MALAYSIAN REPORTING 1

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

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 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.
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 Decision Makers: The Users
of Accounting Information

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Decision Makers: The Users of
Accounting Information

❑ Financial accounting provides information for external

decision makers, such as:
– Investors who own a portion of the business
– Creditors to whom the business owes money
– Taxing authorities, to whom the business owes taxes
❑ Managerial accounting provides information to internal
decision makers, such as:
– Managers
– Employees
– Individuals
– Businesses
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Consider this simple example …
❑ You have been given RM 50 to spend for this
week (7 days).
❑ You keep a record
Details Amount (RM)
Beginning balance 50
Sunday - food (10)
Monday - food (10)
30
( ) means figures within it
are minus / deducted
Consider
After 2 daysthis simple
of spending, you example …
realise based on your record
❑ You
thathave
if you been given
continue RM 50 to spend for this
spending
week
RM 10 (7per
days).
day you will have
no money for the last 2 days of
❑ You keep a record
the week … thus you decide to
only spend RM 6 / day.
Details Amount (RM)
Beginning balance 50
You have just made an economic decision.
Sunday - food (10)
Economic decision is making a decision on how to best
Monday - food
use an entity’s resources. OR
(10)
30
Decisions that would result in the provision of resources
such as money, materials, machinery, land, buildings &
labour that a business entity uses to provide goods &
services.
 Terms:
In this example, you are an economic entity.
Economic entity may be an individual, a
business, a co-operative or a non-profit
organization.

The RM 50 is a limited
Details Amount (RM)
resource
Beginning balance 50
Sunday - food (10)
Monday - food (10)
30
You have performed simple recording …
a part of accounting
Definition
In accounting, of Accounting
there are formal & standardised ways of
communicating information … which you will learn
❑ Accounting is the process of identifying,
recording & communicating.: information
Accounting is a
about
language
an entity’s economic events, of for
useful business
decisions making.
Details Amount (RM)
Beginning balance 50
Recording
Sunday - food (10)
Monday - food (10)
30
Identifying:
Identification of You have made an economic
economic events decision to spend RM 6 / day
Requirement to record: Al-Baqarah 282
O believers! When you deal with each other in lending for a fixed period of time,
put it in writing. Let a scribe write it down with justice between the parties.
The scribe, who is given the gift of literacy by Allah, should not refuse to write; he
is under obligation to write. Let him who incurs the liability (debtor) dictate, fearing
Allah his Rabb and not diminishing anything from the settlement. If the borrower is
mentally unsound or weak or is unable to dictate himself, let the guardian of his
interests dictate for him with justice. Let two witnesses from among you bear
witness to all such documents, if two men cannot be found, then one man and
two women of your choice should bear witness, so that if one of the women
forgets anything the other may remind her. The witnesses must not refuse when
they are called upon to do so. You must not be averse to writing (your contract)
for a future period, whether it is a small matter or big. This action is more just for
you in the sight of Allah, because it facilitates the establishment of evidence and
is the best way to remove all doubts; but if it is a common commercial transaction
concluded on the spot among yourselves, there is no blame on you if you do not
put it in writing. You should have witnesses when you make commercial
transactions. Let no harm be done to the scribe or witnesses; and if you do so,
you shall be guilty of transgression. Fear Allah; it is Allah that teaches you and
Allah has knowledge of everything.
 ▪ No intentions of
Economic entities
earning profits.
▪ Established to provide
services to various ▪Formed with the intention of
segments of society Individual
making profits
▪ Egs. public service ▪ by selling goods &
agencies & charitable rendering services
foundations
Non-profit Economic
organization Business
entities
❖ All entities must establish a
system of keeping records of its
economic activities.
▪ The members own an
❖ Accounting provides the means
run this entity
for tracking such activities &
▪ They share the profits
Co-operative
measuring results.
or benefits
 Reporting Entity

Sole Partnership Limited Liability Partnership

Proprietorship ⮚ Owned by 2 – ⮚ LLP Act 2012
⮚ Owned by a 20 persons ⮚ Combines the characteristics
single owner ⮚ Partnership Act of a company and a
⮚ Not required 1961 & conventional partnership
to submit partnership ⮚ Formed by professionals such
financial agreement; as lawyers, chartered
reports to any sets conditions accountants and comp
regulatory ⮚ Minimal rules & secretaries
bodies regulations ⮚ Has limited liability, but flexible
⮚ Submit F/S to ⮚ Submit F/S to internal business regulations
the Inland the Inland through partnership agreement
Revenue Revenue ⮚ Has a legal status of a body
Board for tax Board for tax corporate
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 Reporting Entity

Company
⮚ Companies Act 2016 replaced Companies Act 1965 effective
31 Jan 2017
⮚ Can be incorporated with a single shareholder and single
director
⮚ Separate legal entity
⮚ Shareholders have limited liability
⮚ Ownership is transferable
⮚ Submit audited annual report to CCM and other regulators
⮚ Private co: max 50 shareholders, cannot offer shares to public
⮚ Public co: unlimited shareholders, can offer shares to public,
can be listed in Bursa Malaysia

