Statutory requirements

Regulatory framework for financial reporting

&
Statutory Requirement

Regulatory framework for

financial reporting

Many parties play an active role within

financial reporting environment
The activities of these parties will be influenced

by:

legal setting
economic setting
political setting
social setting

These specific environment is called the

regulatory framework of financial reporting
The RF vary between countries, yet they have

common elements
2

Regulatory framework for

financial reporting

The elements of a regulatory framework

are :

A)
B)
C)
D)

statutory requirements
corporate governance
auditors and oversight
independent enforcement bodies

A) Statutory requirements

The key participants in the production of financial

report are corporate director & independent auditors.
The directors & auditors prepare audited report is to
fulfill statutory requirements, as contained in
company law.
On the other hand, company law will likely mandate
basic requirement on preparations of accounts and
frequency of preparation.
E.g. Aust: must disclose information about their
environmental performance.
Additional financial reporting requirement are
derived from specific accounting standards & in
many jurisdictions these standards have the force of
law. E.g: Company law, Securities market law, Taxation law.
4

B) Corporate governance

The structures, processes and institutions within

and around organisations that allocate power and
resource control among participants. Davis
Some CG practices are derived from laws which
require directors to carry out specific actions in
relation to management of the company.
CG guidance may take the form of voluntary best
practice recommendations which encourage
directors to adopt appropriate governance
mechanisms.
E.g. requirement to hold meetings, related party
transactions basic CG matters + covered by
company law
5

C) Auditors and oversight

Auditors are important function in

providing assurance about the quality of
information provided by companies
as such, auditing profession have to be

regulated

The most basic form of regulation is

limiting of membership to persons with
particular qualifications and experience
and requiring registration to practise.
6

D) Independent enforcement
bodies

The role of such body in the regulation of financial

reporting is to promote compliance with the
regulations governing the production of financial
statements.
An independent enforcement bodies is an
extension of lodgement supervision, a basic part
of the regulatory framework.
Independent enforcement bodies may have
extensive duties & powers in relation to
monitoring financial reporting.
Diff country may have diff independent bodies.
Hence, the need for consistent enforcement
across countries is needed.
7

The IASB & FASB Convergence Program

8

Institutional structure for setting

accounting and auditing standards

Background

Formation of IASC in London 1973

The committee comprised representatives of
professional accounting bodies from 9 countries.
Aimed to develop accounting standards for the
private sectors for use throughout the world
IOSCOs support for a set of core standards
IASC not independent so restructured in 2001 into
the IASB
Coz IASC allowed a choice of accouting policy

In 2002 the European Commission decided to adopt

IASB standards in 2005 in the European Union.
More transparent & comparable

Australia adopted IFRS on 1 January 2005

9

The IASB and FASB

convergence program

The work program of IASB become

complicated by the announcement of
the IASB/FASB convergence program in
2002 Norwalk agreement
Convergence between IASB with US
GAAP.
This convergence program requires FASB
& IASB to identify differences between
their respective standards, to review and
adopt the better treatment.
10

Accounting standards for the

public sector

IASB set standards for private sector.

Public sector may have diff standards
coz diff goal, objectives & stakeholders.
Individual countries must decide the
extent to which IASB standards will be
followed by public sector entities
Australia has pursued one set of
standards that can be used by both
public and private sector entities
sector neutral standards.
11

International auditing
standards

Historically auditing was self-regulated

19th century professional accounting
societies were found during a time
when Companies Act were passed in
UK that requiring audit. generate
revenue for accountants.
Best auditing practice has become
enshrined in auditing standards
Governments have become involved
due to market failure
12

History
Development of
reporting
practice in
Malaysia
Explain current
financial
reporting
regime in
Describe the
Malaysia
move towards
convergence
with
International
Accounting
Standards
Indentify the
challenges for
standard setting

Standard Setting in Malaysia

Basic References : S.susiela et.al chapter 6,7

13

Introduction
A strong accounting profession is seen as a
crucial component of the capital market
system.
This role cannot be carried out satisfactorily
in isolation.
The support of other key institutions is vital.
Our main discussion is on providing an
understanding of how the accounting
profession interacts with various
institutions involved in the financial and
reporting environment.

