Standard Setting In Malaysia

Learning Objectives
i.
Understand the development of accounting standards in Malaysia.
ii.
Describe the structure and objectives of Malaysian Accounting Standards Board.
iii. Describe the structure and objectives of the International Accounting Standards
Board.
iv.
Explain the issues related to convergence of accounting standards.
v. Explain the relationship between Malaysian Accounting Standards Board to
International Accounting Standards Board in relation to convergence of accounting
standards.
1.0 Introduction
Accounting standards refer to a set of standards stating how particular types of transactions
and other events should be reflected in financial statements. These standards are issued by
accounting standard setters. The application of accounting standards in the preparation and
presentation of financial statements is generally govern by regulatory bodies and/or
professional accounting bodies in a particular country.
The emergence and development of multinational concerns and the growth of international
financial markets, among other factors, are influencing the preparation of financial statements
beyond national borders. Many countries around the world that are using their national
Generally Accepted Accounting Principles (GAAP) are adopting the International Financial
Reporting Standards (IFRS) in the preparation and presentation of their financial statements.
The IFRSs are issued by International Accounting Standards Board (IASB) and the adoption
of IFRSs is having a growing influence on national accounting requirements and practices.
This chapter discusses the adoption of IFRSs and other aspects of standard-setting
environment in Malaysia.
2.0 Development of Financial Reporting in Malaysia
The demand for corporate information by capital providers and other stakeholders, such as
employees, suppliers, customers and other agents has shaped the financial reporting
environment in Malaysia. These parties require corporate information in making their
economic decisions. The provision of corporate information to these users has been initiated
by the Ninth Schedule of the Companies Act 1965 requiring companies to disclose minimum
information. Financial reporting environment has evolved since then and currently companies
are disclosing more comprehensive information as a result of considerable efforts by various
bodies. Figure 1 depicts the timing of significant events related to the development of
financial reporting in Malaysia.
Figure 1: Timeframe Depicting Significant Events Related to the Development of
Financial Reporting In Malaysia.
Period

Financial Reporting Development

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1965

Ninth Schedule of the Companies Act 1965

- Minimum disclosure of specific information

1979

Representation on the International Accounting Standards Committee (IASC)

- Adoption of International Accounting Standards (IAS)
- Issue of Malaysian Accounting Standards (MAS)

1997

Financial Reporting Act 1997 established Financial Reporting Foundation (FRF)

and Malaysian Accounting Standards Board (MASB)
- FRF, a trustee body responsible for the oversight of MASBs operations
- MASB is responsible for standard setting in Malaysia
- MASB issue standards called MASB, e.g. MASB 2 Inventories

2005

MASB standards renamed as FRS, e.g. FRS 102 Inventories

2012

Full convergence of FRSs (MASB) with IFRSs (as issued by IASB)

The provision of corporate information in Malaysia was first mandated by the Companies Act
1965 requirements. Schedule 9 of the Companies Act 1965 requires all registered companies
in Malaysia to disclose specific information in their financial statements. However, the format
and content of financial statements are not prescribed by Schedule 9 of the Companies Act
1965. As such, only minimum disclosure requirements are prescribed by the legislation.
The disclosure of corporate information beyond the minimum statutory disclosure
requirements in Malaysia began in 1979 when Malaysia was represented on the International
Accounting Standards Committee (IASC). The IASC was set up in 1973 and was responsible
for the setting of International Accounting Standards (IAS). The guidelines issued by the
IASC were called Standing Interpretations Committee (SIC). Soon after its representation on
the IASC, Malaysia began adopting the IASs. While the adoption of IASs lead to more
comprehensive disclosure of corporate information, it was not able to meet some local
reporting requirements. Accounting and reporting requirements for transactions and events in
relation to specific industries such as aquaculture and insurance were not addressed by the
IASs. In meeting the local reporting requirements, accounting standards known as Malaysian
Accounting Standards (MASs) were issued jointly by two professional accounting bodies in
the 1980s. These bodies were represented by Malaysian Institute of Accountants (MIA),
Malaysian Association of Certified Public Accountants (MACPA), now known as Malaysian
Institute of Certified Public Accountants (MICPA). Examples of these standards are MAS 1
Earnings Per Share, MAS 6 Accounting for Goodwill and MAS 8 Accounting for PreCropping Costs.
2.1 Malaysian Accounting Standards Board (MASB)
The standard setting role by MIA and MACPA was superseded by Malaysian Accounting
Standards Board (MASB) in 1997. MASB is established under the Financial Reporting Act
1997 (FRA 1997). The Act was gazetted on 6 March 1997. In addition to MASB, the Act also
created Financial Reporting Foundation (FRF). The overall responsibility of the FRF is to
oversee the operating activities of the MASB.
The FRF comprises of nineteen (19) members who are appointed by the Minister of Finance.

