On 1997, Malaysian Accounting Standard Board (MASB) was established under the Financial Reporting Act as an independent body to develop and issue qualify accounting and financial reporting standards in Malaysia. MASB are strive to develop and promote an accounting and reporting standards that are consistent with international best practices (Arshad). Therefore, in 1 January 2012, MASB plan to full convergence with International Financial Reporting Standard (IFRS) (Malaysia’s Convergence with IFRS in 2012).
MASB works with the IASB and other national standard-setters, specifically the Asian-Oceanian Standard-Setters Group (AOSSG) to discuss issues and share experiences on the adoption of IFRS (Preface to MASB Approved Accounting Standards, 2015). MASB is importance to bring up the Malaysian’s voice to International Standard Setting Process through submitting the related issues to IASB in consideration to add to the IASB’s work plan (Preface to MASB Approved Accounting Standards, 2015).(refer to appendix 1)
With convergence, MASB still has influence over the action and policies of the London-based IASB. According to The Star Online, they reported that the IASB had issued amendments to IAS 16 and IAS 41. It is a good new proved that MASB has actively contribute in internal standard setting process (Lobbying for the right language, 2017). IASB also clarified that the important role of MASB in providing feedback on standard setting process. (refer to appendix 2 and 3)
There are some standards were issued by MASB in order to fulfill the local reporting requirement which do not related to IFRSs such as FRS 201 Property Development Activities, FRS 202 General Insurance Business, FRS 203 Life Insurance Business and FRS 204 Accounting for Aquaculture. These four types of standards are applicable to entities conducting related business in Malaysia (Arshad).
Effect of Full Convergence on MFRS 141
With full adoption of IFRS in Malaysia, MASB has no choice but to adopt the standards developed by IASB. However, the full adoption of IFRS in Malaysia has been give rise to the issue faced by the agriculture and real estate industries. As such, MASB has been working diligently to drive changes in the accounting guidance related to MFRS 141 Agriculture and IC Interpretation 15 Agreements for Construction of Real Estate, including its parent, significant investor and venture to apply MFRS. If Malaysia ends up trimming MFRS as a convergence framework that can be adapted to fit the local 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).
The accounting for agriculture is important to many Malaysian agricultural entities. Under the existing framework, IAS 41 requires an entity to use a fair value approach in measuring all types of biological assets which also known as bearer plants. However, there are biological assets that are only for growing produce over their productive lives. Plantation players have argued that the accounting treatment for oil palms and rubber trees is similar to that of manufacturing and thus a cost model approach should be permitted. It seems pointless and misleading to revalue these plants frequently.
Besides, they also expressed their concerns about the cost, complexity and practical difficulties of fair value measurements of bearer biological assets in the absence of markets for these assets as well as the volatility that arises from recognising changes in the fair value less costs to sell in profit or loss. Furthermore, they asserted that investors, analysts and other users of financial statements adjust the reported profit or loss to eliminate the effects of changes in the fair value of these bearer plants.
Since 2008 the MASB has been in discussion with the IASB about amending the requirements for bearer biological assets. The Board wanted to wholeheartedly support any efforts to get revisions to the standard. They have made significant progress in driving limited amendments to IAS 41 Agriculture. The MASB submitted Issues Papers outlining its proposal to the IASB in 2010 and 2011 to review the accounting for bearer biological assets. As a result, by the end of 2012, the IASB issued amendments that allowed bearer plants to be measured based on the cost model which MASB has been driving for the change.
Effect of Full convergence on IC 15
The further example can be seen in a way that relates to the fact about property developers in Malaysia and in several other Asian countries operate on the sell-and-build concept and therefore recognise revenue based on the progress of construction.
Generally, accounting policies are important and management will decide on the use of accounting policies that are relevant to the reporting organizations concerned. However, the choice of accounting policy on revenues in a property development industry has been removed because of the adoption of a new standard, IC15. The new standard requires a different way in interpreting the revenue that is deemed to be earned for property construction business.
