Convergence-towards-ifrs-in-malaysia-issues-challenges-and-opportunities Essay

In the year 2008 the then Malaysian explanation Standard Boards (MASB) chairman, Dato Zainal Abidin Putih, announced that Malaysia will be converging with planetary business relationship Standard Board (IASB)s International monetary Reporting Standard (IFRS). From that point onwards many initiatives were lined up by MASB and the Malaysian embed of Accountants (MIA) in order to educate, train and inform all the relevant stakeholders 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 simulation to be applied in Malaysia and this new accounting framework that is IFRS-compliant is dubbed as Malaysian monetary Reporting Standards framework (MFRS). The issuance of MRFS is vital to show and prove the Malaysian commitment and also it suffers a solid guideline for all entities that are administered by Securities Commission of Malaysia and the convergen ce begin on or after 1 January 2012.Historically, Malaysian accounting standards wealthy person 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 colony up to the year 1957 and many of the accounting standards applied in the united Kingdom has always made its way to be adopted by the Malaysian standard setters authorities and regulators.As Mohammad Faiz Azmi express in forums that the Malaysian fiction 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 bankrupt position as the problems and challenges faced by Malaysian companies are far much reduced compared to other countries that adopted the big bang approach, for example the federation Koreans, where the accounting standard setters and regulators in South Korea agreed on full word meaning of IFRS (Nazatul Iz ma, 2009 Suh, 2011) ACCOUNTING FRAMEWORKS IN MALAYSIACurrently Malaysian entities are typeface to deuce-ace 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 yet 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 one-year periods stock on or after 1 January 2012. Private entities are private companies which are incorporated under the Companies Act 1965, that are not itself required to prepare or charge any monetary statements under any law administered by the Securities Commission Malaysia or vernacular 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 take holding 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 Real 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 on the whole allowed for one year, as these Transitioning Entities need to apply the MFRS framework by page 43 International Journal of Business, Economics and Law, Vol. 1 ISSN 2289-1552 2012 annual periods beginning on or after 1 January 201 3 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), on that pointfore 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 version of IAS, which has been the main accounting standards framework for nonprivate entities before the i ntroduction 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 comparative information under MFRSs in its first MFRS based statements. Following the emergency of MFRS 1, MFRS 101 on Presentation of Financial recitals 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, therefore 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(prenominal) 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 complying with MFRS exceeds the benefits to the users of financial statements and also if retrospective application would misbegotten that judgement by management of a known transaction is required, IASB would grant exemptions and therefore this would create unle vel 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 perform a comprehensive, thorough and detailed examination of the readiness of their entity in befitting 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 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). But as it is evident, MFRS 141 and IC 15 for Transitioning Entities is an exception given to such entities to comply to full IFRS adoption by rev erting 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 summations 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 successful 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 recognise palm oil tree as a non current asset and not as an inventory (Nazatul Izma, 2009).One of the well-nigh 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 collective FDI destinations, the worlds highest FDI receivers are China, United States of America and India, of which none have converged 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 capital of Minnesota Pacter, the board member and chairman of the SME implementation group, mentioned that some topics in the IFRS were omitted from the IFRS for SMEs, due to its irrelevance 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 were developed to cou ntenance 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 modality 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 mere 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 underconverged version used b y SMEs due to the lack of humankind resources to implement new IFRS based regulations therefore MASB is still uncertain about how exactly they should deal with the issue related to SME and IFRS (Nazatul Izma, 2010) MASB together with MIA will have to boldness into the issue of the readiness of the Malaysian education system to deliver enough trained 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 amend 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 responsible 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.