BACHELOR IN ACCOUNTANCY (HONS)

SESSION I 2018/2019

MBAC 4153
ACCOUNTING THEORY

TITLE :
CHAPTER 8
STANDARD SETTING IN A POLITICAL ENVIRONMENT

PREPARED BY :
ANAS ARIEF BIN ABDUL RAHMAN 15BB04064
MUHAMAD IRFAN BIN MOHD LIZAM 15BB04014

PREPARED FOR :
SIR MOHAMAD SOFUAN BIN MOHAMAD SALEH
TABLE OF CONTENT :

PAGE
INTRODUCTION 1
DEVELOPMENT OF STANDARD SETTING IN MALAYSIA 2
MALAYSIAN ACCOUNTING STANDARDS BOARD (MASB) 3
RESPONSIBILITIES OF FRF 4
AIMS OF THE MASB 5
COMPOSITON OF THE BOARD 6
ISSUES COMMITTEE 7
DUE PROCESS IN THE ISSUANCE OF MASB STANDARDS 8
FUNCTIONS AND POWERS OF MASB 9
FUNCTIONS OF MASB AS FORMULATED IN ITS MISSION STATEMENT 10
OBJECTIVES OF MASB 11
CHALLENGES FOR STANDARD SETTING 12
STANDARD SETTING IN ISLAMIC PERSPECTIVE 13
CONCLUSION 14
REFERENCE 15
INTRODUCTION

Accounting standards refer to a set of standards stating how particular types of

transactions and other events should be reflected in financial statements. These
standards are issued by accounting standard setters. The application of accounting
standards in the preparation and presentation of financial statements is generally
govern by regulatory bodies and/or professional accounting bodies in a particular
country.

The emergence and development of multinational concerns and the growth of

international financial markets, among other markets, are influencing the preparation if
financial statements beyond national borders. Many countries around the world that are
using their national Generally Accepted Accounting Principles (GAAP) are adopting the
International Financial Reporting Standards (IFRS) in the preparation and the
presentation of their financial statements. The IFRSs are issued by International
Accounting Standards Board (IASB) and the adoption of IFRSs is having a growing
influence on national accounting requirements and practices.

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DEVELOPMENT OF STANDARD SETTING IN MALAYSIA

The Malaysian Accounting Standards Board was established in 1997 with

objective of improving the quality of external financial reporting in Malaysia. Previously,
two professional bodies, the Malaysian Institute of Accountants (MIA) and the Malaysian
Institute of Certified Public Accountants (MICPA) carried out the task of setting
accounting standards in Malaysia. This study investigate the standard setting
arrangements in Malaysia and the roles of the accounting profession in the standard
setting process, for the period between 1997-1999. Two research strategies were used
to gather the data needed, documentary analysis and survey questionnaires. The
results show that the standard setting arrangements in Malaysia are similar to the
arrangements in other developed countries, particularly USA. Similarities include a
standard setting body with a parent organisation, a rigorous 'due process' that is
followed before an accounting standard is issued, and the development of conceptual
framework. There are also characteristics that are unique to MASB.

The MASB is to a greater extent, strongly influenced by the government, through

the Malaysian Finance Ministry. MASB's approved accounting standards are based on
the International Accounting Standards (IASs), and customised to meet the unique
Malaysian economic environment and needs. There is also emphasis on study on
implementation of Islamic Financial Reporting in Malaysia. The status of the MASB as
an independent sole authority to set the accounting standards was accepted by the
interest groups in Malaysia with mixed feelings. When the proposal to establish the
Board was announced, there was quite strong opposition from some accountants. They
argued that the Board should come under the jurisdiction of the national professional
body, the MIA. Other interest groups were more positive, but quite uncertain of the
future body's capability to enforce the accounting standards. Generally, all agreed to
have an independent body to develop the accounting standards in Malaysia. They
viewed that with various inputs put into the standard setting process, and a strong legal
backup for the enforcement of the standards.

