Tutorial 3 – Malaysia Financial Reporting Framework and International Accouting

Question 1
Elaborate on the events that lead to the formation of the independent accounting standard setting body in Malaysia.

• In 1970, introduction of New Economic Program (Nep) to created an environment conductive to corporate mergers and takeovers. • In 1971, Malaysian Association of Certified Public Accountants (MACPA) was set up a Technical Committee, there was a need for guidance on specific accounting matters, including the creation of goodwill. • After 1976, MACPA Technical Committee reviewed and considered the International Accounting Standards (IAS) for possible local adoption.

all technical standards were jointly developed by Malaysia Institute of Accountant (MIA) and MACPA and issued as joint statements. • On 1 July 1987. MACPA issued Malaysian Accounting Standards (MAS) because peculiar to the Malaysian environment. The views received were so diverse that the issuance of a standard was . • From May 1987 until 1992.• Beginning from 1980. MIA and MACPA was issues the questionnaires to invite comments on a discussion paper on goodwill accounting.

MACPA and MIA collaboration ceased. MACPA decided to defer MAS 6.• Based on the comments obtained. MAS 6 was issued as an exposure draft by the Malaysia Institute of Accountant (MIA) in September 1992. . However. • The adoption of MAS 6 raised objections from certain big corporations and the Federation of Public Listed Companies (FPLC) decided to take the matter up with the Minister of Finance. • Due to disagreement over the adoption of the final standard (MAS 6).

• Towards the end of 1994. Financial Reporting Act 1997 was passed and Malaysian Accounting Standards Board (MASB) was formed to issue legally binding accounting standards. • In July 1997. due to intervention from government. • Subsequently. MIA deferred implementation of the standard to 1 January 1997. . Companies Act 1965 was amended to require compliance with approved accounting standards.

Question 2 Compare the accounting standard setting process in Malaysia before and after 1997 from the theoretical perspective AND describe the standard setting process in Malaysia after 1997. including how standards are produced and enforced? .

• Several companies did not favour this standard and the Federation of Public Listed Companies (FPLC) (the Market) lobbied to the Ministry of Finance (the state) to defer the implementation of this standard. decided to defer to 1997. Bank Negara Malaysia (the Central Bank). • MACPA decided to defer but MIA adopted in 1996. However. and the CIC (later known as Securities Commission (SC). both the MIA and the MACPA worked closely together on the development of accounting standards and providing feedback on financial reporting requirements to the regulatory bodies. . such as Registrar of Companies. • MIA issued MAS 6: Accounting for Goodwill in 1993 as a mandatory standard effective on or after 1 January 1995 which required the amortisation of goodwill over a period of not more than 25 years.Before 1997 • After the MIA's active involvement in the standard setting activities. due to intervention from government.

the market realized that accounting standards have implication for them and they should actively participate in the process.• Due to the disagreement over the adoption of the Goodwill Standard. the Common Working Technical Committee (CWTC) was dissolved in December 1992. both the MIA and the MACPA collaboration ceased. an independent body for standard setting were emerged. Since then. • Sentiments were voiced that Profession should not be setting standards exclusively and hence the MASB. . spearheaded by the Financial Reporting Act. • After the goodwill issue. 1997.

including preparers. .After 1997 • The MASB is an independent standard setting body with representation from all relevant parties in the standard setting process in Malaysia. users. and initial source of views for MASB on proposed standards and pronouncements. However. academics and the accounting profession. regulators. financial and funding arrangements. Profession still continue to regulate members by providing interpretation and guidance on the standards issued by MASB. • Some view that the Profession have lost its right to regulate the profession. • Trustee bodies has responsibility to oversight MASB on its performance.

. MASB responsible to set standards. • Due process of Financial Reporting Standards (FRS) framework is following as: • Stage 1: MASB seeks public comment on IASB's draft technical pronouncements.The accounting standard setting process • After 1997. • Stage 2: Deliberation at the Working Group level on IASB's draft pronouncements • Stage 3: Deliberation at the MASB (the Board) • Stage 4: Issuance of Standard by IASB • Stage 5: Issuance of standard by MASB • The standards are enforced by requiring all companies to follow FRS as stated in FRA 1997 and Companies Act 1965-(Section 166 and 169). • The standard setting process is called as a due process.

Malaysian Accounting Standards Board Financial Reporting Foundation Securities Commission Bank Negara Malaysia .Question 3 Describe the role of the following bodies in relation to Malaysia approved accounting standards: i. ii. iv. iii.

it also promote the high quality of financial reporting in Malaysia.i. . •Besides. of which include Islamic accounting standards. Malaysian Accounting Standards Board (MASB) •It is an independent authority that has the main role to issue and develop accounting standards.