14

Accounting Profession and the

Financial and Reporting Environment
Ministry of
Finance
Accountant Generals
Office

Financial Reporting Foundation

Malaysian Institute of
Accountants

Public Sector
Enterprises

Securities Commission

Companies Commission
of Malaysia

Central Bank

Malaysian Accounting
Standard Board
Private Corporate Sector

Auditors Generals
Department

The Accounting
Profession

Key players in the Financial

Reporting Process

Accountant General Office

Malaysian Institute of Accountant
Auditor General Department
The Companies Commission of Malaysia
Central Bank
Securities Commission
Malaysian Accounting Standard Board
The Corporations
Public Accounting Firms
16

History Development of reporting

practice in Malaysia

17

The Malaysian Accounting Standards Board (MASB) is

established under the Financial Reporting Act 1997 (the
Act) as an independent authority to develop and issue
accounting and financial reporting standards in Malaysia.
The MASB, together with the
Financial Reporting Foundation (FRF), make up the new
framework for financial reporting in Malaysia. This new
framework comprises an independent standard-setting
structure with representation from all relevant parties in
the standard-setting process, including preparers, users,
regulators and the accountancy profession.

Financial Reporting Foundation (

FRF)
18

Financial

Reporting Act 1997 was gazetted

on 6 March 1997.
The Financial Reporting Foundation (FRF)
is established under Financial Reporting
Act 1997.
The FRF comprises representation from all
relevant parties in the standard setting
process, including preparers, users,
regulators, and accountancy profession.

FRF
The FRF, as a trustee body, 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. It has no direct responsibility with
regard to standard setting. This responsibility rests
solely with the MASB.

19

MEMBERS OF THE
FINANCIAL REPORTING
FOUNDATION
o

The Financial Reporting Foundation (FRF) comprises nineteen

(19) members who are appointed by the Minister of Finance.
oSeven (7) of the members are ex-officio representing the
Minister of Finance, the Central Bank, the Securities
Commission, the Companies Commission of Malaysia, the
Kuala Lumpur Stock Exchange, the Malaysian Institute of
Accountants and the Malaysian Accounting Standards Board.
oThe other twelve (12) members represent 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.

20

The functions and powers of the FRF as

provided under the Act are as follows:
1.

2.
3.
4.
5.

6.

to provide its views to the MASB on any matter

which the MASB seeks to undertake or implement
with respect to the development and issue of
accounting standards and a conceptual
framework;
to review the performance of the MASB;
to be responsible for the financing arrangements
and operations of the MASB;
to approve the MASB budget;
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;
to administer the fund established to finance the
ongoing operations of FRF and MASB including
management of funds not expended on

21

Cont..
7.
8.
9.

10.

to maintain proper accounts and prepare an

annual statement of accounts of the FRF;
to appoint an auditor for the purpose of auditing
the annual statement of accounts;
to forward the 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
to perform such other functions as the Minister
of Finance may prescribe.

22

Definition under FRF

Accounting Standard
a statement of standard accounting practices for the
presentations of financial statement
Approved Accounting Standard
accounting standards which are issued or approved by
MASB

23

Compliance to FRS
Mandatory to;
Public listed companies under Exchange
Companies registered with the Registrar
Financial Institutions under Central Bank

Encourage for ;
government agencies
coorporations

24

MASB

25

Malaysian Accounting Standard Board (MASB)

is established under the Financial Reporting
Act 1997 as an independent authority to
develop and issue accounting and financial
reporting standard in Malaysia.

Mission of MASB
The MASB's mission is 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. In a wider context, the MASB seeks to
contribute directly to the international development of
financial reporting for the benefit of users, preparers
and auditors of financial reports.

26


1.

2.
3.

4.

5.

MASBs objectives:
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

Functions of MASB
1.

2.
3.
4.
5.
6.
7.

8.
9.

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.

28

30

Key players in the Financial

Reporting Process

Accountant General Office

Malaysian Institute of Accountant
Auditor General Department
The Companies Commission of Malaysia
Central Bank
Securities Commission
Malaysian Accounting Standard Board
The Corporations
Public Accounting Firms
31

Accountant General Office

Strives to improve public sector

accountability by providing excellent
accounting services and management
information to the satisfaction of
various users thereby achieving
national objectives.

32

Accountant Generals Office

Functions

Managing 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
33

Cont..

