparers, users,
regulators and the accountancy profession.
 Although the FRF and MASB are charged with the responsibilities of developing
accounting and financial reporting standards, the power to ensure compliance
rests with other bodies such as the Securities Commission Malaysia, Bank
Negara Malaysia, Bursa Malaysia and the Companies Commission of Malaysia.


Securities Commission
Malaysia
 The Securities Commission Malaysia was formed on 1

March 1993 under the Securities Commission Act 1993.
 It is a self-funding statutory body with authority to carry out
investigation and with enforcement power over entities
whose securities are issued to the market.
 It is entrusted with responsibilities to systematically develop,
regulate and provide a safe investment platform for capital
market investors which include protecting investors’ rights
against fraud and misconducts.

Securities Commission Malaysia (cont.)
 The SC’s regulatory functions are:

 Supervising exchanges, clearing houses and central depositories;
 Registering authority for prospectuses of corporations other than unlisted
recreational clubs;
 Approving authority for corporate bond issues;
 Regulating all matters relating to securities and derivatives contracts;
 Regulating the take-over and mergers of companies;
 Regulating all matters relating to unit trust schemes;
 Licensing and supervising all licensed persons;
 Encouraging self-regulation; and
 Ensuring proper conduct of market institutions and licensed persons.
 The organizational structure of the SC comprises nine Commission
members appointed by the Ministry of Finance including the Executive
Chairman and seven other private and government representatives.

Bank Negara Malaysia
 Bank Negara Malaysia is the central bank of Malaysia.

 It was established on 26 January 1959 under the Central
Bank of Malaysia Act 1958.
 On 25 November 2009, Central Bank of Malaysia Act 1958
was replaced with the Central Bank of Malaysia Act 2009.
 BNM is a wholly owned statutory body of the Malaysia
government with a current paid-up capital of RM100 million,
and reports directly to the Ministry of Finance on matters
pertaining to monetary and financial sector policies.

Bank Negara Malaysia
(cont.)
 The central role of the BNM includes practicing prudent

monetary policy to ensure low and stable inflation rate and
sustaining the purchasing power of the Malaysian Ringgit.
 BNM is also responsible for instituting stable financial
system and developing the financial sector in Malaysia.

Bank Negara Malaysia (cont.)
 The main functions of the BNM include being the banker, financial and
economic adviser to the Malaysian government; the sole authority for
issuing ringgit currency and managing Malaysia international’s
reserves. In addition, BNM has seven other functional areas which
relate to the country’s economic and monetary policy, investment and
operations, and financial institution regulation, payment systems,
supervision, organizational development and provide and enhance
information transparency and disclosure to various stakeholders.
 The Acts that are under the purview of the BNM include the
Development Financial Institutions Act 2002, Anti-Money Laundering
and Anti-Terrorism Financing Act 2001(Act 613) and Money Services
Business Act 2011, Financial Services Act 2013, Islamic and
Financial Services Act 2013.

Bursa Malaysia
 Bursa Malaysia is an integrated Exchange with a frontline

key role as a capital market regulator, responsible for
ensuring orderly, transparent and systematic administration
of securities and derivatives markets traded in the Exchange.
 The history of the formation of Bursa Malaysia dates back to
the year 1930, when the first formal securities business
organization in Malaysia called Singapore Stockbrokers’
Association was established and re-registered in 1937 as the
Malayan Stockbrokers’ Association.

Bursa Malaysia (cont.)
 The Malayan Stock Exchange was formed in 1960 and the

public trading of shares officiated in Malaysia. It became the
Stock Exchange of Malaysia in 1964 and changed to Stock
Exchange of Malaysia and Singapore in 1965, following the
secession of Singapore from Malaysia. In 1973, when the
Malaysia and Singapore currency interchangeability ended,
the Exchange was distinguished as the Kuala Lumpur Stock
Exchange Berhad and the Stock Exchange of Singapore. In
1974, the operations of Kuala Lumpur Stock Exchange
Berhad were handed over to the Kuala Lumpur Stock
Exchange (KLSE), a company incorporated as a company
limited by guarantee.
 On 14 April 2004, KLSE was renamed Bursa Malaysia Berhad and

