Implementation of MFRSs

Disclaimer

The MASB's primary role is to develop accounting and financial reporting standards. It is the MASB's operating procedure that generally precludes the MASB or its staff from giving advice to any individuals or corporations or individual cases nor to act as an arbitrator regarding any issue. Resolutions to matters concerning accounting application should be addressed by the respective independent accountants, or auditors.

Likewise the MASB's resources do not allow for it to respond to students' individual requests for help in completing their assignments.

Below are some of the questions that the staff frequently receives from preparers, auditors and users with regard to the recent announcement on MASB convergence plan. The answers to the following questions have been prepared by the MASB staff and are not necessarily the Board’s views.

Implementation of MFRSs (19 March 2012)

(1)   IC Interpretation 15 Agreements for the Construction of Real Estate

If a reporting entity applies IC Interpretation 15, is it right to conclude that revenue arising from sale of property under development governed by Schedule G and Schedule H of the Housing Development Act will be recognised based on the completion method?

And what is the status of the IASB’s revenue exposure draft that will supersede the Interpretation?

IC Interpretation 15 clarifies when revenue should be recognised progressively or when it should be recognised at a single time. The Interpretation explains that if the revenue recognition criteria in paragraph 14 of FRS 118 Revenue are met continuously as construction progresses, the entity shall recognise revenue by reference to the stage of completion, using the percentage of completion method; otherwise revenue shall be recognise at a single time (e.g. at completion, upon or after delivery) when the entity transfers to the buyer control and the significant risks and rewards of ownership of the real estate in its entirety at that single time.

IC Interpretation 15 is word-for-word IFRIC 15 except the effective date.

The IFRS Financial Reporting Interpretation Committee (IFRIC) in its November 2011 meeting considered the sale of real estate fact patterns of Malaysia but no decision was made. Although the Committee generally thought that continuous transfer was more likely to occur in the circumstances typical of jurisdiction A (Malaysia) than it would in jurisdiction B, it thinks that there is a lack of clarity as to how to identify the key factors that are required to make that determination. For more information about the IFRIC’s discussion, please visit http://www.ifrs.org/Home.htm. Preparers are encouraged to follow the IFRIC’s discussions for any further development or decision.

The IASB in November 2011 issued a revised Exposure Draft on Revenue from Contracts with Customers and plans to finalise the new Revenue Standard by second half of 2012. Early adoption of the new Revenue Standard will be permitted so that the real estate industry need not apply IC Interpretation 15 when they transition to the MFRS Framework in 2013.

(2)   MFRS 141 Agriculture

The Board had submitted proposals to the IASB to amend IAS 41 Agriculture particularly bearer biological assets. What is the status of the Board’s proposal?

IAS 41 was included in IASB’s Agenda Consultation 2011 as one of the possible projects for the limited revision. Based on comment letters to the IASB, IAS 41 was ranked top 6 as regards to high priority projects. Nevertheless it is still uncertain at this stage whether the IASB will proceed to amend IAS 41 and it will be clearer only after IASB’s March 2012 meeting.

For more information of the Board’s proposal, please refer to:

(i)         the Asia-Oceania Standard-Setters Group’s (AOSSG) Agriculture Working Group submission to the IASB which can be downloaded from http://www.aossg.org/working-groups/agriculture; or

(ii)        the reports of the presentation to the International Forum of Standard Setters (formerly known as National Standard-setters) meetings which can be downloaded from http://www.masb.org.my/index.php?option=com_content&view=article&id=1564&Itemid=21.

(3)   Transitioning Entities

A reporting entity disposed of its agriculture business in 2011. Therefore, as at 1 January 2012, it is not a Transitioning Entity.  Can the reporting entity be regarded as a Transitioning Entity on the basis that it met the criteria for Transitioning Entities in 2011 as otherwise the reporting entity is required to apply MFRS 141 Agriculture for its 2011 comparatives?

In this scenario, the reporting entity would not satisfy the criteria to be a Transitioning Entity because as at 1 January 2012 it is not within the scope of MFRS 141. It would then have to apply the MFRS Framework for its financial statements for annual period beginning on 1 January 2012 including the comparative periods.

(4)   Exemption from consolidation - MFRS 127 Consolidated and Separate Financial Statements

According to paragraph 10 of MFRS 127 a parent need not present consolidated financial statements if it meets the four criteria specified.

In 2011, Subgroup C met all the criteria in paragraph 10 of FRS 127 Consolidated Financial Statements (the requirements are the same as above except for paragraph 10(d) of which the framework is referenced to Financial Reporting Standards).

However, in 2012, does it mean that Subgroup C which is mandated to apply the MFRS Framework need to present consolidated financial statements in 2012 because it fails to meet all the criteria in paragraph 10 of MFRS 127 as a result of its parent, being a transitioning entity, opt to apply the FRS Framework?

Subgroup C is required to prepare consolidated financial statements in 2012. However, it will qualify for the exemption from presenting consolidated financial statements when its parent applies the MFRS Framework in 2013, assuming there is no change in all facts and circumstances.

(5)   IAS 38 Intangible Assets and IFRIC 12 Service Concession Arrangements—Selection of amortisation method

Currently, some reporting entities of the concession industry amortise its intangible assets based on revenue. However the IFRIC in its November 2011 meeting noted that amortisation methods based on revenue are not an appropriate reflection of the pattern of consumption of the expected future economic benefits embodied in an intangible asset (http://www.ifrs.org/Home.htm). Does this mean that these reporting entities have to change its amortisation method to another basis such as the straight line method?

The IFRIC recommended an annual improvement to be made to IAS 38 Intangible Assets to clarify the issue. The decision by the IFRIC would be exposed as part of the IASB’s due process and therefore, the requirements / clarifications recommended by IFRIC would only be mandatorily applicable when the standard or interpretation has been amended or issued. The due process of the annual improvement would include issuance of an exposure draft for comment prior to finalisation. Preparers are encouraged to follow the IFRIC’s discussions for any further development or decision at http://www.ifrs.org/Home.htm.