INTRODUCTION

ACCOUNTING STANDARDS AND

MALAYSIAN ACCOUNTING STANDARDS
BOARD (MASB)

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 Learning Objectives
1. Describe the purpose of financial reporting and identify
the primary financial statements.
2. Explain the function of accounting standards and describe
the role of the MASB in setting these standards in the
Malaysia.
3. Recognize the importance to financial reporting of the FRF,
SC, MIA,MICPA, BM and BNM.
4. Realize the growing importance and relevance of
international accounting issues to the practice of
accounting in Malaysia and understand the role of IASB in
international accounting standard setting.

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 Definition for Accounting

“Accounting is a service activity. Its function

is to provide quantitative information,
primarily financial in nature, about economic
entities that is intended to be useful in
making economic decisions - in making
reasoned choices among alternative courses
of action.”.

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 Accounting and Capital Allocation

Resources are limited. Efficient use of resources often

determines whether a business thrives.

Financial
Users Capital Allocation
Reporting
Information to help Investors, creditors, The process of
users with capital and other users determining how
allocation decisions. and at what cost
money is allocated
among competing
interests.

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Users of Accounting Information

All parties interested in

the financial health of a
company are called
stakeholders.

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Major Internal and External Stakeholder
Groups

Investors
Government Community
Board of Directors
Analysts Management Suppliers
Employees
Customers Employees
Creditors

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 Users of Accounting Information

Two major classifications of stakeholders

Internal users, who

make decisions
directly affecting External users, who
the internal make decisions
operations of the concerning their
enterprise. relationship to the
enterprise.
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 Financial Reporting
Accounting systems are designed to
generate information for Internal &
External reporting.
External information - more highly
Financial Accounting Standards –
summarized than information
established a uniform method of
reported internally because Co. do
presenting information so that financial
not want to disclose every detail of
reports for different companies can be
financial information to outsiders.
more easily compared.
External financial reporting is
The centre piece of financial
governed by an established body of
accounting is the general purpose of
standards or principles that are
financial statement.
designed to carefully define what
information a firm must disclose to Comprises : Balance Sheet, Income
outsiders. Statement and Statement of Cash Flow

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 Financial Reporting

Complete set of Financial Statement

MFRS101 (para 10) provides that a complete set of Financial
Statements should the following components :
1. A Statement of Financial Position (Balance Sheet)
2. A Statement of Comprehensive Income (Income Statement)
3. A Statement of Changes in Equity
4. A Statement of Cash Flows
5. Notes comprising a summary of significant accounting policies
and explanatory notes

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 Financial Reporting

Accounting estimates
and judgments are
outlined in the notes to
financial
Thus this notes to financial statements.
statements must be read
together with the financial
statements as the notes contains
supplemental information &
information about items not
included in financial statement.
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 Need to Develop Standards

Various users need Financial Statements

financial Balance Sheet
Income Statement
information Statement of Stockholders’ Equity
Statement of Cash Flows
Note Disclosure

The accounting profession

has attempted to develop a Generally Accepted
set of standards that are
Accounting Principles
generally accepted and
universally practiced. (GAAP) - MASB

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 Development of Accounting Standards
in Malaysia
Before Companies Ordinances (and amendments) - regulates
1965 financial reporting
After Companies Act 1965 - reporting requirements, rules &
1965 regulations on accounting were formally established -
Ninth Schedule
1967 Malaysian Institute of Accountants (MIA) was established
~ its regulations cover the practices of the whole
accounting profession in Malaysia
The initiative to adopt the International Accounting Standards
1978
(IASs) started in 1978 by the Malaysian Association of Certified
Public Accountants (MACPA).
1979 MACPA became member of the International Accounting
Standards Committee (IASC)

