TOPIC 3:

THE REGULATION
OF
FINANCIAL
ACCOUNTING
 PART 2
MALAYSIAN FINANCIAL
REPORTING REGIME
LEARNING OUTCOME
Students should be able to:

Identify and explain the key players in Malaysian financial reporting

01 environment.

Explain the importance and function of selected key regulatory

02 bodies in Malaysia

03 Describe the issues of accounting standard overload

Key Players in Malaysian Financial Report-
ing Environment
Financial Reporting Act
(1997: 2004) Bank Negara Malaysia
Guidelines

Companies Act 2016

KLSE Listing Require-

ments

Income Tax Act 1967

Securities Commission
Guidelines
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FINANCIAL REPORTING ACT 1997
Financial Reporting Foundation is established
• A trustee body has responsibility for the oversight of
MASB’s performance, financial, fund arrangements
• An initial source of views for the MASB on proposed
standards and pronouncements

MASB is established
• A national standard setting body

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FINANCIAL REPORTING ACT 1997
Section 27 of FRA 1997- all companies incorporated
under CA 1965 will need to comply with MASB approved
accounting standards

Under FRA 1997, MASB approved accounting stan-

dards have force of law statutory duty of directors and
management of reporting companies and other busi-
ness,
industrial or commercial enterprises to ensure financial
statements of their respective companies or enterprises
comply with MASB approved accounting standards

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Companies Act 2016
The companies incorporated under this Act must comply with the
Act’s provision concerning the accounting and reporting.

Relevant provisions:
• Compliance with approved accounting standards (S 244(1))
• Conflicts between the Act and approved accounting standards
• Accounting and other records to be kept
• Internal control system
• Directors’ responsibility
• Times allowed for sending out copies of the financial statements
and reports
• Duty to lodge financial statements and reports with the Registrar

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Income Tax Act 1967

• concerned with determining the chargeable income and

tax payable.
• every person carrying on any trade or business keep
sufficient records to enable the determination of income
or loss from the business by the Director General of
Inland Revenue or an authorised officer.

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Securities Commission Guidelines
SC is established in 1993 under the Securities Commission
Act 1993
Its main role is to promote the development of the capital
market in Malaysia.
Under SC requirements, public companies have changed
from traditional stewardship reporting to a full disclosure-
based reporting system.

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KLSE Listing Requirements
Annual report
 The printed annual report shall be issued to the company’s
shareholders within a period not exceeding 6 months from the
close of the financial year of a company.
 The annual audited accounts together with the auditor’s and
directors’ reports shall be given to Exchange for public release,
within a period not exceeding 4 months from the close of the
financial year of the company.
 The annual audited accounts should be in the form of
consolidated financial statements; and
 The annual audited accounts should be prepared in accordance
with the accounting standards and pronouncements of the
MASB and the requirements of the Companies Act.

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KLSE Listing Requirements

Interim report

Public listed corporations are required to comply with the Quarterly

Reporting requirements of the Exchange; which comprised the follow-
ing:
• To file with the Exchange for public release, a quarterly report which
is on consolidated basis, where applicable, as soon as the figures are
available, and in any event not later than 2 months after the end of
each quarter of a financial year, which are statement of financial
position, statement of profit or loss, equity statement, cash flow
statement and explanatory notes.
• The quarterly report is prepared in accordance with MFRS134 Interim
Reporting, and some additional information required by the Exchange

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Bank Negara Malaysia Guidelines

• BNM/GP3: Classification of Non- Performing Loans and

Provision for Substandard, Bad and Doubtful Debts
• BNM/GP8: Guidelines on FinancialReporting for Licensed
Institutions.

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 Key Regulatory Bodies
in Malaysia

1 2 3 4 5
Financial Companies Securities Audit Over- Malaysian
Reporting Commission Commission sight Board Accounting
Foundation of Malaysia Standard
Boards
(MASB)

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Financial Reporting Foundation
• A trustee body that has responsibility for the oversight of the MASB’s
performance, financial and funding arrangements, and as an initial source
of views for the MASB on proposed standards and pronouncements.
• No direct responsibility with regard to standard setting.
• Functions:
 provide views to MASB on any matters which the MASB seeks to
undertake or implement in relation to the MASB’s function of issuing,
reviewing, or developing approved accounting standards;
 review the performance of the MASB;
 be responsible for all the financing arrangements for the operations of
the MASB, including approving the budget of the MASB; and
 perform such other function as the Minister of Finance may prescribe
by order published in the Gazette.

