Standard Setting In Malaysia Learning Objectives

i. Understand the development of accounting standards in Malaysia. ii. Describe the structure and objectives of Malaysian Accounting Standards Board. iii. Describe the structure and objectives of the International Accounting Standards Board. iv. E plain the issues related to convergence of accounting standards. v. E plain the relationship bet!een Malaysian Accounting Standards Board to International Accounting Standards Board in relation to convergence of accounting standards.

1.0 Introduction Accounting standards refer to a set of standards stating how particular types of transactions and other events should be reflected in financial statements. These standards are issued by accounting standard setters. The application of accounting standards in the preparation and presentation of financial statements is generally govern by regulatory bodies and/or professional accounting bodies in a particular country. The emergence and development of multinational concerns and the growth of international financial markets, among other factors, are influencing the preparation of financial statements beyond national borders. Many countries around the world that are using their national Generally Accepted Accounting Principles GAAP! are adopting the "nternational #inancial $eporting %tandards "#$%! in the preparation and presentation of their financial statements. The "#$%s are issued by "nternational Accounting %tandards &oard "A%&! and the adoption of "#$%s is having a growing influence on national accounting re'uirements and practices. This chapter discusses the adoption of "#$%s and other aspects of standard(setting environment in Malaysia. 2.0 Development of inancial !eporting in Malaysia The demand for corporate information by capital providers and other stakeholders, such as employees, suppliers, customers and other agents has shaped the financial reporting environment in Malaysia. These parties re'uire corporate information in making their economic decisions. The provision of corporate information to these users has been initiated by the )inth %chedule of the *ompanies Act +,-. re'uiring companies to disclose minimum information. #inancial reporting environment has evolved since then and currently companies are disclosing more comprehensive information as a result of considerable efforts by various bodies. #igure + depicts the timing of significant events related to the development of financial reporting in Malaysia.

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igure 1" #imeframe Depicting Significant $vents !elated to t%e Development of inancial !eporting In Malaysia. &eriod +,-. +,/, inancial !eporting Development )inth %chedule of the *ompanies Act +,-. ( Minimum disclosure of specific information $epresentation on the "nternational Accounting %tandards *ommittee "A%*! ( Adoption of "nternational Accounting %tandards "A%! ( "ssue of Malaysian Accounting %tandards MA%! #inancial $eporting Act +,,/ established #inancial $eporting #oundation #$#! and Malaysian Accounting %tandards &oard MA%&! ( #$#, a trustee body responsible for the oversight of MA%&0s operations ( MA%& is responsible for standard setting in Malaysia ( MA%& issue standards called MA%&, e.g. MA%& 1 Inventories MA%& standards renamed as #$%, e.g. #$% +21 Inventories *onvergence of #$%s MA%&! with "#$%s as issued by "A%&!

+,,/

122. 12+1

The provision of corporate information in Malaysia was first mandated by the *ompanies Act +,-. re'uirements. %chedule , of the *ompanies Act +,-. re'uires all registered companies in Malaysia to disclose specific information in their financial statements. 3owever, the format and content of financial statements are not prescribed by %chedule , of the *ompanies Act +,-.. As such, only minimum disclosure re'uirements are prescribed by the legislation. The disclosure of corporate information beyond the minimum statutory disclosure re'uirements in Malaysia began in +,/, when Malaysia was represented on the "nternational Accounting %tandards *ommittee "A%*!. The "A%* was set up in +,/4 and was responsible for the setting of "nternational Accounting %tandards "A%!. The guidelines issued by the "A%* were called %tanding "nterpretations *ommittee %"*!. %oon after its representation on the "A%*, Malaysia began adopting the "A%s. 5hile the adoption of "A%s lead to more comprehensive disclosure of corporate information, it was not able to meet some local reporting re'uirements. Accounting and reporting re'uirements for transactions and events in relation to specific industries such as a'uaculture and insurance were not addressed by the "A%s. "n meeting the local reporting re'uirements, accounting standards known as Malaysian Accounting %tandards MA%s! were issued 6ointly by two professional accounting bodies in the +,72s. These bodies were represented by Malaysian "nstitute of Accountants M"A!, Malaysian Association of *ertified Public Accountants MA*PA!, now known as Malaysian "nstitute of *ertified Public Accountants M"*PA!. 89amples of these standards are MA% + Earnings "er Share, MA% - Accounting for #ood!ill and MA% 7 Accounting for "re$ %ropping %osts. 2.1 Malaysian 'ccounting Standards (oard )M'S(* The standard setting role by M"A and MA*PA was superseded by Malaysian Accounting %tandards &oard MA%&! in +,,/. MA%& is established under the #inancial $eporting Act +,,/ #$A +,,/!. The Act was ga:etted on - March +,,/. "n addition to MA%&, the Act also