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 Development of Accounting Standards
in Malaysia
1978 Accounting standard setting and enforcement by MIA
to and MACPA
1996 Adopted IAS and issued MAS
No legal standing – it’s a matter of discipline
1997 Financial Reporting Act, 1997 was passed and enacted
Under the Act of Parliament, MASB set accounting
standard
Legal standing conferred upon MASB accounting
standards
The Companies Act 1965 was also amended to
incorporate the same requirements.
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 Development of Accounting Standards
in Malaysia
1997 MASB issued 33 accounting standards; overall
to framework is consistent in all material respects to that
2003 of IASB
2004 Efforts to converge with IFRS
to
MASB issued 21 new/revised FRS (consistent in all
2005
material respects to the corresponding IFRSs at 1
January 2005)
2006 Introduction of 2-tier financial reporting structure –
FRS (for non-private entities) and PERS (for private
entities)
18 new/revised FRS became effective on 1 January
2006
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 Development of Accounting Standards
in Malaysia

2012 Converge with IFRS by 1 January 2012,

rename FRS to Malaysian Financial Reporting
Standards (MFRS) and issued a new MFRS
framework that are effective from 1 January
2012.

2016 FRF and MASB announced the new Malaysian

Private Entity Reporting Standards (MPERS)
and replace PERS beginning 1 January 2016.
MPERS is similar to IFRS for SMEs.
Beginning 1 January 2016, Private Entities may
choose to apply the MFRS or MPERS.

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 Development of Accounting Standards
in Malaysia
 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.
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Evolution of Accounting Standards: Malaysian
Perspective
History of Malaysian Financial Reporting Standards
(Summary)
IAS and MAS (1980s)

MASB Standards(1997)

FRS (2006)

MFRS (2012)
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 Recent Developments in Financial
Reporting in Malaysia
MFRS are largely based on International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS) issued by IASB and MASB
adopt in summary:

 For the new IFRSs

issued by the IASB, the
MASB will follow the
exact numbering of the
IFRSs.

 E.g. IFRS 2 Shared-

based Payment will be
referred to as MFRS 2;
IFRS 3 Business
Combinations will be
referred to as MFRS 3
etc.
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 For standards
in line with
IASs are
numbered with
‘100’ digit.

 Eg. IAS 1
Presentation of
Financial
Statements is
numbered
MFRS 101; IAS
2 becomes
MFRS 102 etc.

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 Local
standards
adopted by
the MASB
have also
been
renumbered
but they
start with
‘200’ digit.

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 Recent Developments in Financial Reporting in
Malaysia
 IC Interpretation are interpretation statements issued by the
MASB under its Interpretation Committee, and are exactly
the same as Interpretations issued by the Standing
Interpretation Committee (SIC) of the IASC and International
Financial Reporting Interpretation Committee (IFRIC) of
IASB. MASB adopts the following numbering system for IC
Interpretations:
 Eg. IFRIC 19 is adopted as IC Interpretation 19

Source : www.masb.org.my

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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.

Professional bodies
 Professional bodies plays a role in supporting the financial reporting process.
 Examples of professional bodies are MICPA, ACCA, CPA Australia and CIMA.
 Development of Accounting Standards
in Malaysia
Standards Setting Bodies:
1. MIA – Malaysian Institute of Accountants
2. MICPA - The Malaysian Institute of Certified Public Accountants
(Note: MIA and MICPA jointly set MASs in 1980s)

3. MASB – Malaysian Accounting Standard Boards – sole authority to

set legally binding accounting standards in Malaysia
4. FRF – Financial Reporting Foundation – comprises of representation
from all relevant parties (private/public sector) in standard setting
process, including preparers, users, regulators and accountancy
profession.
Both make-up the new framework for financial reporting in Malaysia.

