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ACT 3122 LECTURE 1 Financial Reporting & Accounting Framework in Malaysia

ACT 3122 LECTURE 1 Financial Reporting & Accounting Framework in Malaysia. Introduction. ISSUES Accounting Techniques to measure Economic Activities

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ACT 3122 LECTURE 1 Financial Reporting & Accounting Framework in Malaysia

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  1. ACT 3122LECTURE 1 Financial Reporting & Accounting Framework in Malaysia

  2. Introduction ISSUES • Accounting Techniques to measure Economic Activities • Evolution of Accounting influenced by Economic, Structure and Legal Systems – RESULT IN Different Regulations and Practices – Government, Accounting Bodies, Government Regulatory Activities Involvement in the Financial Standards Setting Process MALAYSIA • The Companies Act 1965 requires ALL REGISTERED COMPANIES to submit to Companies Commission of Malaysia annual audited financial statements prepared in accordance with approved accounting standards • Changes in Reporting Environment and Good Governance – More demand for ENTERPRISES to increase volume of disclosure, voluntary disclosures are highly encouraged. MORE IMPORTANTLY to present High-Quality of Financial Information • GAAP (i.e. IAS + MASs/MASB) • Main references for preparation and presentation of information for financial reporting financial purposes, Reporting enterprises must comply, TO FURTHER REFER OTHER STATEMENTS AND/OR PRONOUNCEMENTS when no accounting standards exist on respect aspects.

  3. History:Financial Reporting Regulations • 1940 – 1965: Company Ordinances (and Amendments) • 1965 – Present: Malaysian Companies Act 1965 (and Amendments) – specifically the 9th Schedule • 1958 -1997: MICPA (1978 became IASC member & adopted IAS 1-4; I984 MAS 1 EPS issued) • 1967, 1987–1997: MIA • 1993 – Security Commission – requirement of full-disclosure system for public companies • 1997 – Present: FRA ~ FRF & MASB (Perform function prescribe by Ministry of Finance)

  4. Statutory Regulations on Financial Accounting & Reporting • Financial Reporting Act 1997 • Companies Act 1965 • Income Tax Act 1967 • Securities Commission ~ SC Act 1993, Capital Market and Services Act 2007 (consolidatn of Securities Industry Act 1983 and Futures Industry Act 1993) • Bursa Malaysia • Bank Negara Malaysia

  5. Financial Reporting Act 1997 • 1997- Financial Reporting Act gazette - 2 important independent bodies formed (a) Financial Reporting Foundation (FRF) *Govern operating policies of MASB (b) Malaysia Accounting Standard Board *Issue New Standards *Adopt IASs as extant standards *Review, revise or adopt present actgstds *Issue Statement of Principles, *Develop Conceptual Framework

  6. MASB ~ • Initially, standards issued referred as MASB Standards 1 (MASB 1) • Issues interpretations bulletins to highlight differences in IAS, Technical Release, Statement of Principles, Urgent Issue Abstracts and Guidance Notes – Guidance on addressing spec. actg issues not covered by accounting standards; • 2004: ED Proposed Improvements to MASB Standards • Reviewed 13 Existing Standards to match with respective IASs • 2005: All Standards issued by MASB *IASs Refer as FRS and renumbered, e.g. FRS 101 *New standards issued by IASB, IFRS 1, 2, 3 were numbered FRS 1,2,3 *Local standards adopted by MASB renumbered to FRS 201, 202… • 2006: All public companies must comply with FRSs • 2012: Full convergence with IAS and IFRS

  7. Due Process for Adoption of Actg Standards • Due Process for the Adoption of Actg Std.jpg • Due Process for the Adoption of Actg Std1.jpg

  8. Financial Reporting Act 1997 • Sect 27: Compliance to Actg Std of MASB For f/s required by law administered by SC, BNegara, CoC and actg stds issued and adopted by MASB. • Sect 7(3) Approved actg stds of MASB apply to published accounts of: (i) commercial (ii) industrial (iii) business entity both in Malaysia and overseas subsidiaries and associated corp where incorporated in consolidatd accounts in Malaysia.

