Professional Documents
Culture Documents
Accounting Standards
Chapter
1
Chapter
1-1
Chapter 1 Learning Objectives
1. Identify the major financial statements and other means of
financial reporting.
2. Explain how accounting assists in the efficient use of scarce
resources.
3. Describe some of the challenges facing accounting.
4. List the objectives of financial reporting.
5. Explain the need for accounting standards.
6. Identify the major policy-setting bodies and their role in the
standard-setting process.
7. Explain the meaning of generally accepted accounting principles.
8. Describe the impact of user groups on the standard-setting
process.
9. Understand issues related to ethics and financial accounting.
Chapter
1-2
Accounting Standards and Financial Reporting
Financial Statements
Parties Involved in Generally Accepted Issues in Financial
and Financial
Standard Setting Accounting Principles Reporting
Reporting
Chapter
1-3
Characteristics of Accounting
Chapter
1-4 LO 1 Identify the major financial statements and other means of financial reporting..
Characteristics of Accounting
Economic Entity Financial Statements Additional Information
Financial
Users Capital Allocation
Reporting
Information to help Investors, creditors, The process of
users with capital and other users determining how and
allocation decisions. at what cost money
is allocated among
competing interests.
Chapter
1-6 LO 2 Explain how accounting assists in the efficient use of scare resources.
Challenges Facing Financial Accounting
Non-financial Measurements
Forward-looking Information
Soft Assets
Timeliness
Chapter
1-7 LO 3 Describe some of the challenges facing accounting.
Objectives of Financial Accounting
Chapter
1-8 LO 4 List the objectives of financial reporting.
Need to Develop Standards
Chapter
1-9 LO 5 Explain the need for accounting standards.
Malaysian Financial Reporting Practices
Historical perspective
Companies Ordinances (and amendments) of 1940, 1946 and 1956
~ regulates financial reporting.
Companies Act (1965) ~ reporting requirements, rules &
regulations on accounting were formally established.
Ninth Schedule ~ disclosure requirements
Malaysian Association of Certified Public Accountants (MACPA) –
1958 ~ regulates the practices of its members who carry the title of
certified public accountants.
1967 ~ Malaysian Institute of Accountants (MIA) was established
~ its regulations cover the practices of the whole accounting
profession in Malaysia.
Chapter
1-10
1978 MACPA became member of the International Accounting
Standards Committee (IASC) ~ adopts the International Accounting
Standards until 1997.
1984 ~ first Malaysian Accounting Standard (MAS 1) on “Earnings
Per Share” was issued.
1987 ~ MIA began to issue standards
The process of adopting the IASs and MASs continued until 1997
when the Malaysian Accounting Standards Board (MASB) was
established.
Chapter
1-11
Financial reporting regime in Malaysia
Chapter
1-13
(3) Auditor’s General department
Chapter
1-14
(4) The Companies Commission of Malaysia (CCM)
Functions:
Ensure that the provisions of the following Acts and
laws are administered, enforced, carried out and
complied with:
Companies Act 1965
Trust Companies Act 1949
Registration of Business Act 1956
Any subsidiary legislation made under the Acts
specified above.
Regulating
matters relating to corporations,
companies and businesses
Chapter
1-16
(5) Central Bank (Bank Negara Malaysia)
Chapter
1-17
(6) Securities Commission (SC)
Function:
regulate all matters relating to the securities
industry.
Emphasise on high standards of disclosure
and accounting standards by companies.
Chapter
1-18
(7) Malaysian Accounting Standard Board (MASB)
FRF’s functions:
to provide views to MASB concerning the issuance,
review or
development of accounting standards.
To review the performance of the MASB
responsible for the financing arrangements of the
MASB
to perform other functions as prescribed by the
Minister of Finance
Chapter
1-19
MASB’s functions:
to issue new accounting standards
Chapter
1-21
(9) Public Accounting Firms
Chapter
1-22
Statutory regulation on Financial Accounting and
Reporting
(1) Financial Reporting Act 1997
Deals with compliance with approved accounting standards
(2) Companies Act 1965
Requires every companies to keep proper accounting and other
records to sufficiently explain the transactions and the financial
position of the company and to enable true and fair view of the
accounts.
Must comply with the act Ninth Schedule concerning disclosure
requirements.
Chapter
1-23
(3) Income Tax Act 1967
Significant to financial accounting and reporting because taxation
is considered as business expense that must be reported in the
income statement.
(4) Guidelines of the Securities Commission (SC) 1995
In 1995 issued “Policies and guidelines on Issue/Offer of securities”
(i) Corporate disclosure policy
Requires public company to maintain high standards of
disclosure.
public listed companies (plc) must immediately release
information which are expected to have material effect on
market activity.