2
MALAYSIAN ACCOUNTING STANDARDS BOARD (MASB)

The standard setting role by MIA and MACPA was superseded by Malaysian
Accounting Standards Board(MASB) in 1997. MASB is established by under the
Financial Reporting Act 1997. The Act was gazette on 6 March 1997. In addition to
MASB, the Act also created Financial Reporting Foundation (FRF). The overall
responsibility of the FRF is to oversee the operating activities of the MASB.

The FRF comprises of nineteen members who are appointed by the Minister of Finance.

 Seven members are ex-officio representing the Minister of Finance, the Central
Bank, the Securities Commission, the Companies Commission of Malaysia, the
Bursa Malaysia Berhad, the MIA and the MASB
 Twelve members representing 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.

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RESPONSIBILITIES OF FRF

 To provide views to the MASB on matters which the MASB seeks to undertake or
implement with respect to the development and issue of accounting standards
and conceptual framework,
 To review the performance of MASB
 To be responsible for the financing arrangements and operations of the MASB
 To approve MASB budget
 To engage or 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 expanded on operations during any
period
 To maintain proper accounts and prepare an annual statement of accounts of the
FRF
 To forward annual statement of accounts and audit report to the Minister of
Finance, and the report on the activities of the FRF and MASB at the end of each
financial year, and
 To perform such other function as the Minister of Finance prescribe.

4
AIMS OF THE MASB

The aims of the MASB are as follows:

 To implement an efficient, effective structure and due process for the

development of MASB Standards, conceptual framework and other forms of
authoritative guidance
 To pursue the development of MASB Standards, a conceptual framework and
other authoritative guidance on a basis that recognizes that users of financial
statements are the primary customer, so that those users are better able to
make economic decisions.

To pursue a policy of internationalization/harmonization of MASB standards so as to be

compatible, in all significant respects, with the standards and concept of other national
and international standard setters

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COMPOSITION OF THE BOARD

The FRA specifies the composition of Board membership. The members of the Board
are appointed by the Minister of Finance as follows:

 A Chairman,
 The Accountant General; and
 Six other members who possess knowledge and experience in matters of
financial accounting and reporting and in one or more of the following fields:
accountancy, law, business and finance. The Act specifies that at least five of
these members should be members of the Malaysian Institute of Accountants.
 Three advisors representing the Securities Commission, the Companies
Commission of Malaysia and the Central Bank.

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ISSUES COMMITTEE

The MASB established a committee in May, 2002 known as the Issues

Committee to replace its predecessor, Interpretation Committee. The change in name
reflects the expanded scope of the committee which, in addition to dealing with
interpretations of approved accounting standards, also deals with other accounting
related issues where there are no existing accounting standards.

The Committee, hence, is responsible for reviewing accounting issues that have
received or likely to receive divergent views in interpretation and to provide
recommendations to the board for decisions. Currently the Committee comprises 3
representatives from the Big Four,1 from medium practices, 1 from the corporate sector,
1 academic, 1 analyst and 1 solicitor.

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DUE PROCESS IN THE ISSUANCE OF MASB STANDARDS

STAGE 1: Topics which are likely to become MASB standards are identified by the
MASB either from its own research, from external sources (for example, the IASB) or
from interested parties submissions.

STAGE 2: The MASB commissions its staff to undertake a programmed of investigation

which involves consultation and consideration of the relevant conceptual issues, any
pre-existing pronouncements and practices both in Malaysia and overseas, and the
economic, legal and practical implications of the introduction of particular accounting
requirements.

STAGE 3: Once relevant issues have been identified the MASB appoints a working
group to debate on the issues. The working group is chaired by a member of the MASB
and comprises a project manager, representatives from industry, auditors and
regulatory bodies.

STAGE 4: After a process of research and deliberation, a draft document is prepared.

This document can take the form of either a Draft Statement of Principles (DSOP) or an
Exposure Draft (ED). This is presented to the MASB for review and next presented to
the FRF for comments.