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seven members are ex-officio representing the Minister of Finance, the Central Bank,
the Securities Commission, the Companies Commission of Malaysia, the Bursa
Malaysia Berhad, the MIA and the MASB, and
twelve members representing a broad spectrum of interest groups - principal officers
of public listed companies, senior partners of public accounting firms and persons with
other relevant experience and background.

The responsibilities of the FRF as provided under the Financial Reporting Act 1997 are as
follows:
i. To provide views to the MASB on matters which the MASB seeks to undertake or
implement with respect to the development and issue of accounting standards and
conceptual framework;
ii. To review the performance of MASB;
iii. To be responsible for the financing arrangements and operations of the MASB;
iv. To approve the MASB budget;
v. To engage or to employ persons and determine the conditions of such appointments as
are necessary to assist the FRF and MASB perform their functions under the Act;
vi. To administer the fund established to finance the ongoing operations of FRF and
MASB including management of funds not expanded on operations during any period;
vii. To maintain proper accounts and prepare an annual statement of accounts of the FRF;
viii. To forward annual statement of accounts and audit report to the Minister of Finance,
and report on the activities of the FRF and MASB at the end of each financial year,
and
ix. To perform such other functions as prescribe by the Minister of Finance prescribe.
The functions and powers of the MASB as provided under the Act are to:

issue new accounting standards as approved accounting standards and to review,

revise or adopt existing accounting standards as approved accounting standards;
issue statements of principles for financial reporting;
sponsor or undertake development of possible accounting standards;
conduct public consultation as necessary;
develop a conceptual framework for the purpose of evaluating proposed accounting
standards;
make such changes to proposed accounting standards as considered necessary;
seek the view of the FRF in relation to new and existing standards, statement of
principles, and changes to proposed standards;
determine scope and application of accounting standards; and
to perform such other function as the Minister of Finance may prescribe.

The functions of the MASB as formulated in its mission statement are as follows:
i. to develop and promote high quality accounting and reporting standards that are
consistent with international best practices for the benefit of users, preparers, auditors
and the public in Malaysia, and
ii. to contribute directly to the international development of financial reporting for the
benefit of users, preparers and auditors of financial reports.
In fulfilling the above functions, MASB sets out the following objectives:
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to develop high quality, clear and enforceable national accounting standards for
financial reporting that benefit users;
to bring about harmonisation of national accounting standards with international
accounting standards;
to promote the use and application of those standards by way of communication with
and education of users, preparers, auditors and the public;
to actively contribute to the development of accounting standards internationally,
including, Islamic-based accounting standards; and
to promote and support research in the area of financial reporting, in particular, for
emerging markets and Islamic markets.

The members of MASB are appointed by the Minister of Finance and comprises of the
following members:
-

a chairman,
the Accountant General,
advisors representing the Securities Commission, Companies Commission of Malaysia
and MIA, and
six other members with expertise in accountancy, law, business and finance. It should
be noted that the FRA 1997 specifies that at least five of these members are members
of MIA.

Section 27 of the FRA 1997 requires all companies incorporated under the Companies Act to
comply with accounting standards issued and adopted by the MASB. Accounting standards
are defined by FRF as statements of standard accounting practices used for the preparation of
financial statements. The MASB established a committee called Issues Committee and
Working Groups in dealing with standard-setting related matters.
2.1.1 Issues Committee
Issues Committee was established in May 2002, replacing its predecessor, the Interpretation
Committee. The change of name reflects the expanded scope of the committee which goes
beyond interpretations of approved accounting standards. In addition to reviewing accounting
issues that have received or are likely to receive divergent views in interpretation, Issues
Committee also deals with other accounting related issues where there is no existing
accounting standard.
The committee comprises representatives from the accounting profession, commerce, the
academia as well as an analyst and a solicitor. Observer representatives from MIA, Securities
Commission, Bank Negara Malaysia and Companies Commission of Malaysia also form part
of the committee.
2.1.2 Working Group
The MASB has established numerous Working Groups which are assigned with different
projects. Each working group is responsible for reviewing and undertaking detailed studies of
the assigned project, taking into accounts any statutory and regulatory reporting requirements
as well as its practical implications. A Working Group must be chaired by a member of the