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Companies Commission of Malaysia
• Set up to amalgamate activities of former Registered of
Companies (ROC) and Registrar of Business (ROB)
• Function: to ensure that provisions of the Acts and laws are
administered, enforced, carried out and complied with.
S 248(2) of Companies’ Act 2016 requires every company
incorporated under Act to have its P/L and B/S duly audited
before being presented at AGM
• Companies should comply with approved accounting standards
in preparation of accounts
• Coordinated efforts undertaken with accounting profession and
MASB to identify issues that impact financial and reporting
environment

https://www.ssm.com.my/Pages/Home.aspx
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Securities Commission
• SC has the statutory power to enforce compliance with its regulations, including
compliance with approved accounting standards.
• CMSA (2007) requires a listed corporation :
a. to submit to the SC:
 A copy of its audited annual accounts within 2 weeks from the date of its
annual general meeting;
 Its interim and periodic financial reports immediately after figures are
available
b. to keep accounting records:
 that will sufficiently explain the transactions and financial position of the
listed corporation;
and
 enable true and fair profit or loss accounts and statement of financial
position and any document required to be attached thereto to be prepared
from time to time; and
 to be conveniently audited.
 for 7 years after the completion of thetransaction.

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Securities Commission Objectives

Rule - making Authorization Supervision

Ensure fair, effi-

Reduce systemic
cient and trans- Enforcement
risk
parent markets

Protect investors

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 SC – Regulatory Outcomes
Proportionality
1. To achieve a balanced, efficient
and effective regulatory envi-
ronment
2. The degree to which SC regu-
late markets, products, ser-
vices, market participants and
activities should commensurate
with risks posed, standards of
conduct practiced and out-
comes they are seeking to
achieve
Transparency
1. Supports accountability to pub-
lic and stakeholders, and help
to design proportionate regula-
tion
2. Disclose relevant information
and not disclose those may
harm public interest
3. Ave an open-door policy in re-
ceiving feedback
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Audit Oversight Board
• Established in 2010 under Securities Commission Act 1993
• Assist the Securities Commission:
 in overseeing the auditors of public companies.
 to protect the investors by promoting confidence in the quality and
reliability of audited financial statements of public companies.
• Has statutory power to conduct inspections and monitor programmes on
registered auditors to assess their compliance with recognised auditing,
accounting and ethical standards, including compliance with accounting
standards
• Empowered by the Securities Commission Act to sanction any registered
auditors for non-compliance with any provision on Part 111A of the
Act,
notices or guidelines issued by the Securities Commission.

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Audit Oversight Board - Registration
• The AOB is responsible for the registration of auditors of
public interest entities or schedule funds under Part IIIA of
the Securities Commission Malaysia Act 1993 (SCMA).
The public interest entities and schedule funds are defined in
Schedule 1 of the SCMA. 

• The registration of auditors of public interest entities or

schedule funds would ensure that only fit and proper
auditors are involved in auditing the financial statements of public in-
terest entities or schedule funds. This is in line with one the AOB
strategic themes under the strategic
framework which is to promote high quality audit practices.  20
Audit Oversight Board - Recognition
Part IIIA of the Securities Commission Malaysia Act
1993 establishes a framework to enable the Audit
Oversight Board (AOB) to grant recognition to foreign
auditors who audit the financial statements of foreign
corporations listed on Bursa Malaysia.

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 Audit Oversight Board - Inspection
Section 31E (1)(d) of the Securities Commission Act, 1993 (“SCA”) provides that one of
the key responsibilities of the AOB is to conduct inspections and monitoring on
auditors to assess the degree of compliance with auditing and ethical standards. 

In discharging the above responsibilities, the AOB may inspect an audit firm of PIEs
under a regular inspection program or a special inspection program. 

Under either program, an AOB inspection may be carried out at the firm level or
engagement level or both. A firm review focuses on the review of an audit firm’s
quality control systems and practices and the degree of compliance with the
requirements of the International Standards of Quality Control 1 (“ISQC 1”).

An engagement review aims to assess the degree of compliance with auditing and
ethical standards of an audit engagement conducted by an auditor
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 Audit Oversight Board - Enforcement

The principle of proportionality, efficiency and achieving the desired outcome continue
to be essential to the strategic enforcement approach adopted by AOB. In determining
the type of sanction that is imposed on any contravention or breach, AOB takes into
account the nature and seriousness of the offences, previous regulatory record and
other aggravating and mitigating factors. Among the matters considered by AOB is the
impact of the contravention on the integrity of the profession, the capital market as a
whole and the impact of the breach on the confidence and reliability of audited financial
statements of the PIE in question.

The focus of AOB enforcement is whether the auditors comply with the recognised
auditing and ethical standards. Such action from the AOB may not necessary imply
the audited financial statement does not give a true and fair view.

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 Audit Oversight Board - Enforcement
 The sanctions are: 
Directing the person in breach to comply with the provisions of Part IIIA
of the SCA or any condition, written notice or guidelines; 
 Reprimand; 
 Requiring professional education to be undertaken; 
 Assigning a reviewer to oversee an audit that is undertaken by the
auditor concerned; 
 Financial penalty of not exceeding RM500,000; 

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 Audit Oversight Board - Enforcement

 Prohibit the person concerned from accepting any public interest entity or
schedule fund as its clients or preparing reports in relation to financial
information of any public interest entity or schedule fund, as may be
required under the securities laws or guidelines issued by the Commission,
for a period not exceeding twelve months; and 
 Prohibit the person concerned from auditing financial statements or
preparing reports in relation to financial information of a public interest entity
or schedule fund, as may be required under the securities laws or
issued by the Commission, for a period not exceeding twelve months or
permanently.