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created #inancial $eporting #oundation #$#!. The overall responsibility of the #$# is to oversee the operating activities of the MA%&. The #$# comprises of nineteen +,! members who are appointed by the Minister of #inance. ( ( seven members are e9(officio representing the Minister of #inance, the *entral &ank, the %ecurities *ommission, the *ompanies *ommission of Malaysia, the &ursa Malaysia &erhad, the M"A and the MA%&, and twelve members representing a broad spectrum of interest groups ( principal officers of public listed companies, senior partners of public accounting firms and persons with other relevant e9perience and background.

The responsibilities of the #$# as provided under the #inancial $eporting Act +,,/ are as follows; i. To provide views to the MA%& on matters which the MA%& seeks to undertake or implement with respect to the development and issue of accounting standards and conceptual framework< ii. To review the performance of MA%&< iii. To be responsible for the financing arrangements and operations of the MA%&< iv. To approve the MA%& budget< v. To engage or to employ persons and determine the conditions of such appointments as are necessary to assist the #$# and MA%& perform their functions under the Act< vi. To administer the fund established to finance the ongoing operations of #$# and MA%& including management of funds not e9panded on operations during any period< vii. To maintain proper accounts and prepare an annual statement of accounts of the #$#< viii. To forward annual statement of accounts and audit report to the Minister of #inance, and report on the activities of the #$# and MA%& at the end of each financial year, and i9. To perform such other functions as prescribe by the Minister of #inance prescribe. The functions and powers of the MA%& as provided under the Act are to;

issue new accounting standards as approved accounting standards and to review, revise or adopt e9isting accounting standards as approved accounting standards< issue statements of principles for financial reporting< sponsor or undertake development of possible accounting standards< conduct public consultation as necessary< develop a conceptual framework for the purpose of evaluating proposed accounting standards< make such changes to proposed accounting standards as considered necessary< seek the view of the #$# in relation to new and e9isting standards, statement of principles, and changes to proposed standards< determine scope and application of accounting standards< and to perform such other function as the Minister of #inance may prescribe.

The functions of the MA%& as formulated in its mission statement are as follows; i. to develop and promote high 'uality accounting and reporting standards that are consistent with international best practices for the benefit of users, preparers, auditors and the public in Malaysia, and
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ii. to contribute directly to the international development of financial reporting for the benefit of users, preparers and auditors of financial reports. "n fulfilling the above functions, MA%& sets out the following ob6ectives;

to develop high 'uality, clear and enforceable national accounting standards for financial reporting that benefit users< to bring about harmonisation of national accounting standards with international accounting standards< to promote the use and application of those standards by way of communication with and education of users, preparers, auditors and the public< to actively contribute to the development of accounting standards internationally, including, "slamic(based accounting standards< and to promote and support research in the area of financial reporting, in particular, for emerging markets and "slamic markets.

The members of MA%& are appointed by the Minister of #inance and comprises of the following members; ( ( ( ( a chairman, the Accountant General, advisors representing the %ecurities *ommission, *ompanies *ommission of Malaysia and M"A, and si9 other members with e9pertise in accountancy, law, business and finance. "t should be noted that the #$A +,,/ specifies that at least five of these members are members of M"A.