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MASB. Other group members include a project manager and representatives from the
accounting profession, commerce, academia as well as regulatory authorities.
The works undertaken by Working Groups play an important role in the development of the
MASB standards. The MASBs due process for developing a standard is summarised in
Figure 2.
Figure 2: MASB Due Process
1.

MASB

Identifies IAS for review.

2.

Working Group

Prepares Discussion Paper (DP).

3.

MASB

Review DP.

4.

FRF

Review DP.

5.

MASB

Finalises DP into Exposure Draft (ED).

6.

Public

Public exposure of ED.

7.

Working Group

Prepare report on feedback received on ED.

8.

MASB

Review feedback on ED.

9.

FRF

Final review of feedback on ED.

10.

MASB

Approval of MASB standard followed by issue of MASB

standard.

Prior to the creation of MASB, Malaysia has already adopted the IASs issued by the IASC
and MASs issued by the Council of MIA and MICPA. Upon its creation, MASB adopted most
of these standards which gave these standards the status of approved accounting standards.
These standards were referred to as MASB standards. With the exception of the adopted
MASs, the MASB standards were in substance similar to the IASs.
In April 2001, the international standard setting role of IASC was superseded by the IASB
and subsequently the IASB began issuing International Financial Reporting Standards (IFRS).
At this point in time, all IASs issued by the IASC remained in force until amended or
withdrawn by the new IFRS issued by IASB. In line with this development, MASB standards
have been renamed to Financial Reporting Standards (FRS) in 2005. The numbering of the
FRSs corresponds to the IFRSs issued by the IASB. For example, FRS 1 in Malaysia is
equivalent to IFRS 1. FRS with a 100 prefix corresponds to its equivalent IASs. Thus FRS
101 is equivalent to IAS 1. FRS with a 200 prefix represents locally developed Standard with
no equivalent International Standard. The list of standards issued and adopted by MASB, the
corresponding IFRS and MASB standards prior to convergence efforts are shown in Figure 3
below. In addition to the standards, the IASB has also issued the Framework for the
Preparation and Presentation of Financial Statements. Similar framework has also been
adopted by MASB.

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Figure 3: List of IASB Standards and MASB Standards