In Malaysia, there are two dedicated standards on accounting for revenue which are FRS 118 and MFRS 111 on contract accounting. In the journey to full convergence by 1 January 2012, revenue recognition has met a problem in IC 15 on revenue recognition of a completed contract in which property developers should replace the accounting policy from one of gradual stage by stage method, that is, revenue is recognised as the project progresses, to that of full recognition only when the project is completed.
The standard of IC15 Agreements for the construction of Real Estate is the reproduction of IFRIC 15 from IASB by MASB. Initially, IC15 was to have been implemented beginning 1st July 2010 to standardized revenue recognition among property developers but it proposed that revenue is recognized only when the constructed goods are delivered to the customers. Hence, IC15 brings about a big change in revenue recognition and also turnover reported by Malaysia property developers. In this case, revenue can only be taken up in the books when completed units are handed over to purchasers. If this happens, the developer will have to wait a long period just to register profits from their products.
The concern expressed by property developers was that it may not portray the essence of sell and build business model practiced by Malaysian property developers and thus making the completed contract method of recognizing revenue as inappropriate. In addition, by having of this change, the property developers have to incur additional costs because they need to prepare two sets of accounts, one on the percentage of completion method for income tax purposes and the other on the completed basis method for financial reporting purposes. Furthermore, the Inland Revenue Board (IRB) also did not support Malaysian companies from complying with the IFRS in Malaysia (Zain, 2010). It was reported that the IRB did not familiarise itself with the IFRS, nor did it take part in any discussion with accounting professionals to solve problems in taxation (MIA, 2006). In return, all the negative responses to the proposed IC15 requirements had delayed the implementation date and pushed it further to another two years to 2012 in order for the stakeholders to deliberate on the implications of IC15.
In Malaysia, property developers practice sell-then builds construction properties. The public buyers will pay cash upfront before the physical properties are completely built. It will take longer than a year for such project to complete. Thus, a certain portion of the project is measured every year in order to assess the sales and expenses of the partially completed projects or constructions. If IC15 is adopted, then no revenue can be reported every year until the year the project is completed.
In response to the concerns of those property developers, MASB is still reviewing for the adoption of IC15. Based on their due process, the stakeholders and public would be consulted before any decision is made. MASB approached this issue to IASB. Those who feel that IC15 would have implications to their business should use the consultation process to provide input to MASB.
The IASB has addressed this issue. It appears that the recent IFRIC staff paper presented at IFRIC meeting in November 2011, analysing the application of IC 15 in Malaysia and results that, Malaysian property developers could recognize property development revenue and profit based on percentage of completion method (POC method) instead of completed method. In return, MASB made exception to this sector and allowed them to defer adopting MFRS in 2012 and our developers have stopped wringing their hands. Thus, the financial reporting framework in 2012 has a dual framework for non-private entities: one with full MFRS compliance and the other deferring adoption (called Transitional entities) and a vacuum with no definitive standard on when revenue should be recognized in the financial reports of property developers.
Effect of Full Convergence on MPERS
Furthermore, MASB issued Malaysian Private Entities Reporting Standard (MPERS) in respect of its application in Malaysia. MPERS contains the format and structure of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) issued by the International Accounting Standards Board (IASB) (Malaysian Private Entities Reporting Standard (MPERS), 2015).
MASB has right to make additions or deletions to the original text of IFRS for SMEs will be make in the following manner (Preface to MASB Approved Accounting Standards, 2015):
a) A particular new added paragraph or text by MASB would be underlined and.
b) A paragraph is deleted by the MASB would be clearly indicated as “Deleted by MASB”. The text of the deleted paragraph would be reproduced at the end of that Section for readers’ information and does not form part of the MPERS. Besides, the deleted texts will be struck through and shaded.