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MASB
• established under the Financial Reporting Act 1997 as an independent authority to
develop and issue accounting and financial reporting standards in Malaysia.
• make up frameworks for financial reporting in Malaysia with FRF.
• functions:
i. To issue new accounting standards as approved accounting standards;
ii. To review, revise or adopt as approved accounting standards, existing accounting
standards;
iii. To issue statements of principles for financial reporting;
iv. To sponsor or undertake the development of possible accounting standards;
v. To conduct such public consultation as may be necessary in order to determine the
contents of accounting concepts, principles and standards;
vi. To develop a conceptual framework for the purpose of evaluating proposed
accounting standards;
vii. To make such changes to the form and content of proposed accounting standards
as it considers necessary; and
viii. To perform such other function as the Minister of Finance may prescribe by order
published in the Gazette.

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MASB - due process

27
MASB – Organisational Structure

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MASB – Board Composition
The members are appointed by the Minister of Finance as
follows:
• A Chairman
• The Accountant General
• Six other members who possess knowledge and
experience in matters of financial accounting and
reporting and in one or more of the following fields –
accountancy, law, business and finance. The FRA
1997 specifies that at least five of these members
should be members of the MIA.
• Three advisors representing the SC, CCM and the
BNM.
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MASB – Issues Committee
• MASB established a committee in March 2002 known as the
issues committee to replace its predecessor – Interpretation
Committee
• The change reflects the expanded scope of the committee,
which in addition to dealing with interpretations of approved
standards, also deals with other accounting related issues
where there are no existing accounting standards.
• It is responsible for reviewing accounting issues that have
received or likely to received divergent views in interpretation
and to provide recommendations to the Board for decision.
• Currently it has 3 representatives from the Big Four, 1 from
medium practice, 1 from the corporate sector, 1 from
academic, 1 analyst and 1 solicitor.
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MASB – Working Group
1. Appointed by MASB to debate the issues
2. Chaired by a member of the MASB
3. Comprises of a project manager
4. Representatives from
– Industry
– Auditors
– Regulatory bodies
– Academia

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MASB – Exposure Draft
• Draft exposure drafts are prepared by MASB WGs
and refined through discussion
• The draft document is presented to the MASB for
review and then to the FRF for comments (14 days)
• The draft pronouncement is then published as an
exposure draft by MASB, which invites comment
from all interested parties, usually over a certain
period

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MASB – Other roles
• Approved accounting standards especially from the
International Accounting Standards Board.
• Other technical pronouncements such as Statements of
Principles, Urgent Issues Abstracts and Technical
Releases which are developed with due regard to both
local and international treatments. The purpose of
technical pronouncement is to provide guidance on the
application of GAAP to the resolution of a particular
accounting issue.
• Development of Islamic Accounting Framework.
• Participation in International Standard Setting Process.
• Movement towards accounting standards convergence.
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Accounting Standards Overload
01 Issues in ASO

02 Effects of ASO

03 How to solve?

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Issues in ASO
• Standard overload - amount of information required to be supplied by
reporting entity > amount reasonably required by users in making
economic decision
• Accounting standard overload situations:
– Too many standards
– Too detailed standards
– No rigid standards, making selectivity of application difficult
– General purpose standards failing to provide for differences in the
needs of preparers, users and CPA’s
– General purpose standards failing to provide for differences between :
• Public vs non public entities
• Annual and interim F/S
• Large and small enterprises
• Credited and non audited F/S
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 Issues in ASO- why?
i. Accountants began to issue a greater number of standards. The objec-
tive is to leave less judgment and to reduce amount of litigation involving
accounting principle. The accountant do so as to response to numerous
question raised about what to disclose and what not to disclose.
ii. To protect the public interest and to assist the individual investor gener-
ated various and numerous governmental and professional regulations
and disclosures
iii. To satisfy the needs of many users required more detailed standards
and disclosures

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 Issues in ASO – why?
Accountants began to issue a To protect the public To satisfy the needs
greater number of standards. interest and to assist of many users
The objective is to leave less the individual investor required more
judgment and to reduce generated various detailed standards
amount of litigation involving and numerous and disclosures
accounting principle. This is governmental and
done to response to many professional
question raised about what to regulations and
disclose and what not to disclosures
disclose.

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 Effect of ASO
Accountants may lose Audit failures may Implications for legal
sight of their real jobs occur when compliance liability, erosion of
because of the exces- is the focus rather than professional ethics,
sive data required basic audit procedures loss of public support
when complying with and dissonance
existing within the accounting
standards profession.

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 Effect of ASO
Not all standards SMEs do not have public Cost-benefit
apply to everyone. accountability. Thus, considerations
e.g IFRS 6 separate accounting applies
standard for SMEs have
been developed by IASB
in 2009.
In Malaysia, MPERS are
effective from 1 January
2016.

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 Thank you
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