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 Development of Accounting Standards
in Malaysia
1. MIA (Malaysian Institute of Accountants)

 Established under Act of Parliament – Accountant Act 1967 as the

national accounting body.
 Member body of regional & international professional bodies
 Functions:
o Regulate the practice of accountancy profession in Malaysia
o Promote the interest of accountancy profession in Malaysia
o Provide training education & examination by the Institute or any
other body, of person practicing or intending to practice the
profession
o Determine the qualifications of persons for admission as members

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 Development of Accounting Standards
in Malaysia
2. MICPA (The Malaysian Institute of Certified Public Accountants)
 Local body that conducts a professional accountancy examinations
recognized under the Accounting Act 1967
 Objectives:
o Advance the theory and practice of accountancy in all its aspects
o Recruit, educate, train and assess by means of examination or otherwise a
body of members skilled in these areas.
o Preserve at all times the professional independence of accountants in
whatever capacities they served
o Maintain high standards of practice and professional conduct by all its
members
o To do all such things as may advance the profession of accountancy in
relation to public practice, industry, commence , education and public
service

Note: MIA and MICPA jointly set MASs in 1980s

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 Development of Accounting Standards
in Malaysia
3. MASB (Malaysian Accounting Standard Board)
 Set up under Financial reporting Act 1997
 Independent authority to develop and issue accounting & financial
reporting standards in Malaysia.
 Objectives are to continually improve the quality of financial
reporting in Malaysia & contribute to the international
development of financial reporting.
Functions:
 To issue new standards
 To review, revise or adopt existing accounting standards
 To issue statement of principles for financial reporting
 To develop conceptual framework

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 Development of Accounting Standards
in Malaysia
4. FRF (Financial Reporting Foundations)
 Financial reporting Act 1997
 A trustee body oversees the operational matters of MASB, performance
and financial & funding arrangement for MASB.

 Functions:
• To provide views to MASB on any matter undertake or implement by
MASB with respect to development & issue of accounting standards and
conceptual framework.
• To review performance of MASB
• Responsible for financing arrangement & operations of MASB
• To approve MASB budget
• To administer funds established to finance ongoing operations of FRF
and MASB
• To maintain proper accounts of FRF and report activities of FRF & MASB
to Ministry of Finance.
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 Development of Accounting Standards
in Malaysia
Regulatory Bodies
 Securities Commission (SC)
 Bursa Malaysia (formerly known as Kuala Lumpur Stock
Exchange)
 Bank Negara
 Inland Revenue Board
 The Companies Commission of Malaysia (CCM)

Companies in Malaysia must comply with the requirements sets by

Companies Act 1965 & other regulatory authorities. However, the
requirement of these regulatory authorities apply only to specific
requirement or entities. In order to prepare and present high quality
financial information, Co have to apply generally accepted accounting
principle. 28
 Development of Accounting Standards
in Malaysia
Securities Commission (SC)
Established under Securities Commission Act, 1993, a self funding statutory
body with investigative and enforcement powers and authority to regulate and
developed capital market.

The SC requirements are focused on public companies and address the

following areas:
Corporate Disclosure Policy – requires Co. to maintain a high level of
disclosure.
Post Listing Obligations – requires Co. to submit reports such as annual
reports, interim reports and related party transactions.
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.
Report to Ministry of Finance Malaysia 29
 Development of Accounting Standards
in Malaysia
BURSA requirements apply to listed companies. Companies that
do not comply with the requirements may be delisted.
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.
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. 30
 Development of Accounting Standards
in Malaysia
Bank Negara Malaysia (BNM)
Central Bank for Malaysia & established in 1959 under Central
Bank of Malaya Ordinance 1958.

