Professional Documents
Culture Documents
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.
Beginning from 1980, MACPA issued Malaysian Accounting Standards (MAS) because peculiar to the Malaysian environment. From May 1987 until 1992, all technical standards were jointly developed by Malaysia Institute of Accountant (MIA) and MACPA and issued as joint statements. On 1 July 1987, MIA and MACPA was issues the questionnaires to invite comments on a discussion paper on goodwill accounting. The views received were so diverse that the issuance of a standard was
Based on the comments obtained, MAS 6 was issued as an exposure draft by the Malaysia Institute of Accountant (MIA) in September 1992. However, MACPA decided to defer MAS 6. Due to disagreement over the adoption of the final standard (MAS 6), MACPA and MIA collaboration ceased. 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.
Towards the end of 1994, due to intervention from government, MIA deferred implementation of the standard to 1 January 1997. In July 1997, Financial Reporting Act 1997 was passed and Malaysian Accounting Standards Board (MASB) was formed to issue legally binding accounting standards. Subsequently, 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?
Before 1997
After the MIA's active involvement in the standard setting activities, 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, Bank Negara Malaysia (the Central Bank), and the CIC (later known as Securities Commission (SC). 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. 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. MACPA decided to defer but MIA adopted in 1996. However, due to intervention from government, decided to defer to 1997.
Due to the disagreement over the adoption of the Goodwill Standard, the Common Working Technical Committee (CWTC) was dissolved in December 1992. Since then, both the MIA and the MACPA collaboration ceased. After the goodwill issue, the market realized that accounting standards have implication for them and they should actively participate in the process. Sentiments were voiced that Profession should not be setting standards exclusively and hence the MASB, an independent body for standard setting were emerged, spearheaded by the Financial Reporting Act, 1997.
After 1997 The MASB is an independent standard setting body with representation from all relevant parties in the standard setting process in Malaysia, including preparers, users, regulators, academics and the accounting profession. Trustee bodies has responsibility to oversight MASB on its performance, financial and funding arrangements, and initial source of views for MASB on proposed standards and pronouncements. Some view that the Profession have lost its right to regulate the profession. However, Profession still continue to regulate members by providing interpretation and guidance on the standards issued by MASB.
Question 3
Describe the role of the following bodies in relation to Malaysia approved accounting standards:
i. ii. iii. iv. Malaysian Accounting Standards Board Financial Reporting Foundation Securities Commission Bank Negara Malaysia
Question 4
The accounting practices of various countries around the world can be classified under two groups Anglo Saxon Model and Continental European Model. 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.
Three factors that explain the differences between Anglo Saxon Model and Continental European Model:
1. Legal Systems
Common Law
Few detailed accounting law and development of accounting practices depends on the professional judgment of accountants. Leads to the creation of precedents or case law. In these countries, the source of accounting rules tends to be non-governmental organizations. Eg: England and Wales, Ireland, India, USA, Canada, Australia, New Zealand.
2. Providers of Finance
Different information needs Equity investors perspective:
Objective information for Stewardship Fair information for investment decision-making Reliance on external information
3. Taxation
Looking at the extent of taxation regulations in determining the accounting measurement
Tax rules are independent of accounting rules
Outsider/equity, Common Law The role of deferred tax
This may lead to business leaders choosing financial results which are favorable in relation to taxation rather than presenting reliable accounting results.
Possible to resolve the differences in harmonizing the various accounting practices around the world.
2. The more dominant view posits that formal action should be taken to reduce diversity.
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. Some who interpret convergence as implying the use of a single set of financial reporting standards worldwide favor the use of International Accounting Standards, as promulgated by the International Accounting Standards Board (IASB)
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)
Standardization approach
Standardization = Uniformity Imposition of a rigid and narrow set of rules, and may even apply a single standard rules to all situations
Question 6
Nobes (1998) suggests that for countries that have organisation rely relatively heavily on equity markets, as opposed to other sources of finance, there will be a greater propensity for such organisations to make public disclosure of information. Evaluate this argument.
In countries with credit-based financial system tends to be less demand for public accountability and information disclosure. information will be available more directly. May access to internal information In countries with important equity markets and many outsider shareholders, the demand for information made available outside the company becomes greater. 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.
Investor need fair information for investment decision. Use to judge for themselves whether to buy, sell, or hold a particular security. It is not feasible for a company to allow hundreds and thousands of investors access to internal accounting records. Can enhance the confident of investors, thus can reduce cost of capital