%ection 1/ of the #$A +,,/ re'uires all companies incorporated under the *ompanies Act to comply with accounting standards issued and adopted by the MA%&. Accounting standards are defined by #$# as statements of standard accounting practices used for the preparation of financial statements. The MA%& established a committee called "ssues *ommittee and 5orking Groups in dealing with standard(setting related matters. 2.1.1 Issues +ommittee "ssues *ommittee was established in May 1221, replacing its predecessor, the "nterpretation *ommittee. The change of name reflects the e9panded scope of the committee which goes beyond interpretations of approved accounting standards. "n addition to reviewing accounting issues that have received or are likely to receive divergent views in interpretation, "ssues *ommittee also deals with other accounting related issues where there is no e9isting accounting standard. The committee comprises representatives from the accounting profession, commerce, the academia as well as an analyst and a solicitor. =bserver representatives from M"A, %ecurities *ommission, &ank )egara Malaysia and *ompanies *ommission of Malaysia also form part of the committee. 2.1.2 ,or-ing .roup The MA%& has established numerous 5orking Groups which are assigned with different pro6ects. 8ach working group is responsible for reviewing and undertaking detailed studies of
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the assigned pro6ect, taking into accounts any statutory and regulatory reporting re'uirements as well as its practical implications. A 5orking Group must be chaired by a member of the MA%&. =ther group members include a pro6ect manager and representatives from the accounting profession, commerce, academia as well as regulatory authorities. The works undertaken by 5orking Groups play an important role in the development of the MA%& standards. The MA%&0s due process for developing a standard is summarised in #igure 1. igure 2" M'S( Due &rocess +. 1. 4. ?. .. -. /. 7. ,. +2. MA%& 5orking Group MA%& #$# MA%& Public 5orking Group MA%& #$# MA%& "dentifies "A% for review. Prepares >iscussion Paper >P!. $eview >P. $eview >P. #inalises >P into 89posure >raft 8>!. Public e9posure of 8>. Prepare report on feedback received on 8>. $eview feedback on 8>. #inal review of feedback on 8>. Approval of MA%& standard followed by issue of MA%& standard.

Prior to the creation of MA%&, Malaysia has already adopted the "A%s issued by the "A%* and MA%s issued by the *ouncil of M"A and M"*PA. @pon its creation, MA%& adopted most of these standards which gave these standards the status of approved accounting standards. These standards were referred to as MA%& standards. 5ith the e9ception of the adopted MA%s, the MA%& standards were in substance similar to the "A%s. "n April 122+, the international standard setting role of "A%* was superseded by the "A%& and subse'uently the "A%& began issuing "nternational #inancial $eporting %tandards "#$%!. At this point in time, all "A%s issued by the "A%* remained in force until amended or withdrawn by the new "#$% issued by "A%&. "n line with this development, MA%& standards have been renamed to #inancial $eporting %tandards #$%! in 122.. The numbering of the #$%s corresponds to the "#$%s issued by the "A%&. #or e9ample, #$% + in Malaysia is e'uivalent to "#$% +. #$% with a +22 prefi9 corresponds to its e'uivalent "A%s. Thus #$% +2+ is e'uivalent to "A% +. #$% with a 122 prefi9 represents locally developed %tandard with no e'uivalent "nternational %tandard. "n addition to the accounting standards, the "A%& has also issued the #ramework for the Preparation and Presentation of #inancial %tatements. The MA%& adopted similar #ramework known as the #$% #ramework. "n )ovember 12++, the MA%& issued a new approved accounting framework, the Malaysian #inancial $eporting %tandards M#$% #ramework!.
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*ompliance with M#$% #ramework is effective on + Aanuary 12+1. The M#$% #ramework is to be applied by all 8ntities =ther Than Private 8ntities, with the e9ception of entities that are within the scope of M#$% +?+ Agriculture M#$% +?+! and "* "nterpretation +. Agreements for %onstruction of &eal Estate "* +.!, including its parent, significant investor and venturer. The accounting standards under the new framework is known as M#$% standards. The list of M#$% standards effective on + Aanuary 12+1 are shown in #igure 4 below. igure /" List of M !S Standards #itle of M !Ss M#$% + M#$% 1 M#$% 4 M#$% ? M#$% . M#$% M#$% / M#$% 7 M#$%, M#$% +2+ M#$% +21 M#$% +2/ M#$% +27 M#$% ++2 M#$% +++ M#$% ++1 M#$% ++M#$% ++/ M#$% ++7 M#$% ++, M#$% +12 M#$% +1+ M#$% +14 #irst(time Adoption of "nternational #inancial $eporting %tandards %hare(based Payment &usiness *ombinations "nsurance *ontracts )on(current Assets 3eld for %ale and >iscontinued =perations 89ploration for and 8valuation of Mineral $esources #inancial "nstruments; >isclosures =perating %egments #inancial "nstruments Presentation of #inancial %tatements "nventories %tatement of *ash #lows Accounting Policies, *hanges in Accounting 8stimates and 8rrors 8vents After the $eporting Period *onstruction *ontracts "ncome Ta9es Property, Plant and 8'uipment Beases $evenue 8mployee &enefits Accounting for Government Grants and >isclosure of Government Assistance The 8ffects of *hanges in #oreign 89change $ates &orrowing *osts