Preparing monthly accounting financial

information.
Providing support services (consultancy
and training) on Micro Accounting
System to all government agencies.
Enforcing the provisions of the
Unclaimed Monies Act 1965 are
processed in a timely manner.
34

Cont..

Managing the Pension Trust Fund

Accounting for Payments and Receipts
on a daily basis
Preparing Annual Public Accounts
according to the provisions of the
Financial Procedures Act 1957 to be
tabled in Parliament

35

Accountant General represents the

Government in the Council of the
Institute. Also represented in the
Malaysian Accounting Standards
Board. Plays a vital role as a linked
between the private sector and
public sector accounting.

36

Malaysian Institute of Accountant

MIA exerts important influence on all

accountants in Malaysia.
MIA gives the designation Chartered
Accountant to its member.
The MIA membership is divided into 4
categories:

Chartered Accountants in Practice

Chartered Accountants Not in Practice
Associate Members
Licensed Accountants
37

Cont..

MIA sets professional requirements for

accountants, conduct research, and
publishes materials on many different
subjects related to accounting,
auditing, attestation and assurance
services, management consulting
services and taxes.

38

Auditor General
Department

Under the Audit Act 1957 the accounts

of the fedaration, states and such other
public authorities and specified bodies
are subject to audit by the Auditor
General.
The Auditor General office ensures that
the accounting and reporting standards
prescribed by the Accountant General
are complied with the Audit Act 1957.
It also offers audit services to the
public sector enterprises.
39

The Companies Commission of Malaysia

Section 169(4) of the Companies Act 1965

requires every company incorporated under
the Act to have its profit and loss account
and balance sheet duly audited before they
are presented at the annual general
meeting.
Amendments to the Companies Act 1998
further provide that companies should
comply with approved accounting standards
in the preparation of their accounts.
40

Functions of Companies
Commission Malaysia (CCM)

The main function is to ensure that the

provisions of the Acts and laws specified
below are administered, enforced,
carried out and complied with:

Companies Act 1965

Trust Companies Act 1949
Kootu Fund (Prohobition) Act 1971
Registration of Business Act 1956
Any subsidiary legislation made under the
acts specified above
41

Other functions of CCM

Enhancement and promotion of the supply

of business and corporate information
Acting as agent of the government and
providing services in collection and
enforcing payment of prescribed fees
Regulating matters relating to
corporations, companies and businesses
Encouraging and promoting proper
conduct amongst directors, secretaries
and other officers of a corporation
42

Central Bank
Bank Negara Malaysia is the central bank of Malaysia.
Established on 26 January 1959 under the Malay
Ordinance, 1958.
Objectives are;
1. Issue currency and keep reserves safeguarding the
value of the currency
2. Act as a banker and financial adviser to the
government
3. Promote monetary stability and a sound financial
structure
4. Influence the credit situation to the advantage of the
country

Central Bank of Malaysia

Act 1958 (revised 1994)

The act provides for the administration,

objectives of the central bank.
Enumerates the power and the duties
of the central bank in relation to
issuance of currency, maintenance of
external reserve, authorised business
of the bank, specific powers to deal
with ailing institutions, its relationship
with the government and financial
institutions,
44

Other legislations to regulate and

supervise the financial system

Banking and Financial Institutions Act

1989 (BAFIA)
Exchange Control Act 1953
Islamic Banking Act 1983
Insurance Act 1996
Takaful Act 1984
Emergency(Essential Powers) Act 1979
and Essential (Protection of Depositors)
Regulations 1986
45

Cont..

Loan (local) Ordinance 1959

Treasury Bills (local) Act 1946 (revised
1977)
Government Investment Act 1983

46

Securities Commission

The securities commission was set up

the Securities Commission Act 1993.
The function is to promote a strong
and healthy securities market and to
maintain the confidence of investors in
line with the provisions of the
Securities Commission Act and the
Securities Industries Act 1983
47

Role of Securities
Commission (SC)

The SC is a self-funding statutory body

with investigative and enforcement
powers.
It reports to the Minister of Finance and
its accounts are tabled in Parliament
annually.

48

Functions of SC

Supervising exchanges, clearing houses

and central depositors
Registering authority for prospect uses of
corporations other than unlisted
recreational clubs
Approving authority for corporate bond
issues
Regulating all matters relating to securities
and future contracts, unit trust schemes,
take-over and mergers of companies
49

Cont..

