2013 was Malaysia’s second year of convergence IFRS. Much work has been done by many parties during the last year, especially our stakeholders, to ensure we are able to meet the expectations of being fully compliant with IFRS. We are also pleased to note from international commentators that they perceive that our local capital markets have been enhanced by the adoption of IFRS in Malaysia and that the MASB is seen as a role model for new IFRS adopters.
The work however has not stopped. We have redoubled our efforts this year to resolve the remaining issues that prevent the agriculture and real estate industries from fully adopting IFRS. It is also even more important now and in moving forward that we continue to play an active role in the international standard setting arena so that our local views are channeled to the IASB for their consideration now that we have adopted IFRS. The agriculture and real estate industries issues, which we had successfully brought on to the IASB work agenda, had taught us that we must persistently voice our views in a constructive manner at every given opportunity. We continue to actively participate in regional and international forums and meetings to voice our views and to provide alternative solutions. We have been greatly assisted by feedback from our constituents through various discussion forums, meetings, outreach and roundtables.
This year, we have extended our work plan to consider whether the existing PERS framework is still fit for purpose. We had concentrated a significant part of our resources in reaching out to our constituents about the new proposed framework for private entities as well as engaging the regulators. A lot of the resultant recommendations and views have been reflected in the new MPERS framework that was eventually issued in February 2014.
Our activities and initiatives for the year can thus be summarised into the following areas:
- IFRS Adoption
- Engaging various stakeholders locally and internationally
- Sharing knowledge and experiences
- IFRS developments of particular interest to Malaysia
- Islamic Finance
- Small and medium enterprises
These areas are elaborated on below.
MASB has adopted IFRS in full for The Malaysian Capital Markets with an exemption only for the real estate and agriculture industries. The MASB had planned for all listed to achieve full convergence with IFRS for all companies by 2014. However that plan, regrettably, has not materialised because the IASB timetable was not met. They initially planned issuing a new Revenue Standard and making limited scope amendments to IAS 41Agriculture on bearer plants in 2013. However the IASB did not manage to finalise them as planned due to the extensive input they needed and the complexities of the Revenue Standard. Given that MFRSs are word for word IFRSs, it was necessary to defer full convergence with IFRS for the affected industries. The MASB will review its position for Transitioning Entities in June 2014 or when the Standards are issued by the IASB, whichever is earlier.
With full adoption of the IFRS, it has brought on a greater responsibility on the MASB and FRF to manage local stakeholders interests and to articulate their concerns internationally. We continued to increase our active engagement with our constituents during the year through convergence-specific meetings, teleconferences and public forums, with the focus to understand the implementation issues arising subsequent to convergence with IFRS and also to solicit views on other ongoing projects.
In line with our due process, we issued a total of twenty-two (22) documents in 2013, comprising four (4) documents issued under the MFRS Framework, four (4) documents issued under the FRS Framework, one (1) Statement of Principles and fifteen (15) draft technical pronouncements. In addition, twenty (20) IASB and IVSC draft pronouncements were reviewed and comment letters were submitted.
Engaging various stakeholders locally and internationally
Following the adoption of IFRS, we continued to engage with various stakeholders locally and internationally by way of organising outreach activities, hosting and attending various international and local conferences, public forums, working group meetings and teleconferences. In 2013, the MASB participated in / organised a wide range of events – four (4) technical public forums, one (1) video conference briefing on IASB Exposure Draft on Leases, one (1) forum with Chief Financial Officers of Public Listed Companies, one (1) Islamic Finance Master Class and one (1) IFRS-framework based teaching forum with academicians.
In addition, the MASB also held numerous industry-specific meetings namely the agriculture and real estate industries, standard-specific meetings relating to MFRS 10 Consolidated Financial Statements and MFRS 124 Related Party Disclosures, as well as MFRS conference calls with public listed companies and auditors. We also hosted several educational sessions with universities and academicians.
