Introduction to financial

accounting and reporting in

Malaysia

DR HAZIANTI ABDUL HALIM

FPE
• Financial reporting environment in
Malaysia is primarily concerned with two
frameworks:
– institutional framework; and
– regulatory framework.
1. The institutional framework
2. The regulatory framework
3. Statutory reporting requirements
4. Reporting requirements of the Bursa Malaysia
5. Key players in the financial reporting process
 Financial reporting framework in Malaysia
• In Malaysia, Section 244 (1) of the Companies Act 2016
requires that the financial statements of a company must
comply with the approved accounting standards issued by the
Malaysian Accounting Standards Board (MASB).
• Financial reporting practices have developed over the years
• Up to the late 1970s- Companies Act 1965 main legislation
• From 1979 – represented on the International Accounting
Standards Committee (IASC)
• 1980s – Malaysian Institute of Accountants (MIA), Malaysian
Association of Certified Public Accountants (MICPA) issued
new standards to meet local reporting requirements (MAS)
• In 1997 – Financial Reporting Act was passed, create 2
independent bodies: FRF and the MASB
• Malaysia generally adopted the accounting standards issued
by the IASC (called IAS) and MASB (called MAS)
• Late 1990s – IASB took over standard-setting of the IASC and
MASB converged with IASB and adopted most IAS
• 2005 – all MASB standards were called FRS and renumbered
• 2012- Malaysia is fully IFRS compliant
 Financial reporting framework in Malaysia
• In Malaysia, companies must comply with the
requirements set out in the Companies Act 2016 (replace
Companies Act 1965)
• The Companies Act 2016, which was gazette on 15
September 2016, came into force on 31 January 2017.
• And those of other regulatory authorities such as Bank
Negara, Securities Commission, Inland Revenue Board and
the Companies Commission of Malaysia
• In addition to the reporting standards, statements,
guidance and various pronouncements, there is also
requirement for financial statements to be true and fair
• So.. Reporting entities must adhere to the requirements of
Malaysian financial reporting standards framework
• Initially, Standards issued by MASB were
referred to as MASB Standards and they are
similar to IASs except for the numbers
• From January 2005, all MASB Standards were
called Financial Reporting Standards (FRS) and
renumbered
• The numbers assigned were changed to
coincide with the numbers assigned to IASs
• www.masb.org.my
• On 1 August 2008, the FRF and MASB
announced their plan to bring Malaysia to full
convergence with IFRS by 1 January 2012.
IFRSs are used by more than 100 countries
around the world
• So in 2012 Malaysia is fully IFRS compliant
• This should not cause any problems as the
MFRSs are all based on IFRS
• Standards in line with IASs are numbered with ‘100’
digit
• New standards issued by IASB are numbered IFRS
1,2,3 etc and MASB numbers these as MFRS 1,2,3 etc
• Local standards adopted by MASB have also been
renumbered but they start with ‘200’ digit
 The institutional framework
1.Financial Reporting Foundation (FRF)
• Established under the Financial Reporting Act
1997
• Represented by all relevant parties in the
standard-setting process – preparers, users,
regulators, accountancy profession
• Functions:
– To provide views on any matters which the MASB
seeks to undertake or implement with respect to the
development and issue of accounting standards
– To be responsible for the financing arrangements and
operations of the MASB
 2. Malaysian Accounting Standards Board
(MASB)
• To implement an efficient, effective structure and
‘due process’ for the development of MASB
standards, a conceptual framework
• To pursue a policy of harmonisation of accounting
standards to be compatible with the international
standards
 3. International perspective -IASB
• International Accounting Standards Board (IASB)
• Independent standard-setting body of the IFRS Foundation
• Responsible for the development and publication of International
Financial Reporting Standards
• The IASB follows a thorough, open and transparent due process of
which the publication of consultative documents, such as discussion
papers and exposure drafts, for public comment is an important
component
• The IASB engages closely with stakeholders around the world,
including investors, analysts, regulators, business leaders, accounting
standard-setters and the accountancy profession
 Institutional framework - IASB

• International Accounting Standards Board - issued

IFRS to develop, in the public interest, a single set of
high quality, understandable and International
Financial Reporting Standards (IFRSs) for general
purpose financial statements.
 Regulatory framework - Statutory reporting
requirements
1. Companies Act 2016
• Section 167 of the Act states that the management or
the directors of a company is required to keep and
maintain accounting and other records to enable
management to prepare yearly financial statements to
reflect a true and fair view of the results
• Section 244 (1) of the Companies Act 2016 requires
that the financial statements of a company must
comply with the approved accounting standards issued
by the Malaysian Accounting Standards Board (MASB).
• Sec 249 of the Act lists the general requirements for
financial statements
2. Accountants Act 1967
 Provides for the establishment of Malaysian Institute
of Accountants (MIA)
 The objective of MIA is to regulate the accounting
profession
 The Institute issues a code-of-ethics known as By-
laws (on Professional Conducts and Ethics)
 The By-laws provide fundamental principles and by-
laws that all members must follow
3.Financial Reporting Act 1997
• Provides guidelines for accountants, in the form of
accounting standards, in the preparation of financial
statements
• A conceptual framework is designed to provide a
constitution for the practice of accounting
• The Conceptual Framework for Financial Reporting was
issued by MASB in November 2011 to replace The
Framework for the Preparation and Presentation of
Financial Statement
 Key players in the financial reporting process

