international convergence of accounting standards a case study of malaysia 23 may 2006
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International Convergence of Accounting Standards: A Case Study of Malaysia 23 May 2006. How A Developing Economy Embraces IFRS: Malaysia . How Malaysia Embraces IFRS. Embrace: “Integral part of …” IFRS an integral part of the capital market & corporate governance structure

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how malaysia embraces ifrs
How Malaysia Embraces IFRS
  • Embrace: “Integral part of …”
        • IFRS an integral part of the capital market & corporate governance structure
  • Malaysia’s experience vs Asia’s experience
        • Historical, structural, political (will)
  • Looking back 1972 - 2001
        • Strategy & Challenges
  • Looking forward 2006 - beyond
        • Strategy & Challenges
integral part of the capital market corporate governance structure
Integral part of the capital market & corporate governance structure

Degree of integration

Adoption 1978

1997

2000

2001

2006

1972

Profession

Legal

Governance

Capital

MasterPlans

7 & 8 Malaysia Plan (1996-2005)

9 Malaysia Plan

slide5

1972 Presentation

of Accounts

1973 IASC Formed

1978 – 1997 Adoption

of IAS

  • Malaysia has a history of a formal integration of accounting standards into the professional fabric since 1972
1978 1997
1978 - 1997

Profession

  • 1978 Adoption of first 4 IAS by MACPA
  • 1986 Next 13 IAS adopted
  • 1992 All IAS adopted by MACPA and MIA
  • 1997 Accounting standards setting function taken over by Malaysian Accounting Standards Board under Act of Parliament
integral part of the capital market corporate governance structure7
Integral part of the capital market & corporate governance structure

Degree of integration

Fin Rpt Act

Adoption 1978

1997

2000

2001

2006

1972

Profession

Legal

Governance

Capital

MasterPlans

7 & 8 Malaysia Plan (1996-2005)

9 Malaysia Plan

financial reporting act 1997
Financial Reporting Act 1997

Legal

  • Financial Reporting Act passed by Parliament in March 1997 (prior to Asian financial crisis)
  • Formation of Financial Reporting Foundation and Malaysian Accounting Standards Board
  • New to Malaysia and the region
      • Dedicated independent body
      • First time accounting standards has the force of law
      • Non-compliance means breach of law
      • Stringent enforcement infrastructure by Securities Commission, Central Bank and Registrar of Companies
compliance is mandatory
Compliance is Mandatory

Compliance with FRS Mandatory for:

Publicly Listed Companies under Exchange–1,000

Companies registered with the Registrar –701,000 !!

Financial Institutions under Central Bank –23

Dedicated Enforcement Infrastructure:

Publicly Listed Companies – Securities Commission

Registered companies – Companies Commission

Financial Institutions – Central Bank

MASB does not have enforcement power

malaysian accounting standards board
Malaysian Accounting Standards Board
  • Mandate:
      • Develop financial reporting standards
      • Develop Islamic accounting standards
      • Extensive consultative process
  • Funded by:
      • Securities Commission (1/3)
      • Stock Exchange (1/3)
      • Ministry of Finance (1/3)
      • Public, accounting firms, NGOs (Nil)

Independence

slide11

Consultative Process & Autonomy

IAS

IFRS

Discussion Paper prepared

Finalise DP into ED

Public Exposure

Review of DP

Review of DP

1

2

3

4

5

Working Group

Public

MASB

MASB

FRF

MASB

6

Final review

Review of comments

FRS issued

Approval

10

9

8

7

9-15 months

MASB *

Working Group

Public

FRF

MASB

* No need for Parliamentary

approval

1997 2001 harmonization
1997 – 2001: Harmonization
  • MASB Standards vs International Accounting Standards
  • MASB Standards are IAS Plus
      • Similar to IAS, plus
      • Guidance added, plus
      • Other requirements added

Harmonization

integral part of the capital market corporate governance structure13
Integral part of the capital market & corporate governance structure

Capital

Financial

Corp Gov Code

Degree of integration

Fin Rpt Act

Adoption 1978

1997

2000

2001

2006

1972

Profession

Legal

Governance

Capital

MasterPlans

7 & 8 Malaysia Plan (1996-2005)

9 Malaysia Plan

integration with master plans
Integration with Master Plans

Governance & Capital

  • Malaysia’s 5-year Master Plans
  • Code of Corporate Governance issued in 2000
  • Capital Market Masterplan
  • Financial Sector Masterplan
  • “Recommendations for achieving highest standard for financial reporting for corporate governance among capital and financial market players in Malaysia”

issued in 2001

2005 convergence
2005: Convergence

Harmonization

Convergence

strategy
Malaysia

Support convergence. IFRS Convergence not an issue.

Question of managing implementation

Sufficient buy-in

Discretion to determine implementation date

Participate early in standards setting development

Alliance with recognized bodies, lead if necessary

Asia

Developing economies seem to have no choice but to converge

participate in free trade/globalization

funding for industrialization

No choice but to participate regionally, greater representation

No choice but to have regular discourse to identify commonalities, or diversities

Strategy
challenges
Malaysia

Managing change

Mindset – old habits die hard, price for having long history

Interpretations

Cost of complex standards vs benefits to owner manager companies

Region

Lack of regional participation

Lack of voice, representation

Where problems are common, countries must be forthcoming

Where problems are not common, endeavour to find a consensus

IASB

Developed economies focus

Board representation

Changing goalpost

Challenges
slide18

Addressing Challenges – Changing mindset

  • Convergence impact:
      • Tough for many countries
      • Suddenly have to migrate to new environment
      • Accounting standards are now law of these countries
          • Europe (2005), Philippines (2004)
      • Language matters
  • Malaysia – not as bad …relatively
      • Have been on IAS all along
      • Standards are law in 1997
      • Standards in English, no need for translation
addressing challenges interpretations
Addressing Challenges - Interpretations

Discourse with Affected Parties

Degree of Buy-in

addressing challenges sharing with others
Addressing Challenges – Sharing with others
  • Australia - intangibles
  • China/HK - state controlled entities, leases
  • N. Zealand - agriculture, leases
  • Singapore - leases
  • Malaysia - related party, agriculture
slide21

Addressing Challenges – Costs vs Benefits

  • In Malaysia, 95% of 701,000 companies are SMEs. Initial intent to cover ALL companies was noble.
  • But as Standards become more complex…
  • Burden of compliance by SMEs becomes main issue
  • MASB announced 2 – tier reporting standard 1.1.2006
      • IFRS (international GAAP) for PLCs, subsidiaries, assoc., JV
      • Choice of IFRS or MASB Standards (which are IAS compliant) for private entities
      • Currently working on private entity reporting standards (PERS)
moving forward
Moving Forward
  • Convergence is the way forward
  • Understanding the needs of developing economies important for significant buy-ins in the region
  • Challenges: Regional diversity remains a challenge
  • Help is needed:
      • IFRS likely to remain complex
      • Goalposts keeps changing
      • Implementation remains an issue
  • Malaysia stands ready to offer:
      • MASB has significant learning curve
      • MASB is active in Islamic accounting standards
      • MASB has a good understanding about SMEs in the region
      • MASB has models to follow
conclusion
Conclusion
  • Success of convergence contingent upon how developing economies “embrace” IFRS
  • Malaysia fortunate to have:
      • a history
      • infrastructure
      • political will
  • … to drive international convergence
      • Others may not be as fortunate, but
      • Asia can learn from each other
  • Asian diversity is a beauty
  • Malaysia stands ready to offer assistance
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