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Types of Financial Reports
Internal
❖ ReportsFinancial
preparedReports
= FinancialExternal Financial Reports
Statements
▪ Statement of Financial Position
▪▪Used
Statement of Profit
by internal or Loss
users, eg. & OtherbyComprehensive
•Used external users eg.
Income
Management investors, lenders, suppliers,
▪▪Prepared
Statementonofa Changes
regular in Equity
customers, government, etc.
▪ Statement of Cash Flows •Prepared according to
basis
regulatory requirements 🡪
standards

Management
Financial Accounting &
Accounting / Managerial
Reporting
Accounting & Costing
Development of Financial Reporting (1)
Malaysia International

(Independence: 1957)
1958: Malaysian Association of Certified Accountants
(MACPA) was established. 🡪self-regulatory body
training & examination of professional accountants.

Malaysia is a Commonwealth country i.e. law was

influenced by British law.
The Companies Act 1965 is the legislation for
companies 🡪 Replaced with Companies Act 2016
The Ninth Schedule specifies the accounting
information that companies are legally required to
disclose.
Development of Financial Reporting (2)
Malaysia International

1967: Malaysian Institute of Accountants (MIA) was

established under the Accountants Act 1967 🡪
regulate the profession

1973: The International Accounting Standards

Committee (IASC) was founded in London. 🡪 started
issuing International Accounting Standards (IAS)

1975: Malaysia became a member of IASC

MACPA & MIA joined forces to adopt IAS & develop
Malaysian Accounting Standards (MAS)
Development of Financial Reporting (3)
Malaysia International
1997: Financial Reporting Act 1997 enacted
Financial Reporting Foundation & Malaysian
Accounting Standards Board (MASB) established
MASB adopted IAS & MAS = MASB standards
Co.s required to comply with MASB standards &
Co.s Act 1965 amended accordingly

2001: The International Accounting Standards Board

(IASB) replaced IASC (rebranding)
IAS 🡪 Financial Reporting Standards (FRS)
Standards issued by IASB = International FRS (IFRS)
Development of Financial Reporting (4)
Malaysia International
2002: MACPA changed its name to Malaysian
Institute of Certified Public Accountants (MICPA)
2005: MASB changed name of standards to FRS
2006: Companies required to comply with (I)FRS
(not full convergence)
Private Entity Reporting Standards (PERS) =
previous MASB standards for private entities
❑ Private entity = private co., thus not required to lodge
F/S to Securities Commission or Bank Negara Malaysia;
and is not a subsidiary, associate, or jointly controlled by
an entity which is required to do so.
Development of Financial Reporting (4)
Malaysia International

2005: MASB changed name of standards to FRS

2006: Companies required to comply with (I)FRS
(not full convergence)
Private Entity Reporting Standards (PERS) =
previous MASB standards for private entities

2012: Full convergence with IFRS

2016: PERS 🡪 Malaysian PERS (MPERS): slightly
simplified IFRS for Small & Medium Enterprises
(SMEs) 🡪 will be adopting IFRS for SMEs
 Development of Financial Reporting
in Malaysia (cont.)

⮚ 2015: To improve financial reporting by the public sector, the

Federal Government of Malaysia will gradually move from
modified cash basis accounting 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
Public Sector Accounting Standards (IPSAS) issued by the
International Public Sector Accounting Standards Board.

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 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
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 Private Entity (PE) or
Non-Private Entity (Non PE)

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

Subsidiary Subsidiary Subsidiary

company company company

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
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 Private Entity (PE) or
Non-Private Entity (Non PE)

Example 3 Adabi Consumer Industries Private

Sdn Bhd company
(Parent company) (PE)

Subsidiary Subsidiary Subsidiary

company company company

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

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 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.

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 Regulatory and
Professional Bodies (cont.)

Professional bodies
⮚Professional bodies plays a role in supporting the financial
reporting process.
⮚Examples of professional bodies are ICAEW, MICPA, ACCA,
and CIMA.

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 Financial Reporting
Environment in Malaysia

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 HOW DO YOU PREPARE
FINANCIAL STATEMENTS?

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 HOW DO YOU PREPARE
FINANCIAL STATEMENTS?
Financial statements are business
documents that are used to communicate
information needed to make business
decisions.

Statement
Statement
Income of Balance
of Cash
Statement Owner’s Sheet
Flows
Equity

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The income statement reports the net income
or net loss of the business for a specific period.

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The statement of owner’s equity shows the changes
in the owner’s capital account for a specific period.

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The balance sheet reports on the assets,
liabilities, and owner’s equity of the business as
of a specific date.

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1-33 The statement of cash flows reports the change in cash during the period.

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