It has been more than a year since my appointment as Chairman of the Malaysian Accounting Standards Board and I believe that we are on track for convergence with IFRS in 2012.
2010 was a difficult year where the Board’s main focus was to bridge the IFRS knowledge gap of our local constituents and to manage the implementation of FRS 139. Our activities and initiatives for the year can be summarised into the following areas:
- Continuous effort in closing the gap between FRS and IFRS
- Engaging various stakeholders locally and internationally
- Working closely with IASB to create local awareness
- The push for change in the agricultural standard
- IFRS for SMEs road shows
- Implementation of FRS 139
These areas are elaborated on below.
Continuous effort in closing the gap between FRS and IFRS
The efforts spent to converge with IFRS continued in 2010. We are narrowing the gap between our local standards with IFRSs. By end of 2011, our goal (or target) is to be on par with the standards issued by the IFRS Foundation.
During the year, a total of forty-one (41) documents, comprising twenty (20) final and twenty-one (21) draft technical pronouncements, had been issued. The twenty (20) technical pronouncements issued during the year comprised four (4) revised Financial Reporting Standards, seven (7) IC Interpretations, seven (7) limited amendments to existing FRS and IC Interpretations, one (1) Technical Release and one (1) Technical Release-Islamic.
Our Standards usually undergo a 2-tier ‘due process’ before it is issued as an MASB approved accounting standard. The first tier is when MASB participates in IASB’s due process while the IASB Standard is being developed worldwide. The second due-process tier is when MASB issues printed exposure draft based on IASB final standard issued.
As a result of the convergence plan, we have decided to shorten the time frame to issue standards or pronouncement by eliminating the ‘second due-process’. We trust it will be helpful and advantageous for the constituents if they apply the latest improved version of the standard so as to be on the same level playing field with others internationally and to be able to respond to IASB quicker on issues.
Engaging various stakeholders locally and internationally
Engaging stakeholders both locally and internationally had been one of our core focuses in 2010. Our stakeholders are persons who have an influence on our organisation or may be affected by our actions and decisions. What we do has an impact on these constituents, hence it is vital that we listen to what they have to say, and strive to address the issues they raise. Other challenges faced were from the prudential regulatory requirements, the realignment of legislations (i.e. Income Taxes and legal framework) and business practices.
During the year, we held and participated in various events as follows:
We participated actively in most of the International fora held throughout the world, from the World Standard-setters meeting in London, to the National Standard-setters meeting both in Rome and in Korea. In these meetings, we were given the opportunity to present our IAS 41 Agriculture proposal to revise the Standard. I am happy to report that our proposal was well received by the IASB and we have obtained support from various jurisdictions to move along the process to change the standard.
We were elected as the first Chairman in 2009 when the Asian Oceanian Standard-Setters Group (AOSSG) was initially formed. Upon the completion of our one year term, we handed over the office to the next Chairman from Japan in Tokyo.
One of the highlights for AOSSG was the formation of the Chairman Advisory Committee (the Committee). The purpose of the Committee is to provide consultative assistance to the Chairman and Vice-Chairman in the administering of the operations of AOSSG. I am proud to report that the MASB is a member of this Committee. This is a vital role for us as we will continue to be involved in formulating mid-term strategy of AOSSG and providing inputs to the directions of Working Group activities.
Organising local forums
This year, we organised a number of local public fora for our local constituents. These fora were mainly held to seek constructive feedback from the public to formulate our responses to the IASB’s various draft pronouncements. We also use these fora as a platform to generate awareness amongst our constituents on the upcoming Standards which may have significant impact in their financial reporting. We are glad that these fora were received with favourable participations from entities of various industries.
In 2010, we organised a forum on Financial Instruments, Revenue from Contracts with Customers, Leases, Consolidation, Investment Entities and Insurance Contracts. Most of these were organised in collaboration with representatives from the IASB and are elaborated below.
Sharing of knowledge and experiences
We have also been interacting closely with our neighbouring countries’ standard-setters; namely Thailand, Philippines, Brunei, Vietnam, Singapore and Indonesia. It allows us to share and learn from each other the financial reporting framework, the convergence process and challenges and issues we faced in the process. These sharing sessions have allowed us to understand each party better and along the way, help identify common issues where parties can come together to resolve them.