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M#$% +1? M#$% +1M#$% +1/ M#$% +17 M#$% +1, M#$% +4+ M#$% +41 M#$% +44 M#$% +4? M#$% +4M#$% +4/ M#$% +47 M#$% +4, M#$% +?2 M#$% +?+

$elated Party >isclosures Accounting and $eporting by $etirement &enefit Plans *onsolidated and %eparate #inancial %tatements "nvestments in Associates #inancial $eporting in 3yperinflationary 8conomies "nterests in Aoint Centures #inancial "nstruments; Presentation 8arnings per %hare "nterim #inancial $eporting "mpairment of Assets Provisions, *ontingent Biabilities and *ontingent Assets "ntangible Assets #inancial "nstruments; $ecognition and Measurement "nvestment Property Agriculture

"n addition to the above standards, the MA%& started a pro6ect on "slamic financial reporting in +,,/. "n 122+, the board issued MA%& i(+ later re(numbered #$% i(+!, "resentation of 'inancial Statements of Islamic 'inancial Institutions . 3owever, this standard was subse'uently withdrawn as the MA%& ceased its policies of issuing "slamic accounting standards. The MA%& is of the opinion that such standards are largely similar to the current standards in issue. "n line with this, the MA%& issued %tatement of Principles i(+ %=P i(+!, #inancial $eporting from an "slamic Perspective on +. %eptember 122,. %=P i(+ affirm% that MA%& approved accounting standards shall apply to %hariah compliant financial transactions and events, unless there is a %hariah prohibition. 2.1./ #ec%nical &ronouncements "n addition to issuing standards, the MA%& may also issue technical pronouncements such as %tatement of Principles %=P!, Technical $eleases T$! and "nterpretation &ulletin. The purpose of a technical pronouncement is to provide guidance on the application of generally accepted accounting principles. "n some instances, the issue of a pronouncement represents an interim measure prior to the issue of a particular standard. "t should be noted that the technical pronouncements do not amend or overide MA%& %tandards or other statements issued by the MA%&. 89amples of technical pronouncements that have been issued are as follows; #itle $ffective Date Summary
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T$ 1 T$ 4 T$ i ( + T$ i ( 1 T$ i ( 4 T$ i ( ?

The Dear 1222 "ssue ; Accounting and >isclosure Guidance on >isclosures of Transition to "#$%s Accounting for Eakat on &usiness "6arah Presentation of #inancial %tatements of "slamic #inancial "nstitutions %hariah *ompliant %ale *ontracts

4+ Auly +,,7 4+ >ecember 12+2 + Auly 122+ Auly 122+ Aan 12+2 + Aan 12++

/.0 International 'ccounting Standards =n + August 1227, MA%& issued a statement with regards to its plan for full convergence of #$%s applicable in Malaysia with "#$%s issued by "A%& by the year 12+1 for all entities other than private entities. #ull convergence refers to full compliance with "#$% as a basis for financial reporting system in Malaysia. "n moving towards full convergence, MA%& participates actively in the "A%&0s due process at an early stage of standard development. This is important in ensuring that the standards adopted are consistent with international best practice as well as regulatory re'uirements in Malaysia. Active participation by MA%& started since "A%& began its international due process in 122+. /.1.1 #%e International 'ccounting Standards (oard )I'S(* The "A%& is an independent and privately(funded accounting standard(setting body. The standard setting responsibilities was assumed from its predecessor the "A%* in 122+, following the restructuring of the "A%*. The "A%* oversees the operations of the "A%& and promotes adoption of "#$%s around the world. 3owever, the technical aspects related to the "#$%s lies with the "A%&. The "A%& is responsible for the development and publication of "#$%s, including the "#$% for %M8s and for approving "nterpretations of "#$%s as developed by the "#$% "nterpretations *ommittee formerly called the "#$"*!. To bring about convergence of national accounting standards and "#$%s, the "A%& engages closely with stakeholders around the world. The various stakeholders include investors, analysts, regulators, business leaders, accounting standard(setters and the accounting profession. The ob6ectives of the "A%& as set out in its constitution; to develop, in the public interest, a single set of high 'uality, understandable and enforceable global accounting standards that re'uire high 'uality, transparent and comparable information in financial statements and other financial reporting to help participants in the world0s capital markets and other users make economic decisions< to promote the use and rigorous application of those standards< in fulfilling the ob6ectives associated with a! and b!, to take account of, as appropriate, the special needs of small and medium(si:ed entities and emerging economies< and to bring about convergence of national accounting standards and "#$%s to high 'uality solutions.