Further to the events above, the MASB staff also attended thirteen (13) international and regional meetings, which included the inaugural meeting of the IASB Consultative Group on Shariah-Compliant Instruments and Transactions held in Kuala Lumpur. The MASB staff also participated actively in twelve (12) speaking engagements held internationally and locally. We also hosted three (3) visits by foreign guests, namely by the President of the Institute of Chartered Accountants in England and Wales, the Nepal Accounting and Auditing Standards Board and the United States Embassy.
2013 also witnessed our firm commitment towards the finalisation of the new financial reporting framework for private entities. We reached out to the public in a series of six (6) forums on the Roadmap for Private Entities Financial Reporting Framework, in which four (4) were held in collaboration with MIA. We also participated in five (5) forums and talks on financial reporting standards for private entities.
It was indeed a busy year for the MASB as we worked relentlessly to achieve our objectives.
We continued to play an active role in international forums and meetings.
As mentioned earlier, we had the honour of hosting the inaugural meeting of the IASB Consultative Group on Shariah-Compliant Instruments and Transactions. This consultative group was established by the IASB to assess the relationship between Shariah-compliant transactions and instruments and IFRS as well as to educate the IASB. The meeting was attended by members of the accounting standard setting bodies of Saudi Arabia, Dubai International Financial Centre, Indonesia, Pakistan and Malaysia as well as representatives of the Islamic Financial Services Board, the Gulf Cooperation Council Accounting and Auditing Organisation. I believe that our participation in the IASB Consultative Group on Shariah-Compliant Instruments and Transactions is vital as we now have an international platform to put across our views regarding Islamic finance besides the AOSSG Working Group on Financial Reporting relating to Islamic Finance.
Another international event that we hosted was the 6th Meeting of the IASB EEG. It was a two-day meeting which focused on issues surrounding the application and implementation of IFRSs in emerging economies, such as Malaysia.
We continued our involvement in many international and regional events. These included the International Forum of Accounting Standard-Setters Meeting in Brussels, the IASB World Standard-Setters meeting in London, the 5th meeting of the IASB EEG in Seoul, IASB Roundtables in Hong Kong and Japan and the 5th Annual Meeting of the AOSSG in Colombo and AOSSG Interim Meetings in Hong Kong, London and Colombo. Again, in many of these meetings, we were given the opportunity to lead discussions and share our views specifically on IAS 41 Agriculture and accounting for Islamic Finance transactions.
We also ensured that our voice continued to be heard amongst AOSSG member countries. We are the Co-lead and Lead for AOSSG Working Group on Agriculture and Financial Reporting relating to Islamic Finance respectively, and at the same time, we are also a member in other AOSSG Working Groups such as Conceptual Framework, Revenue and Leases, to name but a few. We shared our experience with AOSSG members on pertinent issues and took part in offering comments and recommendations on all IASB projects. Participation in AOSSG Working Groups also provided us the opportunity for our views to be shared with the IASB ASAF which was set up by the IFRS Foundation in 2013 to support the IASB and to facilitate effective technical discussions on technical issues with representatives at a high level of professional capability.
In addition to our commitment with IASB and AOSSG, we also took part in the Islamic Financial Services Board General Assembly in Doha, Qatar.
Organising local forums
In 2013, we hosted numerous national events, including public forums, roadshows and meetings with regulators and other stakeholders for the purpose of gathering information and soliciting views on many aspects of financial reporting standards.
We had successfully organised local forums that served the needs of both non-private entities and private entities. Of the four (4) public forums held during the year, three (3) forums were held with the attendance of IASB representatives as speakers on topics such as Insurance Contracts, Revenue and Leases. We are pleased to share that the IASB members and staff were willing to travel across continents to brief our constituents on the fundamental principles of the upcoming Revenue Standard as well as sharing their viewpoints on the proposals outlined in the Exposure Drafts on Insurance Contracts, Revenue and Leases. With the presence of IASB representatives, our constituents were given the opportunity to convey their concerns directly to the IASB and they also were able to better understand the rationale and basis of the draft pronouncements issued by the IASB.