Financial Reporting Foundation •A trustee bodies that has the responsibility to oversight MASB in terms of its: •Performance •Financial and funding arrangements •Initial sources of views for MASB on proposed standards and pronouncements •It has no direct responsibility with regard to standard setting.ii. .

iii. Securities Commission •Financial Reporting Act 1997 grants the enforcement power to securities commission to regulate all public listed companies to prepare and present their financial statements in compliance with FRS. .

iv. . Bank Negara Malaysia (BNM) •BNM is a body granted by Financial Reporting Act 1997 the enforcement power to ensure all banks and financial institutions prepare and present their financial statements in compliance with FRS.

. Discuss three factors that explain the differences between these two groups and explain whether it is possible to resolve the differences in harmonizing the various accounting practices around the world.Question 4 The accounting practices of various countries around the world can be classified under two groups – Anglo Saxon Model and Continental European Model.

Three factors that explain the differences between Anglo Saxon Model and Continental European Model: .

• Codified Roman Law – Body of codified accounting laws prescribing in detail how ach type of transaction or event should be treated.e. Japan. – Accounting rules in these countries tend to be legislated (i. New Zealand. Ireland. – In these countries. Australia. the source of accounting rules tends to be non-governmental organizations.. Canada. India. Italy. – Leads to the creation of precedents or case law. . USA. Germany. – Eg: England and Wales. Portugal. – Eg: France. Spain. Netherlands.1. the source is the government). Legal Systems • Common Law – Few detailed accounting law and development of accounting practices depends on the professional judgment of accountants.

Providers of Finance • Different information needs • Equity investors perspective: – Objective information for Stewardship – Fair information for investment decision-making – Reliance on external information • Loan creditors perspective: – Banks principal lenders and shareholders – Access to internal information – Published disclosures less relevant .2.

.3. • This may lead to business leaders choosing financial results which are favorable in relation to taxation rather than presenting reliable accounting results. Common Law • The role of deferred tax – Tax rules effectively becoming accounting rules • Eg: tax accounts being the same as commercial accounts in Continental European Model countries. Taxation • Looking at the extent of taxation regulations in determining the accounting measurement – Tax rules are independent of accounting rules • Outsider/equity.

Possible to resolve the differences in harmonizing the various accounting practices around the world. .

including international competition for investment and loan. – Other forces. the natural evolution of accounting principles within each nation would tend to narrow the alternatives. would also work to reduce diversity . and this would reduce the degree of diversity from country to country. Evolution in the development of accounting principles. – This approach recognizes the reasons for the differences in accounting principles: countries with different economic and legal systems should have different accounting principles. – Time and the natural development of the countries' economies would be necessary to bring accounting principles into closer harmony. – That is.Two Approaches to Harmonisation 1.

– This view looks to organizations for standard setting with multi-country authority. – For a country to voluntarily give up their own accounting destinies and delegate to others the power to set accounting standards represents a reduction in the national sovereignty. as promulgated by the International Accounting Standards Board (IASB) . The more dominant view posits that formal action should be taken to reduce diversity.2. – Some who interpret convergence as implying the use of a single set of financial reporting standards worldwide favor the use of International Accounting Standards.

Question 5 In the context of financial accounting. what are harmonization and/or standardization? .

” .Harmonization approach • Provides a common framework • Allows for some different national approaches Harmonization = Convergence • The attempt to bring together different systems • “ the process of increasing the comparability of accounting practice by setting limits on how much they can vary ” -Choi et al (2002) • “… increasing compatibility of accounting practices by setting bounds to their degree of variability.Nobes & Parker (2004) .

and may even apply a single standard rules to all situations .Standardization approach • Rules to account for similar items in all countries Standardization = Uniformity • Imposition of a rigid and narrow set of rules.

Evaluate this argument. there will be a greater propensity for such organisations to make public disclosure of information. as opposed to other sources of finance. .Question 6 Nobes (1998) suggests that for countries that have organisation rely relatively heavily on equity markets.

May access to internal information • In countries with important equity markets and many outsider shareholders. •The aim of imposing a public disclosure obligation is to guarantee that the capital market operates in openness and honesty through a complete and accurate disclosure. the demand for information made available outside the company becomes greater. information will be available more directly. .•In countries with credit-based financial system tends to be less demand for public accountability and information disclosure.

thus can reduce cost of capital . • Can enhance the confident of investors. • Use to judge for themselves whether to buy. or hold a particular security. • It is not feasible for a company to allow hundreds and thousands of investors access to internal accounting records. sell.• Investor need fair information for investment decision.

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