STAGE 5: When issue involved require more discussions and deliberations, a

Discussion Paper (DP) may be issued.

STAGE 6: The DSOP or ED is then published to allow an opportunity for interested

parties to comment on the proposals and for the MASB to evaluate the appropriateness
and level of acceptance of those proposals.

STAGE 7: An exposure draft may be amended in the light of feedback resulting from the
exposure period. The MASB provides the latest list of approved accounting standards
on its websites. Exposure draft are also available on the websites: http://masb.org.my/

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FUNCTIONS AND POWERS OF MASB

 Issue accounting standards as approved accounting standards and to review,

revise or adopt existing accounting standards as approved accounting standards
 Issue statements of principal 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 functions as the Minister of Finance may prescribed.

9
FUNCTIONS OF MASB AS FORMULATED IN ITS MISSION STATEMENT

 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
 To contribute directly to the international development of financial reporting for
the benefit of users, preparers and auditors of financial reports.

10
OBJECTIVES OF MASB

 To develop high quality, clear and enforceable national accountant standards for
financial reporting that benefit users,
 To bring about harmonization of national accounting standards with international
accounting standards,
 To promote the use and application of those 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.

11
CHALLENGES FOR STANDARD SETTING

The challenges involved in MASB are significant. It has a mission of improving

the overall financial reporting framework in Malaysia in accordance with international
best practice. In this context, MASB needs to play a proactive role in participating
actively in the international arena of standard setting. It is a key to ensure that views of
the constituents are adequately channeled to the IASB and deliberated before exposure
drafts are issued by IASB. MASB faces the challenge of providing technical expertise to
provide high quality to the IASB’s deliberations.

The lack of technical expertise is acknowledged. MASB only has a skeletal

technical staff of five. Most of the technical work is provided by Working Groups,
comprising selected experts from academia, practitioners and the industry. The working
group members mostly participate on a voluntary basis.

Lack of adequate research is an issue. In particular, on the issue of developing

Islamic accounting standards, the MASB faces a formidable task in finding Syariah
scholars who are also technically proficient accountants.

The issue is also the treatment of redeemable preference shares. According to

Section 61 of the Companies Act 1965, preference share would be considered as
equity. Whereas the MASB standard requires redeemable preference shares to be
classified as liability.

12
STANDARD SETTING IN ISLAMIC PERSPECTIVE

The Islamic Financial Services Board (IFSB) is an international standard-setting

organisation that promotes and enhances the soundness and stability of the Islamic
financial services industry by issuing global prudential standards and guiding principles
for the industry, broadly defined to include banking, capital markets and insurance
sectors. The IFSB also conducts research and coordinates initiatives on industry related
issues as well as organises roundtables, seminars and conferences for regulators and
industry stakeholders.

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CONCLUSION

Reliable and transparent financial reporting is paramount to support the decision

making by investors, lenders and regulatory authorities. In meeting the needs of various
users, there is a need to develop and issue accounting standards that are of high
quality, transparent and comparable in the preparation of financial statements. The
current move is through the adoption of IFRSs by countries around the world. The IASB
is responsible for setting and issuing the IFRSs. In ensuring the success of full
convergence, the work of national standard setters and the IASB should be integrated.
In Malaysia, the MASB actively participates in the IASB’s due process at an early stage
of standard development. The standard setting process in Malaysia has also developed
in line with the plan of full convergence.

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REFERENCE

1) Political aspects of financial accounting standard setting in the usa

By: Timothy J. Fogarty, Mohamed E.A. Hussein, J. Edward Ketz

2) Developing a process model for standard setting in local government services

By: Carol Brennan, Alex Douglas

3) Strategies for dealing with standard setting resistance

By: Kim K, Jeppesen

4) “Interest” and accounting standard in Malaysia

By: Selvaraj D, Susela

5) Transnational standard setting in accounting : organizing expertise-based self-

regulation in times of crises
By: Sebastian Botzem

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