The Malaysian Accounting Standards Board (MASB) today publishes another 2 Exposure Drafts (ED) for public comments and invites professional accountancy bodies, public listed companies, regulators, individuals and any other interested parties to comment on the proposed Standards. The public is invited to give feedback on the following proposed Standards:
ED 46 Proposed Revisions to Financial Reporting Standards
- ED 46 Proposed Improvements to Financial Reporting Standards
- ED 47 First-time Adoption of Financial Reporting Standards
This Exposure Draft ED 46 is the final batch of the Improvements project and comprises revision to the following Standards:
Business Implications:FRS 127 Consolidated and Separate Financial Statements
- FRS 127 Consolidated Financial Statements and Investments in Subsidiaries
- FRS 128 Investments in Associates
- FRS 131 Financial Reporting of Interests in Joint Ventures
- FRS 133 Earnings per Share.
Companies that have not been consolidating its subsidiaries, either because control is intended to be temporary or the subsidiaries operate under long-term restrictions, would be affected by the proposed revised Standard. Such practice is no longer allowed under this proposed revised Standard which requires consolidated financial statements to include all subsidiaries of the parent.
Also, companies that have not been using uniform accounting policies in its consolidated financial statements on the basis of impracticability would have to discontinue such practice. This proposed revised Standard, unlike the existing Standard, contains no exception to the requirement to use uniform accounting policies for reporting like transactions in similar circumstances.FRS 128 Investments in Associates
This proposed revised Standard now clarifies that the Standard is not applicable to investments in associates held by venture capital organisations, or mutual funds and unit trusts that are measured at fair value. This is because fair value information is often readily available as it is a well-established practice in these industries.
The clarification hopefully would put to rest the uncertainty on whether investments in associates held by venture capital organisations, or mutual funds and unit trusts are within the ambit of the Standard on Investment in Associates.
This proposed revised Standard would also have an impact on companies that have limited the recognition of its share of losses in associates to only the carrying amount of the investment in associates. Unlike the existing Standard, this proposed revised Standard prescribes that the amount to be reduced to nil when an associate incurs losses should include investments in the associate as well as other long-term interests that, in substance form part of investor's net investment in the associate, for example, long-term receivables.FRS 131 Interests in Joint Ventures
Similar to the proposal in FRS 128, this proposed revised Standard clarifies that the Standard is not applicable to venturers' interests in jointly controlled entities held by venture capital organisations, or mutual funds and unit trusts that are measured at fair value.
Also, unlike the existing Standard, this proposed revised Standard now gives companies the choice to use either the: (i) proportionate consolidation method; or (ii) equity method, in accounting for its interest in a jointly controlled entity. The proposal of allowing the choice of method in accounting for interest in a jointly controlled entity is in line with MASB's policy in maintaining its commitments on convergence with the IFRSs / IASs.FRS 133 Earnings per Share
The Standard on Earnings per Share is applicable to companies whose ordinary shares or potential ordinary shares are publicly traded or companies that are in the process of issuing ordinary shares or potential ordinary shares in public markets. The Standard only requires disclosure of earnings per share to be presented based on consolidated information.
The earnings per share calculation will be affected by share issues during the year, convertible shares of convertible instruments, contingently issuable or returnable shares, exercise of share options and warrants and contracts that require the company to repurchase its own shares (written put options).ED 47 First-time Adoption of Financial Reporting Standards (FRSs)
ED 47 is identical to IFRS 1 First-time Adoption of International Financial Reporting Standards, which was issued by the IASB in June 2003.
This proposed Standard explains how an entity should make the transition to FRSs from another basis of accounting. The purpose of the Standard is to ensure that all companies adopting FRSs for the first time present comparative information in their financial statements that is as close as possible to the information provided by existing users, but within cost / benefit constraints.Business Implications:
This proposed Standard would be applicable for companies that are applying Financial Reporting Standards (FRS) for the first time in their financial statements. For example, a foreign company listed on Bursa Malaysia preparing its financial statements in accordance with the FRSs for the first time, and its previous financial statements had been prepared using other set of accounting standards.
This proposed Standard is not applicable for those entities that have been preparing their financial statements in accordance with the MASB approved accounting standards as required under section 27 of the Financial Reporting Act 1997.Comment Period
Interested parties are welcome to give comments on the EDs to the MASB by 25 April 2005. Copies of the proposed Standards are available free of charge at:
Malaysian Accounting Standards Board
Suites 5.01-5.03, 5th Floor
No. 338, Jalan Tuanku Abdul Rahman
50100 Kuala Lumpur
Tel: 03-2715 9199
Fax: 03- 2715 9212
Alternatively, the proposed Standards are also available on MASB website at www.masb.org.my/masbdp_edonline.asp. The public may also provide their comments electronically through ED Online on our website.
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Main changes proposed in ED 46
Some of the main changes to the existing Financial Reporting Standards proposed in ED 46 are as follows:FRS 127:
- the parent is itself a wholly-owned subsidiary, or the parent is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not preparing consolidated financial statements;
- the parent's debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
- the parent did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
- the ultimate or any intermediate parent of the parent is incorporated in Malaysia and produces consolidated financial statements available for public use that comply with Financial Reporting Standards.
- Consolidated financial statements shall include all subsidiaries of the parent.
- The proposed Standard requires an entity to use uniform accounting policies for reporting like transactions and other events in similar circumstances. The revised Standard no longer provides an exception to this requirement.
- The proposed Standard requires an entity to present minority interests in the consolidated balance sheet within equity, separately from the parent shareholders' equity.
- When an entity elects, or is required by local regulations, to present separate financial statements, the proposed Standard requires investments in subsidiaries, jointly controlled entities and associates to be accounted for at cost or in accordance with MASB ED 35 (revised) Financial Instruments: Recognition and Measurement.
- The proposed Standard clarifies that investments in associates over which the investor has significant influence must be accounted for using the equity method whether or not the investor also has investments in subsidiaries and prepares consolidated financial statements.
- The proposed Standard provides exemptions from application of the equity method similar to those provided for certain parents not to prepare consolidated financial statements.
- The proposed Standard does not permit an investor that continues to have significant influence over an associate not to apply the equity method when the associate is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the investor.
- The proposed Standard requires an investor to make appropriate adjustments to the associate's financial statements to conform them to the investor's accounting policies for reporting like transactions and other events in similar circumstances. The revised Standard no longer provides an exception to this requirement.
- An investor must consider the carrying amount of its investment in the equity of the associate and its other long-term interests in the associate when recognising its share of losses of the associate.
- The proposed Standard prescribes the use of either the: (i) proportionate consolidation method; or (ii) equity method, in accounting for the venturer's interest in a jointly controlled entity.
- The proposed Standard provides exemptions from application of proportionate consolidation or the equity method similar to those provided for certain parents not to prepare consolidated financial statements.
- The proposed Standard does not permit a venturer that continues to have joint control of an interest in a joint venture not to apply proportionate consolidation or the equity method when the joint venture is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the venturer.
- The proposed Standard requires a venturer to disclose the method it uses to recognise its interests in jointly controlled entities (ie proportionate consolidation or the equity method).
- The proposed Standard provide additional guidance and illustrative examples on selected complex matters, such as the effects of contingently issuable shares; potential ordinary shares of subsidiaries, joint ventures or associates; participating equity instruments; written put options; purchased put and call options; and mandatory convertible instruments.