demutualized to enhance its competitive position and efficiency in the
exchange sector, in response to global trends and demands for the
Exchange, to be customer-driven and market-oriented. Subsequently, on 18
March 2005, Bursa Malaysia was listed on the Main Board of the Bursa
Malaysia Securities Berhad.
 Currently, the Bursa Malaysia which is an exchange holding company under
the purview of the Securities Commission and the Ministry of Finance has
ten subsidiaries which are the Bursa Malaysia Securities Berhad, Bursa
Malaysia Derivatives Berhad, Bursa Malaysia Derivatives Clearing Berhad,
Labuan International Financial Exchange Inc, Bursa Malaysia Securities Sdn
Bhd, Bursa Malaysia Depository Sdn Bhd, Bursa Malaysia Information Sdn
Bhd, Bursa Malaysia Bonds Sdn Bhd, Bursa Malaysia Islamic Services Sdn
Bhd and Bursa Malaysia Depository Nominees Sdn Bhd.

 The products of the Exchange comprise equities, derivatives,

offshore listing and services, and bonds and Islamic instruments.
 It has two listing markets for company shares, which are the Main
Market and ACE Market. The Main Market listing is for established
companies while the ACE market is a listing of all business
sectors with growth potential and is sponsor-driven.
 The Bursa Malaysia Listing Requirements documents the listing
regulatory procedures and reporting requirements of listed
companies that incorporate the Malaysia Code on Corporate
Governance as part of the reporting.

Companies Commision of
Malaysia
 The Companies Commission of Malaysia or Suruhanjaya Syarikat
Malaysia is a statutory body formed in 2002 under the Companies
Commission of Malaysia Act 2001.
 It serves as an agency to incorporate companies and register
businesses.
 It also governs the business information provided by companies to
the public. It plays an important role to improve corporate
governance practices in Malaysia.
 The CCM is responsible for the administration and enforcement of
the following legislation:
 Companies Act 1965
 Registration of Business Act 1956
 Trust Companies Act 1949
 Kootu Funds (Prohibition) Act 1971
 Limited Liability Partnership Act 2012

Accountant General’s
Department of Malaysia
 The Accountant General’s Department of Malaysia or

Jabatan Akauntan Negara Malaysia (JANM) was
established with the creation of the Accountant General
position under the Ministry of Finance, before Malaysia
achieved its independence.
 The JANM manages the nation’s accounting and financial
reporting aspects, especially in accordance with the
Financial Procedure’s Act 1957 (revised 1972), Unclaimed
Monies Act 1965 and the Pension Fund Act 1991.

Accountant General’s
Department of Malaysia (cont.)
 The JANM’s objectives are:
 To enhance the accountability and transparency of the Federal

Government’s accounting management;
 To enhance the accounting and financial management system of
Government agencies,
 To assist the Government in making effective decisions;
 To develop and implement the human resource management system for
accounting services; and
 To enhance the enforcement of the Unclaimed Monies Act 1965.
 The Accountant General represents the government of Malaysia in the
Malaysian Institute of Accountants Council. In addition, the Accountant
General is also one of the eight members of the MASB. Thus, the JANM
plays a vital role as the link between the private sector and public sector
accounting.
The Malaysian Institute of
Accountants
 The Malaysian Institute of Accountants (MIA) is a statutory body

established under the Accountants Act 1967, with the aim to
regulate and develop the accountancy profession in Malaysia.
 The MIA regulates practitioners who are accountants.
 The Accountants Act 1967 provides that only registered members
of the MIA can hold themselves as accountants.
 The MIA's responsibilities include education and quality
assurance, as well as enforcement which are carried out to ensure
that credibility of the profession is maintained and public interest is
continuously upheld.

Accountants (cont.)
 The MIA monitors international and local accounting trends and

developments, and consults regularly with the government and regulatory
bodies.
 In the international and regional arena, the MIA plays a significant role in
developing and advancing the global accounting profession, through its
involvement in organizations such as the Asean Federation of Accountants
(AFA), and the International Federation of Accountants (IFAC).
 Currently, accounting graduates from Malaysian universities listed under
Schedule 1 of Part 1 of the Accountants Act 1967 can become MIA members
after acquiring a minimum of three years relevant accounting working
experience without further need to obtain a professional accounting
qualification. The second route to become an MIA member in Malaysia is
through the membership of professionally recognized accounting bodies.

