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Implementation of PERS

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 to individual cases nor to act as an arbitrator regarding any issue. Resolution of matters concerning the application of the accounting standards should be addressed and discussed with the respective independent accountants, or auditors.

In addition, the MASB's resources do not allow for it to respond to student's requests for assistance in completing assignments.

Here are some of the questions that the staff frequently receives from preparers, auditors and users of the PERS Framework. The answers to the following questions have been prepared by the MASB staff and do not in any way represent the official position of the MASB.

1.

 

What is a private entity?

A private entity is a private company, incorporated under the Companies Act 1965, that (a) is not itself required to prepare or lodge any financial statements under any law administered by the Securities Commission (SC) or Bank Negara Malaysia (BNM); and (b) is not a subsidiary or associate of, or jointly controlled by, an entity which is required to prepare or lodge any financial statements under any law administered by the SC or BNM.

The meaning of 'subsidiary', 'associate' and 'jointly controlled' are as respectively defined and explained in FRS 127 Consolidated and Separate Financial Statements, FRS 128 Investments in Associates and FRS 131 Interests in Joint Ventures.

2.

 

From the definition of private entities, it would appear that subsidiaries of a parent that is listed in other than Bursa Malaysia will still be considered as private entities. Is my reading of the definition of private entities correct?

Yes, a private company which is a subsidiary of a parent that is listed outside Malaysia is, by our definition, a private entity.

3.

 

Definition of Approved Accounting Standards

Is the definition of approved accounting standards applicable in Malaysia changed due to the change in 2-tier reporting?

No. Approved accounting standards definition remains unchanged under the Financial Reporting Act 1997. Auditors can continue to refer to the applicable approved accounting standards as both FRS and PERS are issued pursuant to section 7 of the FRA 1997.

4.

 

Change in Status

Which set of MASB approved accounting standards shall my company comply when my company changes its status from non private entity to private entity during the financial year 2006?

FRS. This is because an entity may only be treated as a private entity in relation to such annual periods or interim periods throughout which it is a private entity.

5.

Compliance with Standards

My company is a private company as defined in the Companies Act 1965.

(a) In addition, my company is not required to lodge financial statements to the SC or BNM and is not a subsidiary / an associate / jointly controlled by a company that is required to lodge any financial statements to the SC or BNM. Which set of MASB approved accounting standard shall be applicable to my company?

PERS. However, your company is allowed to comply with FRS if it chooses to. Once your company has decided to apply PERS or FRS, it must comply with either PERS in their entirety or FRS in their entirety. In other words, your company's financial statements cannot comply with some Standards under the set of PERS and some Standards under the set of FRS.

(b) My company is not required to lodge financial statements to the SC or BNM. However, it is a subsidiary / an associate / jointly controlled by a company that is required to lodge any financial statements to the SC or BNM. Which set of MASB approved accounting standard shall be applicable to my company?

FRS.

(c) My company is required to lodge financial statements to the SC or BNM. However, it is not a subsidiary / an associate / jointly controlled by a company that is required to lodge any financial statements to the SC or BNM. Which set of MASB approved accounting standard shall be applicable to my company?

FRS.

(d) My company is required to lodge financial statements to the SC or BNM and is also a subsidiary / an associate / jointly controlled by a company that is required to lodge any financial statements to the SC or BNM. Which set of MASB approved accounting standard shall be applicable to my company?

FRS.

6.

My company is a private company as defined in the Companies Act 1965 and has an investment in a public listed company. Which set of MASB approved accounting standard shall be applicable to my company?

PERS. However, your company is allowed to comply with FRS if it chooses to. Nonetheless, your company must comply with either PERS in their entirety or FRS in their entirety.

7.

My company is a private company as defined in the Companies Act 1965. My company is the parent company of a public listed company. Which set of MASB approved accounting standard shall be applicable to my company?

PERS. However, your company may wish to comply with FRS to facilitate the preparation of the consolidated financial statements since your subsidiary company is required to comply with FRS.

MASB 11, Consolidated Financial Statements and Investments in Subsidiaries, prescribes that consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact shall be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.

8.

My company is a private company as defined in the Companies Act 1965. My company is an investor company of an associate which is a public listed company. Which set of MASB approved accounting standard shall be applicable to my company?

PERS. However, your company may wish to comply with FRS since your associate company is required to comply with FRS.

MASB 12, Investments in Associates, prescribes that the investor's financial statements are usually prepared using uniform accounting policies for like transactions and events in similar circumstances. If an associate uses accounting policies other than those adopted by the investor for like transactions and events in similar circumstances, appropriate adjustments are made to the associate's financial statements when they are used by the investor in applying the equity method. If it is not practicable for such adjustments to be calculated, that fact is generally disclosed.

9.

MASB 5, Cash Flow Statements

Is there a requirement to prepare a company level cash flow statement if a group cash flow statement is prepared?

Paragraph 8 of MASB 1, Presentation of Financial Statements provides that a complete set of financial statements includes the following:
  1. balance sheet;
  2. income statement;
  3. a statement showing either: 
    • all changes in equity; or
    • changes in equity other than those arising from capital transactions with owners and distribution to owners;
  4. cash flow statement; and
  5. accounting policies and explanatory notes.
The last sentence in paragraph 2 of MASB 1 states that MASB 1 applies equally to the financial statements of an individual enterprise and to consolidated financial statements for a group of enterprises. Accordingly, a set of company level financial statements will not be complete as required by paragraph 8 of MASB 1 if a company level cash flow statement is not prepared.

10.

The MASB has adopted IAS 29, Financial Reporting in Hyperinflationary Economies. Where can I get a copy of IAS 29?