 Objectives:
o To issue currency and keep reserves safeguarding the value of
the currency
o Act as banker and financial adviser to Govt.
o Promote monetary stability and sound financial structure
o Influence the credit situation to the advantages of the country.
 BNM issued guidelines on financial reporting for banks and
financial institutions that deal specifically in non-performing
loans and interests, and specimen financial statement for
Banks. 31
 Development of Accounting Standards
in Malaysia

Inland Revenue Board (IRB)

 Companies and entities which are subjected to
income tax are required to comply with the
requirements of Income Tax Act 1967 for
income or loss to be ascertained.
 Companies must comply with requirements of
providing deferred taxation and franking of
dividends

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 Development of Accounting Standards
in Malaysia
The Companies Commission of Malaysia (CCM)
 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

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 Development of Accounting Standards
in Malaysia

 In addition to standards, statements, guidance

and various pronouncements, there is also the
requirement for financial statement to be true
and fair.
 Thus reporting enterprises must adhere to the
standards. Statements and other
pronouncements are not mandatory but where
issues are not addressed in the standards, then
these pronouncements should be followed

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 Due process in the issuance of MASB
standards
Stage 1: Identify topics for MASB standards either
from its own research, external sources or
from submission by regulatory authorities
and other interested parties.

Stage 2: Undertake investigation which involves

consultation and consideration of the
relevant conceptual issues, any pre-existing
pronouncements and practices both in
Malaysia and overseas, and the economic,
legal and practical implications of the
introduction of particular accounting
requirements.
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 Due process in the issuance of MASB
standards
Stage 3: When the relevant issues have been
identified, a working group is appointed
by the MASB to debate the issue.

Stage 4: A draft document is prepared in the form

of either Draft Statement of Principles
(DSOP) or an Exposure Draft (ED). This
is presented to the MASB for review and
next presented to the FRF for comments.

Stage 5: When the issues involved require more

discussions and deliberations, a
Discussion Paper (DP) may be issued.
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 Due process in the issuance of MASB
standards
Stage 6: The draft pronouncement is then
published to allow an opportunity for
interested parties to comment on the
proposal and for the MASB to gauge
the appropriateness and level of
acceptance of those proposals.

Stage 7: An exposure draft may be amended

in the light of feedback resulting from
the exposure period.

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 Role Of The Profession In Accounting
Standard Setting
 The profession plays a significant role in the standard setting
by being involved in the activities of the MASB.
 MIA and other professional accountancy bodies provide
input to the MASB.
 The professional bodies and MIA continues to educate
members by providing interpretations and guidance on the
standards issued by the Board.

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Standard Setting Illustration : User
Groups that Influence
Business Entities Accounting Standards

CAs and Financial

Accounting Firms Community

MICPA MASB Preparers

Academicians Government (SC,

IRB, other agencies)

Investing Public Industry

Associations
Accounting standards

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 International Accounting Standards Boards
(IASB)
 Formerly known as International Accounting Standards
Committee (IASC) and formed in 1973 to develop worldwide
accounting standards.
 Consists of representatives from accounting bodies from all
over the world of 142 accountancy bodies from 103
countries (including Malaysia).
 Produced accounting standards referred as International
Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS)
 Purpose: To harmonize the conflicting or differences of
accounting standards among countries.
 MASB and IASB is working together to develop a compatible
standards. 40
 International Perspective:
New Structure of IASB
 In 2001, the structure & constitution of IASC was changed
with following objectives under the new constitution:
-

 To develop in the public interest, a single set of high

quality, understandable and enforceable global accounting
standards that require high-quality, transparent and
comparable information in financial statement & other
financial reporting to help participants in the world’s capital
markets & other users make economic decision.

 Promote the use and rigorous application of those

standards, and

 To bring about convergence of national accounting

standards and IAS and IFRS to high quality solutions
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 International Perspective:
New Structure of IASB
IASC Independent
Foundation Organisation that
appoints members to
IASB, SAC, IFRIC

Standards IASB
Advisory Council Develop and issue new
(SAC) international standards
known as IFRS
SAC advises IASB, on IFRIC draws
the implications of the guidance for users
proposed standards for in two situations:
users, preparers and International Financial 1.If there is
auditors of financial Reporting Interpretation
completely new
statements Committee (IFRIC) problems arises
2.Existing standards
are being
interpreted in
conflicting ways 42