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The main features of the "A%& structure are as follows; i. The "A%* #oundation also known as "#$% #oundation! has two main bodies, the Trustees and the "A%&. The overall ob6ective of the "A%* #oundation is to develop a set of high 'uality, understandable, enforceable and globally accepted financial reporting standards through its standard setting body, the "A%&. ii. The "A%& is responsible for setting accounting standards. iii. %tandards Advisory *ouncil and "#$% "nterpretations *ommittee are two other bodies within the "A%& structure. The structure of the "A%& is as shown in #igure ?. igure 0" Structure of I'S(
+onitoring ,oard o) #u-!ic authorities Trustees o) "AS *oundation

IASC Foundation

IASB Standard Advisory ounci!

"nter#retation

o$$ittee

%or&ing 'rou#

(ey A##oints Re#orts to Advises

#rustees Members of the trustees must be selected from the Asia/=ceania region si9 members!, 8urope si9 members!, )orth America si9 members!, Africa one member!, %outh America one member! and the remaining parts of the world two members!. The trustees are accountable to the Monitoring &oard of public authorities and are entrusted with the governance and oversight of the activities undertaken by the "A%* #oundation and "A%&. The "A%& strategy will be reviewed and assessed annually by the trustees. The trustees are also responsible for safeguarding the independence of the "A%&, ensuring the financing of the organisation and the appointment of the "A%& members. Members of the "A%&
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comprise of e9perts with an appropriate mi9 of recent practical e9perience of standard( setting, or of the user, accounting, academic or preparer communities. At the same time, the trustees promote the work of the "A%& and the application of "#$%s. 3owever, they are not involved in the technical aspects of the matters relating to accounting standards as these aspects are the responsibilities of the "A%&. =ther responsibilities of the trustees also include amending the operating procedures, consultative arrangements and due process for the "A%&, the "nterpretations *ommittee and the Advisory *ouncil< #%e I !S Interpretations +ommittee The "#$% "nterpretations *ommittee formerly called the "#$"*! is the interpretative body of the "A%&. The members are appointed by the Trustees and drawn from a variety of countries and professional backgrounds. The *ommittee provides timely guidance on accounting issues that have arisen within the conte9t of current "#$%s and to provide authoritative guidance )"#$"*s! on those issues. Standards 'dvisory +ouncil Members of the *ouncil comprise groups and individuals with diverse geographic and functional backgrounds. They advise the Trustees and "A%& on all ma6or pro6ects. I'S( Due &rocess The due process, which involves interested individuals and organisations from around the world comprises of si9 stages. These stages are; +. 1. 4. %etting the agenda. The main consideration of the "A%& in deciding whether a particular item is to be included in its agenda is based on whether such item will add value to the needs of the investors. Planning the pro6ect. =nce a new agenda is established, the "A%& will consider whether the pro6ect will be conducted alone or with other standard(setter. At this stage, a working group will be established. >eveloping and publishing the discussion paper. The development and publication of the discussion paper can arise from an active agenda pro6ect of the "A%& or a research pro6ect conducted by another standard setter. 8ven though the discussion paper is not mandatory, it is usual for "A%& to publish it as its first publication with the ob6ective of e9plaining the issue and solicit views from various constituents. "ssues in the discussion paper are discussed in the "A%& meeting. %ubse'uently, any technical issues in the discussion paper are discussed in the public session. >eveloping and publishing the e9posure draft. "n contrast to discussion paper, the development and publication of the e9posure draft is mandatory step in the due process of the "A%&. The development of a particular e9posure draft takes into account various issues, comments and suggestions received from various parties. =nce these matters are resolved at the "A%& meeting, an e9posure draft will be drafted. "t sets out a proposed standard or amendment to an e9isting standard and this will be issued for public comments. >eveloping and publishing the standard. =nce the "A%& received the views from the public on a particular e9posure draft, a meeting will be held and the "A%& will consider whether a re(e9posure is necessary. "f all the issues raised are concluded satisfactorily, the "A%& will instruct its staff to draft the relevant "#$%. After the standard is issued, the "A%& will hold regular meetings with various parties in order to understand issues related to the practical implementation of the "#$% and any impact of the "#$%. 8ducational activities are also carried out by the "A%*
Page 1.