  9. SC, Bneg & CoC ~ monitor compliance with approvd actg stds by public co, financl institutn (BAFIA 1989) and co incorp in Msia • Approved actg stds under new reporting regime have the force of law • 2004 ~ Amendment of FRA: Foreign co given option to use MASB or internl actg stds (FASBUS, IAS, ASBUK, AASBAUS) recognised by MASB

  10. Companies Act 1965 • Co incorp in Msia legally enforceable to comply with it actg & reporting requirements - Keep proper actg and records from time to time relating to finl position and true & fair view of P&L, bal sheet and related doc. - Proper practice of actg records requires accounts kept: • Assist proper audit • Within 60 days of completion of transactions • For 7 yrs after completion of transactions • At registered office or suitable place • Companies in a group - Local parent to ensure within 2 yrs its subsidiary’s financial yr match with it. Otherwise to apply from CoC to maintain its subsidiary original finl yr

  11. Reporting • 1st AGM of s/h held within 18 mths after date of incorp and subsequent AGM, once every yr within 15 mths period • Directors to present at AGM: Auditd P&L, bal sheet, reqfinl stat and directors’ report on state of co’s and grp affairs • Audited finl stat and auditor’s report to be sent 14 days before AGM • Relief may be given on the ground : *Compliance will result in accounts & consolidated misleading /inappropriate *Impose unreasonable burden to entity • To lodge annual return within 1 mth (2 mth branch abroad) after AGM • 1998 ~ Amendment incorp Section 166A on provision of compliance to approved actg std – *166A(3) directors to ensure accounts prepared acrdg to the stds including if it’s holding company. 166A(4) such not required if violate true and fair view. 166A(5) for directors to provide notes for reasons of non-compliance with actgstds including finl effects to accounts if such stds were complied. 166A(6) if conflict or inconsistency arises on provisions of 9thSch and approved actgstds, the latter prevail. Judgements based on true and fair view of presentation to be considered when there is conflict bet req of approvdactgstds and Co Act • Exempt companies ~ Private companies with < 20 members and not a corporation exempted from filling accounts with CoC as well as its actg & reportg req.

  12. Proposed Companies Bill 2013 Among others the changes are: • Facilitating and modernizing entrance into corporate sector: • Introducing concept of single member company • Simplifying name approval • Simplifying incorporation process • Migration to no par value regime • Facilitating the management and restructuring of company’s share composition • Alternative procedure for reduction of capital • Reforming share buy back policies and financial assistance via solvency test • Simplifying and facilitating internal decision making process • Removing needs for private company to hold AGM • Simplifying meeting procedures • Strengthening corporate governance structure on directorship affairs’ • remuneration, shadow directors, appointment, resignation and removal of directors • Introduce comprehensive reporting framework (read further Proposed Companies Bill 2013 from http://www.ssm.com.my/sites/default/files/announcement/PC%20Companies%20Bill.pdf)

  13. Income Tax Act 1967 • Co Act makes it legally enforceable • Determin. of chargeable income and tax payable • Affect finlactg & reportgbec tax recogd as bus exp • Its imputation system for dividend impact entity’s distributable reserves; Section 108 of Co Act dividend to be paid net of income tax • Differences bet actg & tax rules • 2000 ~ assessment of income tax payable changed from preceding to current yr basis (co estimate and actual tax afterward confirmed by IRB) • 2005 ~ Self-assessment system introduced; tax computed by co deemed final • 2008~ Single tier system introduced: tax on a company is final and dividend distributed to shareholder exempted from tax

  14. Regulators SECURITIES COMMISSION • Oversee Public Companies activities, Specifically on areas: • Corporate Disclosure Policy. E.g: Level of Disclosure required for companies • Post Listing Obligations. E.g. For Co. to submit reports, Annual reports, Interim Reports, Related Party Transactions • Accounting Standards and Valuation of Assets – E.g Min compliance to Accounting standards and other statutory requirements • Capital Markets and Services Act 2007