IAS 29 is a copyrighted document issued by the International Accounting Standards Board (IASB). Preparers may obtain copies of IAS 29 by purchasing directly from the IASB. For members of MIA/MICPA who have possesion of MIA/MICPA handbook, they may find such copy of IAS 29 available in the handbook for their reference.

11.

Some Standards have been removed from PERS. What do you do in their absence? 

Q1.

My company is a private entity with 31 March year end. Should my company comply with MASB 24 Financial Instruments: Disclosure and Presentation in its financial statements ending 31 March 2006 since MASB 24 has been removed from the PERS?

Yes, your company needs to comply with MASB 24 for financial statements ending 31 March 2006.

The two-tier reporting only takes effect for annual periods beginning on or after January 1, 2006. In other words, your company's first set of financial statements that comply with PERS shall be from 1 April 2006 to 31 March 2007.

Q2.

My company (a private entity) had previously issued redeemable preference shares (RPS) and in accordance with MASB 24, had classified the RPS as a liability. Since MASB 24 has been removed from PERS, what should my company do now?

In the absence of a specific MASB Standard, MASB 1 Presentation of Financial Statements accords management to use its judgement in developing an accounting policy that provides the most useful information to users of the enterprise's financial statements. In making this judgement, management considers: (a) the requirements and guidance in MASB Standards and any other technical pronouncements issued by MASB dealing with similar related issues; (b) the definitions, recognition and measurement criteria for assets, liabilities, income and expenses set out in the MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements; and (c) other regulatory requirements and accepted industry practices to the extent, but only to the extent, that these are consistent with (a) and (b) of this paragraph.

Guidance on the classification of RPS is provided in FRS 132 Financial Instruments: Disclosure and Presentation. Therefore, your company may wish to refer to FRS 132 on the subject matter.

Q3.

Following Q2 above, if my company issues RPS in year 2007, how should this second batch of RPS be classified? As MASB 24 has been removed from PERS and hence no requirement for my company to classify these RPS as liabilities, will there be two different classifications on the RPS?

If MASB has not issued any guidance in the PERS on the classification of RPS in year 2007, your company should refer to the prevailing standard on the basis of the requirements in MASB 1 as explained in the Answer to Question 2 above.

On whether there will be two different classifications on RPS, your company should refer to the requirements in MASB 1. That Standard prescribes that the presentation and classification of items in the financial statements should be retained from one period to the next unless: (a) a significant change in the nature of the operation of the enterprise or a review of its financial statement presentation demonstrates that the change will result in a more appropriate presentations of transactions; or (b) the change is required by PERS and other technical pronouncements issued by MASB or other directive or regulation.

Q4.

My company (a private entity) used merger accounting in MASB 21 Business Combinations, to account for a business combination that took place before 31 December 2005. With the removal of MASB 21 from PERS, what should my company do now?

In principle, if a private entity enters into a transaction not covered by PERS, it would refer to the prevailing standard on the basis of the requirements in MASB 1 as explained in the Answer to Question 2 above. In the case of business combinations, therefore, your company may wish to refer to FRS 3 Business Combinations.

Guidance not provided in PERS
Q5.

My company (a private entity) undertook a business combination in 2006. Since there is no accounting standard on business combinations in the PERS, how should my company account for the business combinations?

In principle, if a private entity enters into a transaction not covered by PERS, it would refer to the prevailing standard on the basis of the requirements in MASB 1 as explained in the Answer to Question 2 above. Since there is a business combination standard under FRS 3, your company may refer to FRS 3 Business Combinations to account for the business combinations.

Q6.

Following Q5 above, FRS 3 makes reference to FRS 136 Impairment of Assets, in which there is an equivalent Standard in the PERS - MASB 23 Impairment of Assets. Shall my company comply with FRS 136 or MASB 23?

Where there is an equivalent Standard in the PERS, your company shall comply with that respective MASB Standard, in this case, MASB 23.

Q7.

Referring to Q5 above, if there are other transactions entered into by my company (a private entity) such as derivatives and hedging instruments where no existing PERS addresses, should my company comply with FRS 139?

See answer to Question 5 above - therefore, in the case of financial derivatives and hedging instruments, your company may wish to refer to FRS 139 Financial Instruments: Recognition and Measurement, in accounting for the derivatives and hedging instruments.

Q8.

My company is a not a private entity. There is a change in the composition in my group. FRS 127 does not provide guidance on the subject matter. How should my company account for such change?

In the absence of a specific FRS, FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors accords management to use its judgement in developing and applying an accounting policy that results in information that is reliable and relevant to the economic decision-making needs of users. In making this judgement, management shall refer to, and consider the applicability of the following sources in descending order: (a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and (b) the definitions, recognition and measurement concepts for assets, liabilities, income and expenses set out in the MASB's Proposed Framework. Management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in items (a) and (b) above.

Migration from PERS to FRS
Q9.

When a private entity that has been using the existing PERS [which comprises certain MASB Standards issued prior to 1 January 2006] decides to migrate to FRS, will that entity be required to apply FRS 1 First Time Adoption of FRSs?

FRS 1 is not applicable for entities that have been preparing their financial statements in accordance with MASB Standards and Financial Reporting Standards.

A private entity that wishes to migrate from PERS [which comprises certain MASB Standards issued prior to 1 January 2006] to FRS will use the transitional provision provided in the respective FRSs in the preparation of financial statements.[Date: 3 March 2006]

When the two-tier reporting structure was first introduced in January 2006, the MASB Standards were similar to the respective Financial Reporting Standards. However, over the last few years, the ongoing revision and introduction of new FRSs, have widened the gaap between these two set of accounting standards. In view of this, private entity shall apply FRS 1 to ensure its comparative information presented in the financial statements is as close as possible to the information provided by existing users of FRSs. [Date: 20 August 2008]