IASB

Title of IFRSs as at 1 April 2010 - Title

Standards

MASB Standards For Entities

Other than Private Entities

International Financial Reporting

Standards (IFRSs):
IFRS 1

First-time Adoption of International

Financial Reporting Standards

FRS 1

IFRS 2

Share-based Payment

FRS 2

IFRS 3

Business Combinations

FRS 3

IFRS 4

Insurance Contracts

FRS4

IFRS 5

Non-current Assets Held for Sale and

Discontinued Operations

FRS 5

IFRS 6

Exploration for and Evaluation of Mineral

Resources

FRS 6

IFRS 7

Financial Instruments: Disclosures

FRS 7

IFRS 8

Operating Segments

FRS 8

IFRS9

Financial Instruments

International Accounting Standards

(IASs):
IAS 1

Presentation of Financial Statements

FRS 101

IAS 2

Inventories

FRS 102

IAS 7

Statement of Cash Flows

FRS 107

IAS 8

Accounting Policies, Changes in

Accounting Estimates and Errors

FRS 108

IAS 10

Events After the Reporting Period

FRS 110

IAS 11

Construction Contracts

FRS 111

IAS 12

Income Taxes

FRS 112

IAS 16

Property, Plant and Equipment

FRS 116

IAS 17

Leases

FRS 117

IAS 18

Revenue

FRS 118

IAS 19

Employee Benefits

FRS 119

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IAS 20

Accounting for Government Grants and

Disclosure of Government Assistance

FRS 120

IAS 21

The Effects of Changes in Foreign

Exchange Rates

FRS 121

IAS 23

Borrowing Costs

FRS 123

IAS 24

Related Party Disclosures

FRS 124

IAS 26

Accounting and Reporting by Retirement

Benefit Plans

FRS 126

IAS 27

Consolidated and Separate Financial

Statements

FRS 127

IAS 28

Investments in Associates

FRS 128

IAS 29

Financial Reporting in Hyperinflationary

Economies

FRS 129

IAS 31

Interests in Joint Ventures

FRS 131

IAS 32

Financial Instruments: Presentation

FRS 132

IAS 33

Earnings per Share

FRS 133

IAS 34

Interim Financial Reporting

FRS 134

IAS 36

Impairment of Assets

FRS 136

IAS 37

Provisions, Contingent Liabilities and

Contingent Assets

FRS 137

IAS 38

Intangible Assets

FRS 138

IAS 39

Financial Instruments: Recognition and

Measurement

FRS 139

IAS 40

Investment Property

FRS 140

IAS 41

Agriculture

FRS 1411
i-1 Presentation of Financial
Statements of Islamic Financial
Institutions 2
FRS 201
Property Development Activities2
FRS 202 General Insurance
Business2
FRS 203 Life Insurance Business2
FRS 204 Accounting for
Aquaculture2

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IAS 41/FRS 141 is not adopted in Malaysia but an exposure draft has been issued by MASB.
These standards were issued by MASB in order to meet local reporting requirements and
they do not have the corresponding IFRSs issued by IASB.
Note:
- FRS 202 is not equivalent to IFRS 4 Insurance Contract. IFRS 4 is applicable to
insurance contract as defined in IFRS 4 while FRS 202 is applicable to entities
conducting general insurance business in Malaysia.
- FRS 203 is not equivalent to IFRS 4 Insurance Contract. IFRS 4 is applicable to
insurance contract as defined in IFRS 4 while FRS 203 is applicable to entities
conducting life insurance business in Malaysia.
- FRS 204 prescribes the accounting method for aquaculture operations where the
products from such operations are used mainly for food consumption. Under IFRS,
IAS 41 applies but to a wider definition of agriculture activity.
2

2.1.3 Technical Pronouncements

In addition to issuing standards, the MASB may also issue technical pronouncements such as
Statement of Principles (SOP), Technical Releases (TR) and Interpretation Bulletin. The
purpose of a technical pronouncement is to provide guidance on the application of generally
accepted accounting principles. In some instances, the issue of a pronouncement represents an
interim measure prior to the issue of a particular standard. It should be noted that the technical
pronouncements do not amend or overide MASB Standards or other statements issued by the
MASB.
Examples of technical pronouncements that have been issued are as follows:
Pronouncements Title of pronouncements
TR 1

Share Buybacks - Financial Assistance

Superseded

MASB TR 1
(revised)

Share Buybacks - Accounting and

Disclosure

1 January 1999

TR 1 (revised)
(For FRS)

Share Buybacks - Accounting and

Disclosure

1 January 1999

TR 2

The Year 2000 Issue : Accounting and

Disclosure

31 July 1998

TR 3

Guidance on Disclosures of Transition to

31 December 2010
IFRSs

TR i - 1

Accounting for Zakat on Business

1 July 2006

TR i - 2

Ijarah

1 July 2006

TR i - 3

Presentation of Financial Statements of

Islamic Financial Institutions

1 Jan 2010

TR i - 4

Shariah Compliant Sale Contracts

1 Jan 2011

SOP 1 (2004)