?.

..

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#oundation in ensuring consistent application of the "#$%. After certain period has elapsed, the "A%& will initiate review of the application of the "#$% in order to identify whether there is a need to revise the e9isting "#$% and as such will be a new item on the "A%& agenda.

0.0 &rivate $ntities Private entities in Malaysia are e9empted from applying #$% starting from the year 122-. These companies may continue to apply the MA%& standards referred to as Private 8ntity $eporting %tandards P8$%!. These standards were issued subse'uent to the establishment of MA%& in +,,/ and they are called MA%&. The list of P8$% is shown in #igure .. Private entity is a private company incorporated under the *ompanies Act +,-.. This company;

is not re'uired to prepare or lodge any financial statements under any law administered by the %ecurities *ommission or the &ank )egara Malaysia< and is not a subsidiary or associate of, or 6ointly controlled by, an entity which is re'uired to prepare or lodge any financial statements under any law administered by the %ecurities *ommission or the &ank )egara Malaysia.

A private company is defined in %ection +. +! of *ompanies Act +,-. as a company having a share capital and incorporated as a private company. At the same time, its memorandum or articles of association states the following; i. ii. restricts the right to transfer its shares< limits to not more than fifty the number of its members counting 6oint holders of shares as one person and not counting any person in the employment of the company or of its subsidiary or any person who while previously in the employment of the company or of its subsidiary was and thereafter has continued to be a member of the company!< prohibits any invitation to the public to subscribe for any shares in or debentures of the company< and prohibits any invitation to the public to deposit money with the company for fi9ed periods or payable at call, whether bearing or not bearing interest.

iii. iv.

"n preparing its financial statements, an entity may only be treated as a private entity in relation to such annual periods or annual periods through out which it is a private entity. Private entities shall apply either P8$% in their entirety or #$% in their entirety in the preparation and presentation of their financial statements. igure 1" List of &$!S Standard MA%& + #itle Presentation of #inancial %tatements $ffective Date + Auly +,,,
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MA%& 1 MA%& 4 MA%& ? MA%& . MA%& MA%& / MA%& , MA%& +2 MA%& ++ MA%& +1 MA%& +? MA%& +. MA%& +MA%& +, MA%& 12 MA%& 14 MA%& 1. MA%& 1/ MA%& 17 MA%& 1, MA%& 42 MA%& 4+ MA%& 41 "A% 1. "A% 1, MA% . "&(+

"nventories )et Profit or Boss for the Period, #undamental 8rrors and *hanges in Accounting Policies $esearch and >evelopment *osts *ash #low %tatements The 8ffects of *hanges in #oreign 89change $ates *onstruction *ontracts $evenue Beases *onsolidated #inancial %tatements and "nvestments in %ubsidiaries "nvestments in Associates >epreciation Accounting Property, Plant F 8'uipment #inancial $eporting of "nterests in Aoint Centure 8vents after the &alance %heet >ate Provisions, *ontingent Biabilities F *ontingent Assets "mpairment of Assets "ncome Ta9es &orrowing *osts >iscontinuing =perations 8mployee &enefits Accounting and $eporting by $etirement &enefit Plans Accounting for Government Grants and >isclosure of Government Assistance Property >evelopment Activities Accounting for "nvestments #inancial $eporting in 3yperinflationary 8conomies Accounting for A'uaculture Preliminary and Pre(operating 89penditure

+ Auly +,,, + Auly +,,, + Auly +,,, + Auly +,,, + Auly +,,, + Auly +,,, + Aan 1222 + Aan 1222 + Aan 1222 + Aan 1222 + Auly 1222 + Auly 1222 + Auly 1222 + Auly 122+ + Auly 122+ + Aan 1221 + Auly 1221 + Auly 1221 + Aan 1224 + Aan 1224 + Aan 1224 + Aan 122? + Aan 122? + %ept +,,7 + Aan 1224 + %ept +,,7 + Aan 122+

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1.0 +onvergence of 'ccounting Standards *urrently, the top global capital markets that re'uire or permit the use of "#$% are; a! b! c! d! e! f! g! @nited Gingdom< #rance< Germany< 3ong Gong< %pain< %wit:erland< Australia.