  15. BURSA MALAYSIA • Responsible for the Listing Requirements (i.e. Disclosure, Compliance, Penalty) of Public Listed Companies • Financial Reporting – Submission of Required Reports and Add. Disclosures • BANK NEGARA • Issued guidelines on Financial Reporting for Banks and Financial Institution • Non-performing loans and interests, Preparation and Presentation of • Financial statements for bank • BAFIA 1989 replaced by FSA 2013 and IFSA 2013 • IASB – Late 1990s, IASB replaced IASC functions, setting of IASs • Seeks to harmonise regulations and accounting standards and procedures • Preparation and Presentation of General purpose financial statements EXCLUDING issues concerning local reporting issues

  16. Private Companies • Smaller co costly to comply to req. actgstds • Hence exempted from applying FRS, apply PERS from July 2007 • Earlier, private entities were allowed to keep to the ‘unimproved standards’ – Old MASB, enforced in 2005 • Incorporated under Co Acts 1965, such that (i) x need to lodge a/c to Bank Negara, Securities Com, (ii) Not sub, Assoc., Jointly controlled by entity req to submit a/c to regulatory authorities • Co Act 1965- Private Co. – With S/K+ Incorp+ MOA (a) Restricts the right to transfer its shares (b) Members ≤ 50 ( joint holders as 1, x include person in N of the co. or its subsidiaries or previous Nyee of the co or its sub was and thereafter continued to be member of the co) (c) Prohibits public from subscribing any shares or debentures of the co (d) Prohibits public to deposit money with the co for fixed periods or payable at call, bearing or not bearing interest • Private Co – X required to apply the FRS in 2005 - ED (MASB 52) Private Entity Reporting Standards issued in 2006, effective July 2007. - PERS > simplified + cover ltd area than FRS, > cost effective, Meet obj of meeting needs of Priv. Ent. - Maintain status throughout annual/interim report - PERS X applic. for entities a/c to PUBLIC (Charities, Other social and publicly acc. entities to apply FULL SET of FRS); Partnership and Sole-Proprietor may apply them as best pract. of fin reportg - May comply with FRS, THAT IS to abide by ALL the FRS; If chosen to follow selected FRS, x revert to respective PERS

  17. International Perspective • BIG MULTINATIONAL COs: - Operations worldwide. E.g. ? - Need to comply actg stds of those countries, to raise finance need to prepare f/s to follow local GAAP International Accounting Standard Board - Previously IASC issued standards, IAS, guidance by Standing Interpretation Com (SIC) - Most countries adopt its standards - 2001 constitution of IASC was changed,

  18. IASC Foundation IASB Standards Advisory Council (SAC) International Financial Reporting Interpretation Committee IFRIC Continue… OBJECTIVES of IASC under new constitutions: • For public interest, to dev. set of high quality, understandability and enforceable global actg. stds. such that they provide transparency and comparability of info in f/s & similar reports, assist user making econ. decisions • Promote use and rigorous application of the stds • Converge Nat.ActgStds and IAS and IFRS to high-quality solutn. New Structure:

  19. Continue…. • IASC Foundation – In USA, Activities directed by 19 Trustees whom appoint IASB, SAC, IFRIC members, diverse locations, functl bkground, 6 from North America, 6 Europe, 4 Asia Pacific, 3 other places. • IASB – Solely responsible develop + issue New Internat Stds – The IFRS, 14 members of technical expertise, 8 out of 14 must approve b4 a standard, ED or final IFRIC can be published • IFRS – IFRIC, IASs, SIC Interpretations remain in force unless amended or withdrawn; 2004 5 IFRS, IFRS 3 replaced IAS 22 Business Comb • SAC – Advices IASB topics to focus, implications proposed standards to users and preparers. • IFRIC – Committee of IASB, Assists IASB establishg + improving finl & reportg stds users, preparers and auditors of f/s. Provide guidance the IFRIC to users if (i) New problems arise (ii) Existing stds x satisfactorily interpreted.