Exempt Entities

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SOP 2

Interim Financial Reporting

SOP i - 1

Financial Reporting from an Islamic

Perspective

Superseded by MASB 26

3.0 International Accounting Standards

On 1 August 2008, MASB issued a statement with regards to its plan for full convergence of
FRSs applicable in Malaysia with IFRSs issued by IASB by the year 2012 for all entities
other than private entities. Full convergence refers to full compliance with IFRS as a basis for
financial reporting system in Malaysia. In moving towards full convergence, MASB
participates actively in the IASBs due process at an early stage of standard development. This
is important in ensuring that the standards adopted are consistent with international best
practice as well as regulatory requirements in Malaysia. Active participation by MASB started
since IASB began its international due process in 2001.
3.1.1 The International Accounting Standards Board (IASB)
The IASB is an independent and privately-funded accounting standard-setting body. The
standard setting responsibilities was assumed from its predecessor the IASC in 2001,
following the restructuring of the IASC. The IASC oversees the operations of the IASB and
promotes adoption of IFRSs around the world. However, the technical aspects related to the
IFRSs lies with the IASB. The IASB is responsible for the development and publication of
IFRSs, including the IFRS for SMEs and for approving Interpretations of IFRSs as developed
by the IFRS Interpretations Committee (formerly called the IFRIC). To bring about
convergence of national accounting standards and IFRSs, the IASB engages closely with
stakeholders around the world. The various stakeholders include investors, analysts,
regulators, business leaders, accounting standard-setters and the accounting profession.
The objectives of the IASB as set out in its constitution:

to develop, in the public interest, a single set of high quality, understandable and
enforceable global accounting standards that require high quality, transparent and
comparable information in financial statements and other financial reporting to help
participants in the worlds capital markets and other users make economic decisions;
to promote the use and rigorous application of those standards;
in fulfilling the objectives associated with (a) and (b), to take account of, as
appropriate, the special needs of small and medium-sized entities and emerging
economies; and
to bring about convergence of national accounting standards and IFRSs to high quality
solutions.

The main features of the IASB structure are as follows:

i. The IASC Foundation (also known as IFRS Foundation) has two main bodies,
the Trustees and the IASB. The overall objective of the IASC Foundation is to
develop a set of high quality, understandable, enforceable and globally
accepted financial reporting standards through its standard setting body, the
IASB.
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ii. The IASB is responsible for setting accounting standards.

iii. Standards Advisory Council and IFRS Interpretations Committee are two other
bodies within the IASB structure.
The structure of the IASB is as shown in Figure 4.

Figure 4: Structure of IASB

Monitoring Board
of public authorities
Trustees of IASC Foundation

IASC Foundation

IASB
Standard Advisory
Council

Working Group

Interpretation Committee

Key
Appoints
Reports to
Advises

Trustees
Members of the trustees must be selected from the Asia/Oceania region (six members),
Europe (six members), North America (six members), Africa (one member), South America
(one member) and the remaining parts of the world (two members). The trustees are
accountable to the Monitoring Board of public authorities and are entrusted with the
governance and oversight of the activities undertaken by the IASC Foundation and IASB.
The IASB strategy will be reviewed and assessed annually by the trustees. The trustees are
also responsible for safeguarding the independence of the IASB, ensuring the financing of
the organisation and the appointment of the IASB members. Members of the IASB
comprise of experts with an appropriate mix of recent practical experience of standardsetting, or of the user, accounting, academic or preparer communities. At the same time, the
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trustees promote the work of the IASB and the application of IFRSs. However, they are not
involved in the technical aspects of the matters relating to accounting standards as these
aspects are the responsibilities of the IASB. Other responsibilities of the trustees also
include amending the operating procedures, consultative arrangements and due process for
the IASB, the Interpretations Committee and the Advisory Council;

The IFRS Interpretations Committee

The IFRS Interpretations Committee (formerly called the IFRIC) is the interpretative body of
the IASB. The members are appointed by the Trustees and drawn from a variety of countries
and professional backgrounds. The Committee provides timely guidance on accounting issues
that have arisen within the context of current IFRSs and to provide authoritative
guidance (IFRICs) on those issues.
Standards Advisory Council
Members of the Council comprise groups and individuals with diverse geographic and
functional backgrounds. They advise the Trustees and IASB on all major projects.
IASB Due Process
The due process, which involves interested individuals and organisations from around the
world comprises of six stages. These stages are:
1.
2.
3.

4.

5.

6.

