Convergence-towards-ifrs-in-malaysia-issues-challenges-and-opportunities Essay Example for Free

Convergence-towards-ifrs-in-malaysia-issues-challenges-and-opportunities EssayIn the year 2008 the then Malayan Accounting Standard bills (MASB) chairman, Dato Zainal Abidin Putih, announced that Malaysia testament be converging with International Accounting Standard Board (IASB)s International fiscal Reporting Standard (IFRS). From that time period onwards many initiatives were lined up by MASB and the Malaysian Institute of Accountants (MIA) in order to educate, train and inform all the relevant stakeholders in in tandem with fast approaching deadline to converge, which is for the earliest year-end monetary reporting date, 31 December 2012. On 19 November 2011, MASB issued the third accounting mannikin to be employ in Malaysia and this new accounting framework that is IFRS-compliant is dubbed as Malaysian Financial Reporting Standards framework (MFRS). The issuance of MRFS is vital to show and prove the Malaysian loyalty and in addition it becomes a solid guideline fo r all entities that be administered by Securities Commission of Malaysia and the convergency begin on or later(prenominal) 1 January 2012.Historically, Malaysian accounting standards have always closely followed the former International Accounting Standards (IAS) and the current IFRS. This is due to the colonisation effect on Malaysia, where Malaysia was a British village up to the year 1957 and many of the accounting standards applied in the fall in Kingdom has always made its way to be adopted by the Malaysian standard setters authorities and regulators.As Mohammad Faiz Azmi utter in forums that the Malaysian story of convergence has been a slow and steady approach and this phased-in approach even though slower is expected to put Malaysian entities in a better position as the problems and challenges faced by Malaysian companies are far oft reduced compared to other countries that adopted the big bang approach, for example the South Koreans, where the accounting standard set ters and regulators in South Korea agreed on full credence of IFRS (Nazatul Izma, 2009 Suh, 2011) ACCOUNTING FRAMEWORKS IN MALAYSIACurrently Malaysian entities are subject to three sets of accounting frameworks, the first accounting framework is the old Financial Reporting Standards framework (FRS), next is the Private Entity Reporting Standards framework (PERS) and finally the Malaysian Financial Reporting Standards framework (MFRS). All these three frameworks are legally approved frameworks by MASB and can be applied by entities in Malaysia but subject to the type of entity. The three types of frameworks are outlined and discussed below.MFRS framework is to be applied by all entities other than private entities for annual periods stem on or after 1 January 2012. Private entities are private companies which are incorporated chthonic the Companies Act 1965, that are not itself containd to prepare or lodge any monetary statements under any law administered by the Securities Comm ission Malaysia or Bank Negara Malaysia. Private entities are also not subsidiaries or associates 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 Malaysia or Bank Negara Malaysia.However Transitioning Entities are excluded from haveing MFRS and these Transitioning Entities are entities that are in the scope of MFRS 141 for Agriculture (equivalent to IAS 41) and IC Interpretation 15 for Agreement for Construction of legitimate Estate, (equivalent to International Financial Reporting Interpretations Committee (IFRIC) 15) including its parent, significant investor and venture. These Transitioning Entities have an option to either apply the MFRS framework or the old FRS framework, but this leeway is only allowed for one year, as these Transitioning Entities need to apply the MFRS framework byPage 43 International Journal of Business, Economics and Law, Vol. 1 ISSN 2289-1552 20 12 annual periods beginning on or after 1 January 2013 at the latest (Nazatul Izma, 2009 KPMG, 2011 Accountants Today 2012 Ganespathy, 2012 Jebaratnam, 2012). PERS framework is to be applied only by private entities but these private entities have an option to apply MFRS framework for annual periods beginning on or after 1 January 2012.If the private entities choose to apply MFRS framework and these entities are in the scope of MFRS 141 for Agriculture (equivalent to IAS 41) and IC Interpretation 15 for Agreement for Construction of Real Estate, (equivalent to IFRIC 15), thence known as Transitioning Entities, they have the choice to either apply MFRS framework or FRS framework, but these freedom is applicable up to 31 December 2012, as these entities need to revert to MFRS framework for annual periods beginning on or after 1 January 2013 (Accountants Today, 2012Jebaratnam, 2012). FRS framework which is the Malaysian sport of IAS, which has been the main accounting standards frame work for nonprivate entities before the introduction of MFRS framework can be applied only by Transitioning Entities, but as stated earlier, such entities need to revert to MFRS framework for annual periods beginning on or after 1 January 2013 (Accountants Today, 2012 Jebaratnam, 2012) ISSUES AND CHALLENGES IN FULL ADOPTION OF IFRS IN MALAYSIAMFRS 1 covers issues pertaining to First-Time Adoption of Malaysian Financial Reporting Standards and the transition date stated in MFRS 1 is the beginning of the earliest period for which an entity presents a full proportional information under MFRSs in its first MFRS based statements. Following the requirement of MFRS 1, MFRS 101 on Presentation of Financial Statements requires reporting entities to present three Statements of Financial Position and two Statement of Comprehensive Income, Statements of Changes in Equity and Statement of Cash Flows each.MFRS also dictates that entities need to present statement of financial position as at the beginning of the comparative financial year, in that respectfore reporting entities requires their financial statements to be prepared based on the requirement of MFRS