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MPERS

vs
MFRS
Kamaruzzaman
Muhammad
9 April 2019
Outline
1. What is MPERS?
2. Who should apply MPERS?
3. When is MPERS effective?
4. How different is MPERS compared to IFRS for SME?
5. Comparing MPERS with MFRS
6. Benefits for SME in Implementing MPERS
7. Problem and Challenges
8. Related Materials
1.0 What is Malaysian Private Entities
Reporting Standards (MPERS).
• Accounting standards applicable to private entities.
• Equivalent to IFRS for SMEs issued by the IASB
• Replaces PERS framework.
• MPERS is a self-contained standard with 35 sections covering all
relevant areas for financial reporting by private entities.
• The MFRS applicable to non-private entities.
• The MFRS and MPERS were developed based on the same framework,
except that MPERS is a simplified version of MFRS.
• MPERS attempts to meet the users’ needs while balancing the cost and
benefits to preparers.
2.0 Who should apply MPERS?
• Only Applicable to private entities.
• A private entity is a private company as defined in section 2 of the Companies Act 2016 that:
• is not itself required to prepare or lodge any financial statements under any law administered
by the Securities Commission Malaysia or Bank Negara Malaysia; and
• is not a subsidiary or associate 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.
• Not a PLC or not a “related company” to PLC.
• Introduction of “Undue cost or effort” (Usaha & Kos Yang Melampau). E.g. Hiring expensive
chartered valuer to perform valuation on Investment Property for fair value disclosure purposes.
(excessive cost or effort incurred in the process of preparing accounts).
3.0 When is MPERS effective?
• In February 2014, the MASB issued MPERS with effective for financial statements
with annual periods beginning on or after 1 January 2016.
• Must migrate from PERS (2006) to MPERS (2016)
• Can opt to adopt MFRS (2016) Framework

• In October 2015, the MASB issued amendments to MPERS .


• The amendment make some minor changes to the standards in MPERS and
effective for financial statements beginning on or after 1 January 2017.
4.0 How different is MPERS compared to IFRS for SME?

NO MPERS IFRS FOR SMES


1 Scope Applicable to private entities Applicable to SMEs without public
accountability

2 Exemption from Ultimate Malaysian parent is required to A parent entity is exempted from
consolidation prepare CFS presenting CFS

3 Revenue for Guidance is based on the Malaysian- Guidance is on IFRIC 15


property specific requirements in MASB 32 Agreements for the Construction
development Property Development Activities (PERS of Real Estates
activities 2006)
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Presentation, Section 3 MFRS 101
Policies, • No requirement for the 3rd statement of • 3rd statement of financial position as at the beginning
Estimates and financial position of the comparative period when this is a retrospective
Errors application, retrospective restatement or
reclassification of line items, if material.
Goodwill Section 19 MFRS 3
• No goodwill is attributed to NCI • Goodwill may include NCI’s portion (NCI measured at
FV.
• After initial recognition, goodwill • Goodwill has an indefinite life and not amoritized.
measured at cost less accumulated
amortization and impairment losses.

• Amortization to be within useful life or • But subject to annual impairment testing.


10 years if useful life cannot be
measured reliably.

• Business combination expenses are to be • Business combination expenses are to be expense off
capitalized
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Consolidated FS Section 9 MFRS 10
• Control means the investor has the • Control must be demonstrated through 3 elements:
power to govern the financial and • Power over investee
operating of the investee • Exposure to variable risk and return
• Ability to use its power to affect its variable
returns.

• A subsidiary is excluded from the CFS if it • A subsidiary is excluded from CFS only when control is
acquired and is held with the intention of lost. No exemption for temporary control.
selling or disposing of it within one year
from its acquisition date.

• When there is a disposal of shares, any • Any remaining interest must be re-measured to fair
remaining interest, whether a financial value.
assets or becomes an associate or JV, is
measured at the CV at the date control is
lost. i.e. no re-measurement to fair value.
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Investment in Section 14 MFRS 128
associates / JV • Permits 3 models – equity method or • Only one model - equity method is allowed
cost model or Fair value model
• When Associate becomes JV, a re- • When Associate becomes JV, no re-measurement is
measurement is required to FV with gain required and continue to applies equity method
or loss recognized in SOPL
• When there is a loss of significant • When there is a loss of significant influence, related
influence, there is no recycling of OCI OCI reserve is to be recycled to SOPL
reserves to SOPL
• No disclosure of summarized financial • Disclosure of summarized financial information about
information about associates associates is required
Recycling of Section 30 MFRS 121
foreign • Does not allowed the cumulative • Allowed the cumulative exchange differences related
currency exchange differences related to the to the disposal of a foreign operation to be recycled
reserve disposal of a foreign operation to be from equity to profit or loss
recycled from equity to Profit or loss
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Recognition Section 11 MFRS 9
and • Financial Instrument are classified into: • Financial instrument are classified into:
measurement • Cash • Amortised Cost
of Financial • Debt instrument (Receivables and • FVTOCI
Instruments payables) @ Amortized cost • FVTPL
• Commitments to receive loan @ Cost
less impairment
• Investments in shares @ FVTPL or @
Cost less impairment