Besides, MASB use criteria in determining whether it should amend the subject matter of the IFRS for SMEs of the following:
a) Whether change would provide more relevant and useful information to users in financial statement of private entities?
b) Whether change would improve comparability of private entities’ financial statements with financial statements of SMEs in other jurisdictions?
c) Whether the change would reduce complexity of the requirement for private entities?
d) Whether the IASB is planning to basically change the existing requirement in the IFRS for SME? (Malaysian Private Entities Reporting Standard (MPERS), 2015)
According to article, MPERS as a standard published or developed separately by MASB that applied for general purpose financial statements of private entities. The MPERS follow the IASB’s IFRS for SMEs revised in May 2015 except for the amendments made in the following sections (Malaysian Private Entities Reporting Standard (MPERS), 2015):
(a) Section 1 Private Entities
Section 1 modified to prescribe the suitability of the MPERS in the Malaysian context. All references to “SMEs” and “public accountability” have been change in Sections 1-35 by the term “private entities” and deleted respectively. The article had stated “Deleted by MASB for SMEs Section 1” text that is replicate information only and does not form as a part of MPERS under the Section 1.
(b) Section 3 Financial Statement Presentation
Section 3.1 describes fair presentation of financial statements with regarding compliance with the MPERS requires and a complete set of financial statements. However, IFRS for SMEs paragraph under Section 3.2(b) the entity applies the standard with public accountability does not result in a fair presentation in accordance regarding Section 3. Therefore, “Deleted IFRS for SMEs Section 3.2(b) “text, and authority delegated by MASB for delete the standard.
(c) Section 9 Consolidated and Separate Financial Statements
Section 9.1 had defines the ultimate Malaysian parent should prepare consolidated financial statements regardless of whether that is not incorporated in Malaysia. Consolidated financial statements provides more relevant information to users to opposed to separate financial statements as entities on its own may be very small with limited or specified activities. According to article, there had “Deleted IFRS for SMEs Section 9” text as reproduced for information only and does not form part of MPERS Section 9. The deleted text of IFRS for SMEs paragraph 9.1 (last sentence) is about If a parent entity does not have public accountability, it may apply this standard to present its separate financial statements, even if it presents its consolidated financial statements compliance with full IFRS or generally accepted accounting principles (GAAP).
(c) Section 34 Specialised Activities
Section 34 consist of FRS 201 Property Development Activities. The deleted of text included Example 12 Agreements for the Construction of Real Estate contained in the Appendix to Section 23 Revenue of the IFRS for SMEs, which incorporates the principles of IFRIC Interpretation 15 Agreements for the Construction of Real Estate as it is not part of, Section 23. It provides guidance for applying the requirements of Section 23 in recognising revenue. In additional, the deleted of Appendix text included Section 23A.14 regarding an entity should undertake the construction of real estate enters into an agreement with one or more buyers before construction is complete, shall account for the agreement as a sale of services. Section 23A.15 if the entity is required to provide services together with construction materials to perform its contractual obligation to deliver real estate to the buyer, the agreement should be accounted as the sale of goods.
These are some instances of the MASB channeling Malaysia’s voice to the world. The point here is that the MASB has demonstrated that it can help the Malaysian companies to have good fights rather than just fully adopting the standard issued by IASB which may at sometimes is hardly to be adopted.
Malaysian Accounting Standards Board (MASB) has allowed agriculture and real estate companies to defer their adoption of an IFRS-compliant set of accounting standards until the two so-called transitional issues have been resolved. It appears that the resolutions will come soon. Last June, the International Accounting Standards Board published an exposure draft proposing that biological assets such as oil palms and rubber trees come under the scope of the IAS 16, which covers property, plant and equipment. It is presumed that the next step is to amend the relevant standards. As for the case of the difference in recognising revenue from property projects, the matter is expected to be addressed with the release of a new standard for revenue. All of these show that being small is not necessarily the same as being helpless and voiceless. In fact, strong, well-supported arguments and a solid game plan can often make up for the lack of size and influence.