Setting the agenda. The main consideration of the IASB in deciding whether a
particular item is to be included in its agenda is based on whether such item will add
value to the needs of the investors.
Planning the project. Once a new agenda is established, the IASB will consider
whether the project will be conducted alone or with other standard-setter. At this stage,
a working group will be established.
Developing and publishing the discussion paper. The development and publication of
the discussion paper can arise from an active agenda project of the IASB or a research
project conducted by another standard setter. Even though the discussion paper is not
mandatory, it is usual for IASB to publish it as its first publication with the objective
of explaining the issue and solicit views from various constituents. Issues in the
discussion paper are discussed in the IASB meeting. Subsequently, any technical
issues in the discussion paper are discussed in the public session.
Developing and publishing the exposure draft. In contrast to discussion paper, the
development and publication of the exposure draft is mandatory step in the due
process of the IASB. The development of a particular exposure draft takes into
account various issues, comments and suggestions received from various parties. Once
these matters are resolved at the IASB meeting, an exposure draft will be drafted. It
sets out a proposed standard or amendment to an existing standard and this will be
issued for public comments.
Developing and publishing the standard. Once the IASB received the views from the
public on a particular exposure draft, a meeting will be held and the IASB will
consider whether a re-exposure is necessary. If all the issues raised are concluded
satisfactorily, the IASB will instruct its staff to draft the relevant IFRS.
After the standard is issued, the IASB will hold regular meetings with various parties
in order to understand issues related to the practical implementation of the IFRS and

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any impact of the IFRS. Educational activities are also carried out by the IASC
Foundation in ensuring consistent application of the IFRS. After certain period has
elapsed, the IASB will initiate review of the application of the IFRS in order to
identify whether there is a need to revise the existing IFRS and as such will be a new
item on the IASB agenda.

4.0 Private Entities

Private entities in Malaysia are exempted from applying FRS starting from the year 2006.
These companies may continue to apply the MASB standards referred to as Private Entity
Reporting Standards (PERS). These standards were issued subsequent to the establishment of
MASB in 1997 and they are called MASB. The list of PERS is shown in Figure 5.
Private entity is a private company incorporated under the Companies Act 1965. This
company:

is not required to prepare or lodge any financial statements under any law administered
by the Securities Commission or the Bank Negara Malaysia; and
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
Securities Commission or the Bank Negara Malaysia.

A private company is defined in Section 15(1) of Companies Act 1965 as a company having a
share capital and incorporated as a private company. At the same time, its memorandum or
articles of association states the following:
i.
ii.

iii.
iv.

restricts the right to transfer its shares;

limits to not more than fifty the number of its members (counting joint holders of
shares as one person and not counting any person in the employment of the company
or of its subsidiary or any person who while previously in the employment of the
company or of its subsidiary was and thereafter has continued to be a member of the
company);
prohibits any invitation to the public to subscribe for any shares in or debentures of the
company; and
prohibits any invitation to the public to deposit money with the company for fixed
periods or payable at call, whether bearing or not bearing interest.

In preparing its financial statements, an entity may only be treated as a private entity in
relation to such annual periods or annual periods through out which it is a private entity.
Private entities shall apply either PERS in their entirety or FRS in their entirety in the
preparation and presentation of their financial statements.
Figure 5: List of PERS
Standard

Title

Effective Date

MASB 1

Presentation of Financial Statements

1 July 1999

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MASB 2

Inventories

1 July 1999

MASB 3

Net Profit or Loss for the Period, Fundamental Errors and

Changes in Accounting Policies

1 July 1999

MASB 4

Research and Development Costs

1 July 1999

MASB 5

Cash Flow Statements

1 July 1999

MASB 6

The Effects of Changes in Foreign Exchange Rates

1 July 1999

MASB 7

Construction Contracts

1 July 1999

MASB 9

Revenue

1 Jan 2000

MASB 10

Leases

1 Jan 2000

MASB 11

Consolidated Financial Statements and Investments in

Subsidiaries

1 Jan 2000

MASB 12

Investments in Associates

1 Jan 2000

MASB 14

Depreciation Accounting

1 July 2000

MASB 15

Property, Plant & Equipment

1 July 2000

MASB 16

Financial Reporting of Interests in Joint Venture

1 July 2000

MASB 19

Events after the Balance Sheet Date

1 July 2001

MASB 20

Provisions, Contingent Liabilities & Contingent Assets

1 July 2001

MASB 23

Impairment of Assets

1 Jan 2002

MASB 25

Income Taxes

1 July 2002

MASB 27

Borrowing Costs

1 July 2002

MASB 28

Discontinuing Operations

1 Jan 2003

MASB 29

Employee Benefits

1 Jan 2003

MASB 30

Accounting and Reporting by Retirement Benefit Plans

1 Jan 2003

MASB 31

Accounting for Government Grants and Disclosure of

Government Assistance

1 Jan 2004

MASB 32

Property Development Activities

1 Jan 2004

IAS 25

Accounting for Investments

1 Sept 1998

IAS 29

Financial Reporting in Hyperinflationary Economies

1 Jan 2003

MAS 5

Accounting for Aquaculture

1 Sept 1998

IB-1

Preliminary and Pre-operating Expenditure

1 Jan 2001

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5.0 Convergence of Accounting Standards

Currently, the top global capital markets that require or permit the use of IFRS are:
(a)
(b)
(c)
(d)
(e)
(f)
(g)

United Kingdom;
France;
Germany;
Hong Kong;
Spain;
Switzerland;
Australia.