Chapter
1-24
(ii) Postlisting obligations
Requires plc to submit:
* Annual report within 14 days from the date of the annual
general meeting
* Interim and periodic report to SC immediately figures are
available
* related party transactions must be disclosed in the annual
report
(iii) Accounting standards and valuation / revaluation of assets
* public companies must comply with approved accounting
standards and GAAP
* accountants’ reports must be prepared by qualified
accountants
* the information disclosed must be in accordance with the
practices at least those required under the Companies Act
1965 and the approved accounting standards
Chapter
1-25
(5) KLSE Listing requirements
Areas of financial accounting and reporting:
(i) Submission of reports
* annual audited report
~ must be issued to the shareholders within a period not
exceeding 6 months from the close of the financial year
~ must be submitted to the Exchange within a period
not exceeding 4 months from the close of the financial
year
~ must be in the form of consolidated financial
statements
~ should be prepared in accordance to MASB and the
Ninth Schedule
Chapter
1-26
* Interim reporting
must comply with the Quarterly Reporting requirement.
~ submit to the Exchange a quarterly report (Balance
sheet, income statement and explanatory notes) in
consolidated form not later than 2 months after the
end of each quarter of the financial year.
~ the balance sheet must be as at the end of the current
quarter and a comparative balance sheet as of the
end of the immediately preceding financial year;
income statement must cover the current quarter
and cumulative for the current financial year to date
and comparative income statement for the
comparable quarter (current and year to date) of the
immediately preceding financial year.
Chapter
1-27
(ii) Additional disclosure
* particulars of material contracts involving directors’
interest
* a statement setting out:
~ names of substantial shareholders and their interest
~ number of holders of each class of equity security
and its voting rights
~ a distribution schedule of each class of equity
security setting out the number of holders and
percentage in the categories of less than 500.
~ the percentage of the total holding of the 20 largest
holders of each class of equity security.
~ the names of the 20 largest holders of each class of
equity security and the number of equity security
of each class held.
* Properties held (address, description, exiting use, tenure,
terms of lease etc.)
Chapter
1-28
(6) Bank Negara Malaysia (BNM)
Guidelines on financial reporting practices of financial
institutions are:
(i) BNM/GP 3 – streamlines the method of income recognition
and loan loss provision. Main provisions:
* where a loan is classified as nonperforming loan,
interest accrued should be suspended and credited to
interestinsuspense account;
* build up and maintain a general provision for bad
debts and doubtful debts of at least 1% of total
outstanding loans, net of interestinsuspense and
specific provision for bad debts and doubtful debts;
and
* a specific provision is required for doubtful or bad
loan account where there is a shortfall in security
Chapter
value over the amount of loan outstanding.
1-29
(ii) BNM /GP8
standardise the format of financial reports for banks and
financial institutions.
3 specimen accounts: Model Bank Berhad, Model
Merchant Bank Berhad and Model Finance Company
Berhad have been prepared as guidance for standard
practices on the basis of the following criteria:
* Classification of assets and liabilities;
* liquidity pf assets and liabilities;
* maturity analysis of assets and liabilities; and
* concentration of assets and liabilities.
Chapter
1-30
Accounting standards pronouncements in Malaysia
Chapter
1-31
The standards were comprises of :
International
Accounting Standards
Malaysian Accounting Standards
Chapter
1-32
To ensure the widest compliance MIA and MACPA
through their respective Financial Statements
Review Committee conduct a regular reviews of
financial statements prepared and audited by their
members.
Chapter
1-33
Pronouncements under the New Financial Reporting Regime
Chapter
1-34
In September 1998, the Board adopted 24 of the
extant IASs and MASs issued by the MIA and
MACPA, thus given these standards the status of
approved accounting standards.
Chapter
1-35
MASB also issued technical pronouncements which
includes Statements of Principles (SOP), Urgent Issues
Abstract (UIA), Technical Releases (TR) and Guidance
Notes (GN).
Chapter
1-36
Due process in the issuance of MASB standards
Chapter
1-38
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.
Chapter
1-39
Role of the profession in accounting standard setting
Chapter
1-40
Generally Accepted Accounting Principles
Chapter
1-41 LO 7 Explain the meaning of generally accepted accounting principles.
Issues in Financial Reporting
Chapter
1-42 LO 8 Describe the impact of user groups on the standard-setting process.
Standard Setting Illustration 1-5 User
Groups that Influence
Business Entities Accounting Standards
Chapter
1-43 LO 8 Describe the impact of user groups on the standard-setting process.
Issues in Financial Reporting
Expectation Gap
What the public thinks accountants should do vs.
what accountants think they can do.
Difficult to close
Sarbanes-Oxley Act (2002)
Public Company Accounting Oversight Board
(PCAOB)
Chapter
1-44 LO 8 Describe the impact of user groups on the standard-setting process.
Issues in Financial Reporting
Chapter
1-45 LO 9 Understand issues related to ethics and financial accounting.