Section 12
• Applies only if a private entity has complex • Requires assessment of embedded derivatives in
financial instrument such as derivative host contract. E.g. Convertible Bond.
instrument.
• There is no requirement for assessing
separation of embedded derivatives from
host contract.
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Disclosures Section 11 & 12 MFRS 7
about financial • No requirement to disclose fair • Disclosure of fair value information is much more
instrument value into measurement levels and comprehensive in the MFRS, including :
transfers between levels. • sensitivity test, information of significant variables
used in the fair value measurement, the levels in the
hierarchy of fair value measurement, and transfers
between levels.

• No disclosure requirement about • Must disclose the risk management objectives, policies and
an entity’s financial risk strategies.
management objectives, policies
and strategies.

• No disclosure requirement on the • Must disclose sensitivity analysis of market risks (currency
sensitivity of market risk variables. risk, interest rate risk and price risk)
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Non-current NCA-HFS MFRS 5
Assets Held for • is not in MPERS literature. • Requires separate classification and presentation of NCA-
Sale (NCA-HFS) • No such classification in MPERS. HFS.
• Measured at the lower of cost or NRV.

Property plant Section 17 MFRS 116


and equipment • Option for revaluation model is • Subsequent measurement – A policy choice, by class, to
introduced in the amended MPERS measure PPE at: (i) the depreciated cost model; or (ii) the
(2015). depreciated revaluation model.

Impairment of Section 27 MFRS 136


assets • Test of impairment is required at • If an entity carries goodwill or an intangible asset with
each reporting date only if there is indefinite useful life, impairment test must be performed
any indication of impairment. annually or more frequently, regardless of whether there is
any indication of impairment.
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Investment Section 16 MFRS 140
property • Only fair value model unless fair value • Allows fair value model or cost model
could not be measured reliably without
undue cost or effort (management’s
professional judgment in assessing the
costs and benefits).
Borrowing cost Section 25 MFRS 23
• All borrowing costs to be expense off. • Borrowing cost directly attributable to the acquisition,
• The option of capitalizing borrowing construction or production of a qualifying asset to be
costs on qualifying assets is not allowed. capitalized as part of the cost of asset.
Intangible asset Section 18 MFRS 138
other than • Research & Development to be expense • Research is to expense off.
goodwill off. • Development is to be capitalized if criteria are met.
• All intangible asset to be amortised • Allowed intangible assets to have indefinite useful life
within finite useful life. but subject to impairment testing.
• Useful life shall not exceed 10 years. • Allowed cost model and revaluation model as per PPE.
• Not allowed revaluation model.
5.0 Comparing MPERS with MFRS
Key Differences MPERS MFRS
Biological assets Section 34 (Specialized Activities) MFRS 141 Agriculture
and Agricultural • BA is used FVLCTS only if the FV can be • All BA and agricultural produce measured initially and
Produce measured reliably without undue cost or subsequently at FVLCTS.
effort. • Segregation of classification:
• No segregation between bearer • Bearer Biological Assets such palm and rubber
biological assets and produce growing trees shall be accounted for as a class of PPE
and to be treated as part and parcel of within the scope of MFRS 116.
the plants. • Produce growing - The produce on tress to be
• Bearer biological assets to be measured measured at FVLCTS as the produce grows.
at cost model as determination of fair
value would required extra or excessive
effort.

• Reconciliation of changes in fair value • Required reconciliation of changes in fair value due
due to price change and physical change price change and physical change
is not required.
5.0 Comparing MPERS with MFRS
In General MPERS MFRS
Omission of Non- Due to not traded in stock Traded on Stock exchange and exposed to
relevant Standard exchange and does not have much many complicated transaction which
public interest requires more application of accounting stds.
E.g. Derivative and hedging
Disallowable of Many some of these options are There are many options available in IFRS for
Options prohibited to be chosen by the listed companies. E.g. investment property,
preparer because better and easy either cost or fair value models
options are available in MPERS.
Simplification of simplified for MPERS to allow easy More complicated recognition and
Recognition and and fast preparation of the measurement. E.g. Impairment test more
Measurement financial statement. frequently, not just on repotting date.
Fewer Disclosures SMEs is not expected to be as thick Comprehensive disclosures and sometimes
as that of the listed companies, dragged into more than 400 pages.
could be around 20 – 30 % PLC
5.0 Comparing MPERS with MFRS
• A study by Tan (2015): a
comparative study that examines
the differences between the MPERS
Framework and the MFRS
Framework.