Working closely with IASB to create local awareness
The IASB has exposed several pronouncements in 2010, which could have a considerable effect on the financial statements of our local entities. These pronouncements involve accounting for revenue from contracts with customers, leases, consolidation, investment entities and insurance. From the name of these pronouncements themselves, especially for revenue and leases, we know that they will affect most, if not all, industries in the economy.
We encouraged our constituents to get involved in the due process, including that of the IASB. This is particularly important especially when we are looking to fully converged with IFRSs, the due process will be shortened. It basically means the constituents would only have one chance in raising their concerns to the IASB through us before the standards are issued.
At the same time the IASB has undertaken a range of outreach activities to communicate their proposals to interested parties and provide an avenue for these interested parties to discuss and debate with them. During the year, we took the opportunity to leverage on these IASB’s outreach activities. We have successfully held a number of public fora in partnership with IASB represented by its Board and its technical team for the above technical pronouncements.
We find that, with the presence of IASB’s representatives in these fora, our local constituents can better relate their concerns directly to the IASB and the local constituents can better understand the rationale and basis of how the IASB had drafted these pronouncements first hand.
The push for change in agricultural standard
We have converged most of our standards with IFRSs; except for a few more complex standards. One of them is the standard on agricultural (IAS 41).
The agricultural standard which was issued in February 2001 has been effective internationally since 1st January 2003. However, the reason we have yet to adopt is because we feel that certain principles in this Standard may not best reflect the true nature of our agricultural industry. In particular, the fair value accounting treatment for bearer biological asset as required in that Standard. This sentiment is shared with other jurisdiction as well and as mentioned earlier, Malaysia is spearheading the issue papers submission to the IASB leveraging the support of AOSSG in 2010.
Throughout our lobbying, we have garnered enthusiastic support on our work from countries such as Brazil, China and India. Some have offered to assist us in taking forward the issue on IAS 41 to the next level. On the same note, I am thankful for the enthusiastic support by fellow AOSSG members for our proposal.
IFRS for SMEs road shows
The IASB issued IFRS for Small and Medium-sized Entities (IFRS for SMEs) in July 2009, and since then we have assessed the accounting framework for SMEs or private entities. An exposure draft, MASB ED 72 FRS for SMEs, which is word-for-word with IFRS for SMEs has been issued in March 2010. We conducted a survey through a questionnaire to seek views from the public on which accounting framework would best suit our private entities.
During 2010, we jointly held seven (7) road shows across the nation with the Malaysian Institute of Accountants (MIA). The road shows were received favourably with a total crowd of about 1,250 participants.
However, as to which accounting framework would be best for Malaysia (i.e. the choices between MASB ED 72 FRS for SMEs, MASB ED 52 PERS or the existing PERS), the results from our road shows and survey showed mixed views. In this regard, in the coming year, we plan to evaluate further the requirements and needs of these groups of entities before finalising the appropriate standard for the private entities.
Implementation of FRS 139
In my opinion, the implementation of FRS 139 was probably one of the most challenging standards we had to introduce to the Malaysian market. Thanks to the early involvement of regulators and preparers, the implementation was successfully managed.
The creation of a FRS139 Implementation Sub Committee played a significant role in the successful implementation. It enables us to identify and deal with issues in a coordinated way and was a useful example of what could be achieved by inter-agency cooperation.
We also entered into dialogue with affected parties such as the Association of Banks in Malaysia, the audit profession as well as running regular forums with banks and key corporates. We also participated in the MIA-MICPA-CTIM Joint Tax Working Group to address the implications of the standard with the Ministry of Finance and the Inland Revenue.
We ran a special implementation seminar for auditors and worked closely with the MIA FRSIC to issue guidance and to have clarity on certain issues of implementation. We also participated in the Bursa seminar on FRS 139 to Audit Committee Chairmen.
All in all, it was hard work but it resulted in a successful implementation.
Moving forward, as we move closer to convergence the Board will be paying more attention to the platform needed for our constituents to have a smooth transition from our local FRS to the IFRS. This will entail working more closely with educators, academia and professional bodies to ensure that adequate training and education will be provided to accounting professionals, to equip them with the right tools and mind set to better understand and apply the Standards.
Last but not the least, I wish to take this opportunity to express my gratitude to all the staff who have put in a lot of effort in making sure that the objectives of the Board were met. I am thankful to the members of the FRF for their vision and persistent leadership whilst providing an independent oversight role. Also, I would like to express my gratitude to the regulators, professional bodies, academia, professional firms, the commercial sector and the Ministry of Finance for contributing their efforts and knowledge in our standard-setting process.