Licensing and supervising all licensed

persons
Encouraging self-regulation
Encouraging proper conduct of market
institutions and licensed persons.

50

Malaysian Accounting Standard Board

The main functions of MASB of the FRF are to

provide the financial arrangements for the
operations of the MASB, and to review the MASB
performance

51

The Corporations

There are increasing awareness that

directors and management in
corporate sectors play a critical role in
improving the level of financial and
reporting systems.
The amendments to the Companies Act
1965 reflect this reality that includes;
Directors Responsibility

52

Public Accounting Firms

The legal right for public accounting

firms to perform audits on limited
companies is granted by the
Companies Act 1965.
3 categories of public accounting;
Big four
Medium sized
Small firms

53

Role of the profession in

accounting standard setting

The MIA and other professional

accountancy bodies provide input to
the MASB at every phase of the
standard setting process.
Providing interpretations and guidance
on the necessary and vital as the
standard setting process now brings in
together all key players in an open
playing field to raise issues and
problems
54

Big Change

Reconstitution of the International

Accounting Standards Board (IASB)
on 1st April 2001
New mission
New structure
New thinking

55

Significant changes
New

ideas - IAS -----IFRS

New concept historical cost ----fair value
New deals- country specific
------global language
New focus harmonisation-----convergence

56

Why convergence?
Need for common understanding ease of
communication
Comparability enhanced-similar treatment
for similar transaction, eliminate the
incomparability factor
Cost savings-no need to reconcile accounts
Facilitate cross-border listings- encourage
capital flows

57

What is the IFRS Convergence

Plan all about?
The

convergence plan unveils a roadmap

towards achieving convergence with IFRS by 1
January 2012.
It maps out a series of broad steps over the
next few years to ensure that Malaysias
financial reporting standards will be in line with
IFRS, both in content and timing of
implementation

58

What does convergence with

IFRS mean?
Convergence with IFRS means full
compliance with IFRS as a basis for
financial reporting system in
Malaysia.

59

Cont..
Investors

would have better

understanding of financial statements
prepared by companies in Malaysia and
in making comparisons between
companies worldwide.

60

Cont..
Convergence will enhance national
reputation of Malaysia as being in
compliance with International Accounting
Standards. The need to establish this profile
is imperative to ensure Malaysia is not left
out from the globalisation wave, especially
since more than 100 countries are
converging or have converged with IFRS.

61

Which are the top capital markets

that require or permit the use of IFRS
United Kingdom;
France;
Germany;
Hong Kong;
Spain;
Switzerland;
Australia.

62

Indentify the challenges

for standard setting
1.
2.
3.
4.
5.

Lack of technical expert

Working group mostly participate on a
voluntary basis
Low response from the Malaysian public on
exposure draft and sometimes non-existent
Lack of adequate research especially issues
on delevoping Islamic Accounting Standard
Research evidence supported by empirical
studies is lacking to guide MASB
deliberations.

63

Future MASB
speed

up with its research agenda in order to

remain relevance.
posses technically sound and competent
representatives in order to stand up and be
reckoned with its dealing in international arena.
Play a proactive role in publishing its views on
important accounting issues.
Provide timely feedback to the resolution of
accounting issues.

64

Opportunities bound
Body of knowledge has changed
Advisory
Management upscale
Knowledge building
Education

65

Conclusion
Accounting landscape worldwide
has changed, and so does the body
of knowledge in accounting. We
need to understand changes,
embrace them and plan forward
and explore opportunities for a
bright future.

66

Tutorial
1.
2.
3.
4.
5.

Discuss the roles and functions of FRS as being provided

under the Financial Reporting Act1997.
Discuss the roles and functions of MASB as provided
under the Financial Reporting Act 1997.
What are the challenges facing by MASB in this globalised
environment?.
Explain the Due Process in the issuance of MASB standard
in Malaysia.
What do you think would be a desirable relationship
between IASC and national standard setters (MASB)?.

67

Cont..
6.

7.
8.

MASB standards are rename as Financial Reporting

Standard (FRS). Discuss the possible advantages to
financial reporting in Malaysia on renaming the MASB
standards to Financial Reporting Standards (FRS).
Discuss the due process of development of Islamic
Accounting standard.
What factors need to be taken into consideration when
setting a new standards in regulated market environment
like Malaysia?.

68