  20. CONCEPTUAL FRAMEWORK • Guide to basic req. for practices and principles to apply in recording transactions and events, ultimately preparing and presenting finl. stat. • Gov, regulatory authorities, accountancy bodies regulate reporting req of enterp to ensure f/s ‘true and fair’ + comparable • Actgstds were established • Framework for the Preparation and Presentation of Finl Stats - Concepts underlyg prepare + present of f/s to ext. users - Not MASB appractg std. Hence x define + x override them - Purposes: (a) Assist MASB + future MASB dev of stds (b) Assist Nat std setting bodies dev stds (c) Assist preparers in applygstds + related issue (d) Assist auditors forming opinions on f/s (e) Assist users evaluate info in f/s (f) Meeting needs of prospective users IASB - Conceptual Framework_Process for Assessing Qualitative Characteristics.pdf

  21. Continue …Scope of Framework • Obj of f/s including CFS - Prepared and presented min annually for wide range users, com info for many users relyg f/s as major source of finl info. [ X include special purpose finl reports, ie prospectus, tax computation, can be ref] • Qualitative Characteristics – Det Usefulness of Info in F/S • Elements of F/s – Def., Recog, Measurement • Concepts of Capital & Capital Maintenance Framework for Preparation and Presentation of Financial statement Greuning 2010.doc Complete set of F/s (i) Bal. Sheet (ii) P&L (iii) C/Flow (iv) Stat of Eq Change (v) Notes & Sup {Info used by mgt about fin position, perform.Changes in Fin Post. of the Entity} (Exclude Di Reports, Chair Stat, Mgt Disc and Analysis and similar items) • Requirement for Commercial, Industrial and Business Entities + for a/c to sub SC, Bank Negara, CCM. • Para 9(a) –(g) identified 7 type of f/s users: INVESTORS key users as provider of risk cap, meet their need meet most others need?

  22. Who prepare F/S? • Mgt primary responsibility , has the ability to determine the form and content of such additional info to suit it bus plans, strategy, decmkg? COMMENTS? mgt OBJ OF F/S (a) Provide Info (i) Fin Position (ii) Fin Perform (iii) Changes in (i) for wide range user to make econ. Dec. (b) Largely portray fin effects past events and x necess. Provide non-fin info (c) Show stewardship & accountability of mgt deployment of resources, user evaluate hold/sell invest, to reappoint/ replace mgt. Financial position, performance and Changes (d) User evaluate ability to gen cash & cash equivalents, timing and certainty of generation; To meet obligations, For this purpose need to assess components of f/s (e) Make prediction capability cash gen, financial structure – liquidity (net cash avai in near future after meeting fin commit) & solvency (ava of cash over longer term to meet obligations)

  23. Continue……. • Profitability – to assess potential changes in eco resources • Performance – Forming judgments effectiveness employing add resources; Income Stat • Changes Fin Info – Assess financing, investg, operatg reporting period, Funds comprise, all fin resource, workg cap, liq assets (FRAMEWORK x define Funds); Sep f/s • Fin Info – Bal Sheet • Components of F/s have to be evaluated as a whole (Para 20) Notes, Supplementary & Other Schedules • Add Info relevant about items in b/s or P&L • Disclose risks + uncertainties , resources and oblig. not recog in bal sheet (i.e. method of discount valuation) • Info geographical and industry segments and implications of pr. fluctn.

  24. Current Financial Reporting Regimes in Malaysia • MFRS Framework – for entity with annual period beginning or after 1 January 2012 • FRS Framework – For transition entities which are MFRS non-compliance on IC_Interpretation 15: Agreements for the Construction of Real Estate, MFRS 141: Agriculture • PERS – for private entity with annual periods begins before 1 January 2016 • MPERS – for private entity with annual periods beginning or after 1 January 2016

  25. Take Home Notes • Financial Reporting Environment in Malaysia • Regulatory Authorities, Malaysia. • Standard Setters, Malaysia International • Conceptual Framework • Users of Financial Statements • Prepare + Presentation of F/S – Disclosures • Components of Financial Statements

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