United States of America and Japan are considering converging with IFRS while Korea,
Canada and India have announced their plans for convergence by 2011.
In Malaysia, all entities that are required to comply with approved accounting standards under
the Financial Reporting Act 1997 will be required to prepare and present their financial
statements in accordance to the IFRSs, except for private entities. Full compliance begins on
or after January 1, 2012. In relation to private entities that apply PERS, it will continue to do
so until such time as the MASB decides otherwise. In addition, local technical
pronouncements, FRS 201 to FRS 204, FRS i-1, SOP and technical releases will likely to be
reviewed by the MASB.
5.1 Benefits of Convergence
The benefits of convergence based on the benefits to various users of financial statements can
be summarised as follows:
i. Investors
- Increase comparability of financial information across borders as well as among
companies nationally in making investment decisions.
- Increase transparency.
- Greater understandabiliy.
ii. Multinational companies
- Better access to foreign capital markets.
- Increase credibility of domestic capital markets to foreign capital providers.
- Facilitate compliance with reporting requirements of foreign stock exchanges,
- Facilitate preparation and presentation of financial statements as companies are only
required to maintain one set of books prepared in compliance with IFRSs.
- Lower cost of capital to companies.
iii. Regulatory bodies
- Ease of regulation of securities market as convergence increases regulatory
acceptability of financial information provided by market participants.
- Reduced costs of national standard setters.
- Facilitate calculation of tax liability for companies receiving income from
international sources.
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Transfer of accounting staffs across borders as similar accounting practices existed

worldwide.
Promote economic growth within region practicing common accounting practices.

5.2 Challenges of Convergence

The challenges of convergence include:
- Application of similar IFRSs may not be appropriate as the purpose of financial
reporting differs across countries. For example, in countries where the legal system is
based on Roman Law, the financial statements are prepared for tax assessment while
in other countries the information is for investor decision-making.
- Different legal system can hinder development of certain accounting practices.
- Different in culture may affect variations in objectives of accounting systems.
- Lack of professional expertise due to lack of strong accountancy bodies in certain
countries.
- Different emphasis on user groups. For instance, investors and creditors are important
in the USA, employees are important in Europe while in many East Asian countries
where corporate ownerships are more concentrated, there are lower investor
protection.
- Development of standards and principles in developing countries are not at par with
the developed countries. This could slower the rate of full convergence in some
countries.
- National standards in some countries are not based on a conceptual framework of
accounting while IFRSs are.
6.0 Summary
Reliable and transparent financial reporting is paramount to support the decision-making by
investors, lenders and regulatory authorities. In meeting the needs of various users, there is a
need to develop and issue accounting standards that are of high quality, transparent and
comparable in the preparation of financial statements. The current move is through the
adoption of IFRSs by countries around the world. The IASB is responsible for setting and
issuing the IFRSs. In ensuring the success of full convergence, the work of national standard
setters and the IASB should be integrated. In Malaysia, the MASB actively participates in the
IASBs due process at an early stage of standard development. The standard-setting process in
Malaysia has also developed in line with the plan of full convergence by 2012.

Questions
1. Explain the development of accounting standards in Malaysia.
2. Describe the structure and objectives of Malaysian Accounting Standards Board.
3. What is the difference between International Accounting Standards and International
Financial Reporting Standards?
4. List some of the benefits and challenges to convergence.
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5. In some countries, income reported to investors differ from income prepared for tax
calculations. Discuss whether these income should be identically determined through the
application of International Financial Reporting Standards.
6. Standard setting approaches in countries may differ. Discuss how these difference affect
the acceptance of compliance with International Financial Reporting Standards.

Roshayani Arshad/Accounting Theory

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