from the financial year beginning on and after 1 January 2010, or otherwise be very cautious to make retrospective restatements and/or reclassify items in all the financial statements and notes to accounts and the transition date would be on or after 1 January 2011.The expectation is that the entities are able to present MFRS compliant financial statements come the year-end financial reporting on 31 December 2012, which may become an issue, if these entities are not MFRS ready (Accountants Today, 2012).Another challenge for full adoption of IFRS in Malaysia is that under MFRS 1, whenever the cost of traceing with MFRS exceeds the benefits to the users of financial statements and also if retrospective application would mean that judgement by management of a known transaction is required, IASB would grant exemptions a nd therefore this would create unlevel playing field amongst non-private entities in Malaysia that are supposed to apply MFRS framework as the criterion for full-adoption.To ensure that the reporting entities in Malaysia are MFRS compliant, these entities should set a comprehensive, thorough and detailed examination of the readiness of their entity in becoming MFRS compliance to avoid any investigation by the authority due to non-compliance after the grace period for full adoption is over.If Malaysia ends up trimming its MFRS as a convergence framework that can be adapted to fit the topical anaesthetic conditions and not a one size fits all set of standards, because a full adoption forces countries to surrender their sovereignty, then Malaysia will have serious issues and will face difficulties to be endorsed as a country that compliances to full IFRS adoption (Nazatul Izma, 2009). But as it is evident, MFRS 141 and IC 15 for Transitioning Entities is an exception given to such en tities to comply to full IFRS adoption by reverting to MFRS framework for annual periods beginning on or after 1 January 2013.Even though the IAS 41 assumption that fair value can be measured for biological assets was an issue, but this sort of issues should be communicated clearly to the practitioners and this is where the education and training of the practitioners is key for a sure-fire full adoption of IFRS. For example MFRS 141 (IAS 41) disagreement with IASB need to be entirely made clear to the Malaysian practitioners, as IASB currently have agreed to discover palm oil tree as a non current asset and not as an inventory (Nazatul Izma, 2009).One of the most common perceived advantages of convergence to IFRS is the possibility of increased foreign direct investment (FDI) (Gardiner, 2000 Christiansen, 2002), but as of 2010, report on the most attractive FDI destinations, the worlds highest FDI receivers are China, United States of America and India, of which none have converg ed to IFRS. Therefore, the notion that IFRS convergence will attract FDI is not valid, and this so called advantage cannot be applied to entice countries to adopt IFRS for financial reporting of their entities.IFRSs for SME is another reason to ponder on the real plausibility of full adoption of IFRS. If MASB chooses to adopt IFRS for SMEs to replace PERS, than we will have another version of diluted IFRS as a framework within the Malaysia accounting scenario. Dr Paul Pacter, the board member and chairman of the SME implementation group, mentioned that almost topics in the IFRS were omitted from the IFRS for SMEs, due to its irrelevancy and also due to the fact that the diluted version will be a simpler option for the SMEs to apply (Nazatul Izma, 2010).The IFRS for SMEs were simplified on the recognition and measurement and the disclosures were also reduced. Brian Blood, the Chief Executive of Confederation of Asian and Pacific Accountants (CAPA) mentioned that the IFRS for SMEs w ere developed to assist SMEs to prepare and present high quality and timely financial statements and information. Other benefits of SMEs applying the IFRS for SMEs are that the financial reporting is done in a consistent manner and not too expensive to prepare (Nazatul Izma, 2010).Having said all that, the fact is that there is a different set of IFRS for SMEs, therefore, it does not allow for full adoption, but maybe just a innocent convergence. James Sylph, the executive director, Professional Standards and external Relations of International Federation of Accountants (IFAC) in a forum in 2012, strongly advocated that national accounting standard setters authorities and regulators should move away from the mere concept of convergence to a more profound notion of full-adoption. Page 44 International Journal of Business, Economics and Law, Vol. 1 ISSN 2289-1552 2012Mohammad Faiz Azmi, MASB chairman, indicated that Malaysia will not require the IFRS for SMEs to avoid an underconver ged version used by SMEs due to the lack of human resources to implement new IFRS based regulations therefore MASB is still uncertain about how barely they should deal with the issue related to SME and IFRS (Nazatul Izma, 2010) MASB together with MIA will have to look into the issue of the readiness of the Malaysian education system to deliver enough educate accountants that are IFRS savvy, as a full IFRS adoption can be burdensome and the human capital need to be created to fulfill this need.Mohammad Faiz Azmi mentioned that MASB is working with enforcers to ameliorate the Financial Reporting Act (1997) to allow making amendments to accounting standards in Malaysia if there are any substantial issues that MASB disagrees with IASB (Nazatul Izma, 2009). This again will give some space for MASB for not to adopt the full adoption of IFRS as there will be some possible avenue to make changes in the IFRS provided by IASB.Companies Act 1965 and Financial reporting Act 1997 are the two most important acts pertaining financial statements reporting in Malaysia. The directors are supposed to be accountable for the preparation and presentation of a true and fair set of financial statements of reporting entities and these directors should be aware and be sure that their entities are IFRS ready.