• Comparing based on 35 sections


MPERS VS MFRS (EXTRACTED)
covering all the relevant areas for
AREAS Ranking
1 Concepts and Pervasive Principles N financial reporting by private
2 Presentation of Financial Statements L entities.
3 Statement of Cash Flows N
4 Accounting Policies, Estimates and Errors L • It is a study of differences in
5 Business Combinations H
accounting treatments among the
6 Consolidation Financial Statements H
7 Separate Financial Statements L two reporting frameworks.
8 Joint Arrangements H
9 Associates H
10 Foreign currency operations N
5.0 Comparing MPERS with MFRS
Frequency Rank Total
Criteria Level No. of Areas Score Score
No differences (N) 0 No differences in treatments N 14 0 0
Very low level (VL) 1 One difference in treatment VL 7 1 7
Low level (L) 2 Two differences in treatments L 8 2 16
Medium level (M) 3 Three differences in treatments M 2 3 6
High level (H) 4 Four differences in treatments H 7 4 28
Very high level (VH) 5 Five and above differences in treatments VH 0 5 0
Total 38 57
Weighted mean score 1.5

• Study by Tan (2015) revealed that there are not that many differences between MPERS and MFRS.
• The mean score is 1.50, indicating slightly below the low level of differences between MPERS and MFRS.
• This could be due to IASs were already applied by Malaysian entities way back in the 1970s.
• The recent amendments to MPERS (2015) have moved the Standards in MPERS closer to the full MFRS
(Tan, 2015).
5.0 Comparing MPERS with MFRS
In conclusion

• MPERS is an adaptation of the International Reporting Standard for Small and Medium-sized Entities
issued by IAS in July 2009.
• MPERS uses more cost-based models for measurement of assets and liabilities.
• For MPERS, in areas where fair value measurement is relevant, it is only required if the fair value can
be measured reliably without undue cost or effort as an option.
• MPERS does not come with detailed application guidance in some complex areas.
• Some large private companies that find adopting MPERS is a disadvantage (such as option to
capitalize development and borrowing costs which are not available in MPERS), may opt to migrate
straight to the MFRS framework.
6.0 Benefits for SME in Implementing MPERS
• Uniformity – commons sets of accounting standards promotes comparability
• Reputation and Confidence – Common sets of accounting stds enhance credibility of FS
• Cost Reduction – Reduce cost in preparing compared to MFRS.
• Present Fairly Statement of Comprehensive Income, Statement of Financial Position and
Operating Cash Flow – FS being prepared in accordance to widely accepted actg. stds.
• Jump-start For Compliance with Full IFRS
• Internationalisation – Better access to overseas market since the standards followed are accepted
worldwide.
• Access to New Capital – Attract foreign investors.
• Easy Entrance to Larger Market

• (A.Salin, 2017)
7.0 Problem and Challenges in Implementing MPERS
• Constant change - is a challenge for preparers, who must learn to be alert and flexible in order to keep up.
• Talent shortage - Small size private entities cannot afford better quality accounting service.
• Additional costs - Staff training, increased audit fees and additional valuation fees to revalue some assets
and liabilities.
• Limited application guidance - MPERS does not come with detailed application guidance in some complex
areas. Large private entities may need to refer to the guidance in the MFRS framework for their accounting
requirements.
• Comparability of Financial Statements would be difficult to achieve - MPERS allow a preparer to not apply a
particular requirement if it involves undue cost or effort. For instance, biological assets need not be
measured at fair value if determination of the fair value involves undue cost or effort (excessive cost incurred
in the process of preparing accounts). What is considered as undue cost or effort is highly subjective and
very difficult to operationalize. This will make financial statements among companies not comparable.
• Certain areas are more difficult and costly to apply as compared to MFRS. E.g. biological assets and
Investment Properties must be measured at fair value. However, under MFRS an entity is permitted to
measure bearer plants and investment properties using the cost model.
7.0 Problem and Challenges in Implementing MPERS

• Principles vs rules – Principles based (IFRS) more flexible compared to rules based
(US GAAP). However, can caused different interpretations.
• Local variants, Requirements and Needs – Difficult to 100% adhere due to
variants in local laws and regulations.
• Accountants for SMEs – Full time accountants
• Compliance cost
• Other reporting and Non-financial Disclosures Requirements
• Definition for SMEs is not clear under the standards
• Education to the owners of companies and universities

• (A.Salin, 2017)
8.0 Related Materials
• Training Module IFRS (35 Modules)
• IFRS for SMEs
• MPERS_2016
References
• Tan, T.T. (2015). A Comparative Analysis of PERS, MPERS and MFRS
Frameworks. http://www.masb.org.my
• PWC (2015). Malaysian Private Entities Reporting Standards (MPERS):
A new reporting framework for Private Entities. Issue 124.
https://www.pwc.com/my/en/assets/publications/alert124-
mpers.pdf.
• 3eAccounting (2016). Comparison of PERSs, MPERS and MFRSs in
Malaysia. https://www.3ecpa.com.my/accounting/comparison
of-perss-mpers-and-mfrss/

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