Key players in the financial reporting process:

1. Jabatan Akauntan Negara Malaysia
2. Malaysian Institute of Accountants (MIA)
3. Auditor General Department
4. The Companies Commission of Malaysia
5. Central Bank (Bank Negara Malaysia)
6. Securities Commission
7. Bursa Malaysia
8. Malaysian Accounting Standard Board (MASB)
9. The corporations
10. Public accounting firms
 Securities Commission Act and regulations
• Ultimate responsibility – to protect investors
• Roles:
• Supervising exchanges, clearing houses and central
depository
• Registering authority for prospectuses of corporations
• Approving authority for corporate bond issues
• Regulating all matters relating to securities and futures
contracts, unit trust, take-over and mergers
• Ensuring proper conduct of market institution and licensed
persons
 Securities Commission Act and Regulations

• Capital Market and Services Act 2007

• Securities Commission Act 1993
• Securities Industry (Central Depositories) Act 1991
• Anti-Money Laundering & Terrorism Financing Act 2001
Reporting requirements of the Bursa Malaysia
– Bursa Malaysia is an exchange holding company
approved under Section 15 of the Capital Markets and
Services Act 2007.
– Incorporated on Dec 14, 1976 – Kuala Lumpur Stock
Exchange, later changed its name to Bursa Malaysia
Berhad
– It operates a fully-integrated exchange, offering the
complete range of exchange-related services including
trading, clearing, settlement and depository services.
– Rules administered include: listing, trading and
depository
Reporting requirements of the Bursa Malaysia

Disclosure of financial information

– A listed issuer must, in accordance with these Requirements,

disclose to the public all material information necessary for
informed investing and take reasonable steps to ensure that
all who invest in its securities enjoy equal access to such
information.
– A listed issuer must adhere to the following 6 specific policies
concerning disclosure, which are as follows:
(a) immediate disclosure of material information (Part C);
(b) thorough public dissemination (Part D);
(c) clarification, confirmation or denial of rumours or reports
(Part E);
(d) response to unusual market activity (Part F);
(e) unwarranted promotional disclosure activity (Part G); and
(f) insider trading (Part H).
 Annual reports - A document to be forwarded to shareholders by
the directors of a company on an annual basis which contains,
amongst others, the annual audited accounts of the company.
Accountant’s General Office (Jabatan Akauntan
Negara)
 Managing the human resources and career
development for the accounting services in the
public sector
 Establishing accounting standards for the public
sector
 Providing consultancy services on accounting and
financial matters to all agencies in the public sector
 Preparing monthly accounting financial information
 Preparing Annual Public Accounts to be tabled in
Parliament
 Malaysian Institute of Accountants (MIA)

• Sets professional requirements for accountants,

conduct research and publishes materials on many
different subjects on accounting, auditing, assurance
services and taxes
• Membership in MIA gives the designation Chartered
Accountant
• Auditors are licensed by the MIA
• But not all CA are practising as independent auditors
 Auditor General Department

• The accounts of the Federation, the States and such

other public authorities and specified bodies are
subject to audit by the Auditor General
• Ensures that accounting and reporting standards
prescribed by the Accountant General’s Office are
complied with by the public sector
 The Companies Commission of Malaysia

• Regulate matters relating to corporations, companies

and businesses
• To amalgamate activities of the former Registrar of
Companies and Registrar of Business
• To ensure that the provision of the Acts and laws are
administered, enforced carried out and complied
with:
Companies Act 1965
Trust Companies Act 1949
 Central Bank (Bank Negara Malaysia)

• Issuance of currency, maintenance or external reserve,

authorised business of the bank, financial adviser to the
government, promote monetary stability
• Financial Services Act (FSA) 2013
• Islamic Financial Services Act (IFSA) 2013
 Financial Services Act (FSA) 2013

• provide for the regulation and supervision of

financial institutions, payment systems and other
relevant entities and the oversight of the money
market and foreign exchange market to promote
financial stability and for related, consequential or
incidental matters.
 Islamic Financial Services Act (IFSA) 2013

• An Act to provide for the regulation and supervision

of Islamic financial institutions, payment systems and
other relevant entities and the oversight of the
Islamic money market and Islamic foreign exchange
market to promote financial stability and compliance
with Shariah and for related, consequential or
incidental matters.
 Directors and Management

• ...the directors of a company shall ensure that the

accounts of the company and, if the company is a
holding company for which consolidated accounts are
required, the consolidated accounts of the company, laid
before the company at its annual general meeting, are
made out in accordance with applicable accounting
standards...

(Companies Act, 1998 -amendments)

 Public Accounting Firms

• To perform audit on limited companies

• Provide other services such as tax and consulting
services
• Most of the large public accounting firms belong to
the ‘Big 4’ international firms (in Malaysia -KPMG
Peat Marwick, Price Waterhouse Coopers, Deloitte
Touche Tohmatsu and Ernst & Young)
• Audit more than 60% of companies listed on Bursa
Malaysia