It was also worth noting the enthusiastic feedback that we received in the Forums on Roadmap for Private Entities Financial Reporting Framework that were held in several cities including Kota Kinabalu and Kuching. More than 900 participants consisting of auditors and preparers had provided constructive feedback that were helpful to us in deliberating over what would be the framework that would benefit the financial reporting of private entities.
Sharing knowledge and experiences
Apart from international participation, our other avenues of knowledge sharing were via articles published on our website and interactive presentations via live video conferencing, webcast and conference calls. In 2013, we helped other National Standard Setters by offering to provide training in specific topics to the Accounting Standards Board of Nepal, in response to their request to AOSSG for assistance in capacity building for standard-setting and adoption of IFRS in Nepal.
During the year, the MASB published six (6) articles – three (3) written by MASB staff and another three (3) articles were authored by others with contributions from MASB staff. The articles explained about recent developments in IASB proposals on Leases, a review of the investment entities, along with an overview of new standards and forthcoming projects. The MASB staff also contributed to the ACCA Malaysia and Malaysia SME, articles in regards to Islamic Finance and accounting standards for SMEs respectively.
We also utilised our video conference system by hosting a real-time outreach meeting between our constituents and the IASB member and project staff on the revised IASB Exposure Draft on Leases. The same technology was also used in a workshop on IFRS Framework-based Teaching materials by the IASB staff. This was the second time that we organised a academician-focused workshop which was intended to demonstrate how to effectively use the Framework-based Teaching materials. Besides that, the MASB’s Islamic Technical Unit (ITU) also took part in knowledge sharing by conducting its 3rd Islamic Finance Master Class for Malaysian academicians.
The MASB also welcomed a delegation of representatives from the Accounting and Auditing Standards Board of Nepal. The goal of the visit was to get a better understanding on strategies towards adoption of IFRS and also the International Standards on Auditing. We organised a detailed presentation of the steps the MASB had taken for the convergence with IFRS.
We had participated in a global knowledge sharing at the Gulf Cooperation Council Accounting and Auditing Organisation annual forum held in Dubai. On the local front, we spoke in various engagements such as in two technical briefings to members of the Institute of Chartered Accountants Australia, the inaugural Islamic Finance conference organised by the MIA, the MIA Public Practitioners Forum and the Asian Institute of Finance Roundtable on Financial Instruments.
IFRS developments of particular interest to Malaysia
There had been many developments to IFRS during the year, which included the exposure of multiple pronouncements and issuance of standards. More importantly this year, we had seen further progress on matters that were particularly important to Malaysia, such as agriculture. The draft pronouncements included topics on regulatory deferral accounts, defined benefit plans, financial instruments on expected credit losses, leases, insurance contracts, conceptual framework, agriculture and the revised IFRS for SMEs. Standards finalised in 2013 covered topics on investment entities, levies, recoverable amount disclosures for non-financial assets and novation of derivatives and continuation of hedge accounting.
Given the diversified topics being introduced by the IASB, we therefore strongly encourage our constituents to participate in the standard-setting due process to make sure we adequately cover local stakeholder concerns. The MASB will continue to play an active role in engaging with various working groups and other stakeholders to gain an understanding of any concerns or potential issues that should be raised to the IASB.
A great deal of work had been done since 2010 to consider changes to this standard and we are pleased to note that in 2013, the IASB finally issued an Exposure Draft on Agriculture: Bearer Plants. This was a huge achievement for us to have the issues we raised debated at an international level. The proposals in the ED were generally consistent with our recommendations but we noted some practical difficulties in the measurement requirements for produce growing on bearer plants. We have highlighted our concerns, supported also by similar comments from AOSSG members, in our comment letter to the IASB.