Certified Public Accountants
and Other Professional Bodies
 The Malaysian Institute of Certified Public Accountants (MICPA)
formerly known as Malaysian Association of Certified Public
Accountants was formed in 1958, as a company limited by
guarantee under the Company Ordinance 1940.
 Its involvement as technical advisory to Malaysian regulatory
bodies has played a key role in the development and organization
of business and financial reporting environment in Malaysia.
 For more than five decades, the Institute has been providing a
platform for accounting graduates to further their accounting
profession career as certified public accountants through its
professional examination and membership.

Certified Public Accountants and
Other Professional Bodies (cont.)
 MICPA is also a founding member of the International Federation
of Accountants (IFAC), which presents its position as a well-
recognized professional accounting body which aims to contribute
to the protection of public interest, and advancement of the
accounting profession, business, economies and capital market,
both locally and internationally. The IFAC member body
compliance programme promotes the exercise of international
standards and qualities, where the programme monitors areas of
regulatory and standard-setting framework, and professional
accountancy organization’s role and responsibilities in relation to
audit, accounting, ethics, discipline and continuous development.

The Malaysian Institute of Certified
Public Accountants and Other
Professional Bodies (cont.)
 In addition to the MICPA, other international professional
accounting bodies in Malaysia such as the ACCA, ICAEW,
CPA (Australia) and CIMA have gained significant presence
for the professional accounting memberships.
 The accounting professional body membership in Malaysia
is important, as it is linked to the membership requirements
of the Malaysian Institute of Accountants (MIA). The MIA is
the sole issuer of the license to practice as an accountant in
Malaysia, and as such, membership to the MIA is crucial for
the accounting profession in Malaysia.

Certified Public Accountants and
Other Professional Bodies (cont.)
 The professional accounting bodies’ membership can
contribute to the education and development of MIA
members through the bodies’ continuous development
programme. Being members of professional accounting
bodies, gives certain recognition on the validity of acquisition
of requisite accounting knowledge, skills and qualities and
reputation to a person to qualify and maintain his/her
professional accounting bodies membership as well as
giving international mobility of workplace.


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CHAPTER

At the end of this chapter, you should be able to:

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 Accounting is known as the language of business.

 An economic entity may be an individual, a business, a co-

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 In 1979, Malaysia became a member of the International

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The introduction of the Financial Reporting Act 1997

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The MASB initially adopted 24 of the extant IAS and MAS

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The Two Tier Reporting Framework was introduced in

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 A private entity is a private company, incorporated under the

 On 1 August 2008, the FRF and MASB announced their plan to

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 Inline with the move to accrual accounting, the Malaysian

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

Subsidiary Subsidiary Subsidiary

Metropolitan Natseven TV CH-9 Media

Private company Private company Private company

Subsidiary Subsidiary Subsidiary

Maybank Maybank Asset Etiqa International

Example 3 Adabi Consumer Industries Private

Subsidiary Subsidiary Subsidiary

Product Adabi Baktisan Pertama

Use either MFRS or PERS/MPERS

Sole Proprietorship Partnership Company

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The MASB is established under the Financial Reporting Act 1997, as an

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The Securities Commission Malaysia was formed on 1

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The SC’s regulatory functions are:

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 Bank Negara Malaysia is the central bank of Malaysia.

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The central role of the BNM includes practicing prudent

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 Bursa Malaysia is an integrated Exchange with a frontline

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The Malayan Stock Exchange was formed in 1960 and the

 On 14 April 2004, KLSE was renamed Bursa Malaysia Berhad and

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The products of the Exchange comprise equities, derivatives,

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The Accountant General’s Department of Malaysia or

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The JANM’s objectives are:

 To enhance the accountability and transparency of the Federal

 The Malaysian Institute of Accountants (MIA) is a statutory body

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

 The MIA monitors international and local accounting trends and

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved

FINANCIAL ACCOUNTING AND REPORTING 1 All Rights Reserved