"n Malaysia, all entities that are re'uired to comply with approved accounting standards under the #inancial $eporting Act +,,/ will be re'uired to prepare and present their financial statements in accordance to the "#$%s, e9cept for private entities. #ull compliance begins on or after Aanuary +, 12+1. "n moving towards this, the MA%& issued a new MA%& approved accounting framework, the Malaysian #inancial $eporting %tandards M#$% #ramework! in )ovember 12++. The new famework is effective on + Aanuary 12+1 and it comprises new/revised accounting standards issued by the "A%& that was effective after + Aanuary 12+1. #inancial statements prepared in compliance with this framework is a fully "#$%(compliant framework and e'uivalent to "#$%s. 1.1 (enefits of +onvergence The benefits of convergence based on the benefits to various users of financial statements can be summarised as follows; i. "nvestors ( "ncrease comparability of financial information across borders as well as among companies nationally in making investment decisions. ( "ncrease transparency. ( Greater understandabiliy. ii. Multinational companies ( &etter access to foreign capital markets. ( "ncrease credibility of domestic capital markets to foreign capital providers. ( #acilitate compliance with reporting re'uirements of foreign stock e9changes, ( #acilitate preparation and presentation of financial statements as companies are only re'uired to maintain one set of books prepared in compliance with "#$%s. ( Bower cost of capital to companies. iii. $egulatory bodies ( 8ase of regulation of securities market as convergence increases regulatory acceptability of financial information provided by market participants. ( $educed costs of national standard setters. ( #acilitate calculation of ta9 liability for companies receiving income from international sources. ( Transfer of accounting staffs across borders as similar accounting practices e9isted worldwide. ( Promote economic growth within region practicing common accounting practices.
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1.2 +%allenges of +onvergence The challenges of convergence include; ( Application of similar "#$%s may not be appropriate as the purpose of financial reporting differs across countries. #or e9ample, in countries where the legal system is based on $oman Baw, the financial statements are prepared for ta9 assessment while in other countries the information is for investor decision(making. ( >ifferent legal system can hinder development of certain accounting practices. ( >ifferent in culture may affect variations in ob6ectives of accounting systems. ( Back of professional e9pertise due to lack of strong accountancy bodies in certain countries. ( >ifferent emphasis on user groups. #or instance, investors and creditors are important in the @%A, employees are important in 8urope while in many 8ast Asian countries where corporate ownerships are more concentrated, there are lower investor protection. ( >evelopment of standards and principles in developing countries are not at par with the developed countries. This could slower the rate of full convergence in some countries. ( )ational standards in some countries are not based on a conceptual framework of accounting while "#$%s are. 2.0 Summary $eliable and transparent financial reporting is paramount to support the decision(making by investors, lenders and regulatory authorities. "n meeting the needs of various users, there is a need to develop and issue accounting standards that are of high 'uality, transparent and comparable in the preparation of financial statements. The current move is through the adoption of "#$%s by countries around the world. The "A%& is responsible for setting and issuing the "#$%s. "n ensuring the success of full convergence, the work of national standard setters and the "A%& should be integrated. "n Malaysia, the MA%& actively participates in the "A%&0s due process at an early stage of standard development. "n line with the MA%&0s convergence effort in 12+1, the board issued a new MA%& approved accounting framework, the Malaysian #inancial $eporting %tandards M#$% #ramework! in )ovember 12++. The new famework is effective on + Aanuary 12+1 and it comprises new/revised accounting standards issued by the "A%& that was effective after + Aanuary 12+1. *ompliance with this framework facilitates companies in Malaysia to prepare their financial statements in accordance to "#$%s as the new framework is a fully "#$%(compliant framework and e'uivalent to "#$%s.

3uestions
+. 89plain the development of accounting standards in Malaysia. 1. >escribe the structure and ob6ectives of Malaysian Accounting %tandards &oard. 4. 5hat is the difference between "nternational Accounting %tandards and "nternational #inancial $eporting %tandardsH ?. Bist some of the benefits and challenges to convergence.
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.. "n some countries, income reported to investors differ from income prepared for ta9 calculations. >iscuss whether these income should be identically determined through the application of "nternational #inancial $eporting %tandards. -. %tandard setting approaches in countries may differ. >iscuss how these difference affect the acceptance of compliance with "nternational #inancial $eporting %tandards.

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