New Revenue Standard
The new Revenue Standard applies to all contracts with customers and is expected to improve financial reporting by creating a common standard that clarifies principles that can be applied consistently across various transactions and industries. The issuance of the Revenue Standard, expected in the first half of 2014, will not only mark the beginning of the transition of real estate entities to the MFRS Framework but will also bring potential implementation issues arising from the application of the new Revenue Standard to other industries. We will work with the MIA FRSIC committee to resolve these potential issues.
In addition to the success of the inaugural meeting of the IASB Consultative Group on Shariah-Compliant Instruments and Transactions as mentioned earlier, the MASB’s ITU had also managed to conduct its third Islamic Finance Master Class intended for Malaysian academia from both the public and private universities. The Master Class which was attended by over thirty (30) representatives from various academic institutions provided an introduction to Islamic financial reporting under the IFRS framework and explained IFRS developments on leases, financial instruments, insurance contracts and revenue from contracts with customers. We also presented a limited survey on IFRS adoption in some key jurisdictions relevant to Islamic Finance and presented it to the AOSSG. We continued providing comments on new standards, participated on the MIA Islamic Finance Committee and AOSSG Islamic Finance working group. We also took the opportunity this year to upgrade the standing of the MASB working group to a MASB Standing Committee on Islamic Finance and revisited the composition of the Standing Committee.
Small and medium enterprises
Following our plan to update the accounting framework for private entities, we had worked diligently on assessing various approaches. In 2013, we issued two (2) draft pronouncements in relation to the financial reporting framework for private entities. First, we issued the Roadmap for Private Entities Financial Reporting Framework with the objective of soliciting views from the public whether the MASB should introduce differential reporting requirements for private entities by way of stratification. Following the issuance of the Roadmap, we had reached out to the local constituents in several cities throughout the country to hear their views. I spoke about the Roadmap at the SME Week organised by SME Corporation and the MASB staff also presented at the MIA Public Practitioners Forum on a similar topic.
Second, in response to the feedback received on the Roadmap and after thorough deliberation, we issued an Exposure Draft on MPERS. The MASB noted of the lack of support for the initial proposal to stratify private entities and hence proposed for a single financial reporting framework for private entities. The MPERS is word-for-word the IFRS for SMEs issued by the IASB in July 2009 except for updating the sections on income tax and real estate as well as removing the exemption from the presentation of consolidated financial statements by a wholly-owned parent. Finally, after a lengthy and vigorous process, on 14 February 2014, the MASB issued the MPERS as a new financial reporting framework for private entities. We will now have to work together with relevant regulators and organisations to raise awareness about the MPERS and to equip the preparers with the right tools, training and mindset that will help them transition to MPERS.
2013 has been a busy and eventful year. We continued our journey as adopters of IFRS and spent considerable time articulating and pursuing our agenda with the IASB. We are grateful to the IASB for taking our views on board and they continue to value our participation. Much of the groundwork for the new private entities framework was done this year and we look forward to implementing this new framework in the future. All this was done on top of our usual workload to manage and explain IFRS to our local stakeholders.
2014 will entail us working more closely with users, practitioners, other organisations and stakeholders as we move closer towards the completion of the agriculture and revenue (real estate) projects as well as the implementation of the new framework for private entities. We will continue to engage with our constituents through outreach activities and other means.
Last but not least, I want to sincerely thank all the staff who had contributed their time, resources and unwavering commitment to ensuring the objectives of the Board were met. I am also thankful to the FRF members for their continued guidance and leadership whilst giving direction in their independent oversight capacity. Also, I would like to commend the efforts of the Malaysian regulators, professional bodies, academia, professional firms, members of our working groups, the commercial sector, the Board and Ministry of Finance for continuing their commitment to support the efforts of the MASB and the Capital Markets as a whole.
DATO’ MOHAMMAD FAIZ AZMI
Malaysian Accounting Standards Board