CHAPTER

MALAYSIAN REPORTING
ENVIRONMENT

Learning Outcomes
At the end of this chapter, you should be able to:
Explain

the importance of accounting

Explain what is an economic entity
Explain the different types of businesses
Explain the history and development of accounting in
Malaysia
Explain the roles of the bodies that regulate the financial
reporting practices in Malaysia

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What is Accounting?

Accounting is known as the language of business.

It provides pertinent information helpful in making economic
decisions.
Economic decisions are decisions that would result in the
provision of resources such as money, materials, machinery,
land, buildings and labour that a business entity uses to provide
goods and services.
As resources are limited, one must make decisions to use
available resources to optimize returns.
Accounting involves the process of identifying, recording and
communicating information about an economic entity which
can be used to make informed judgements and decisions.

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What is an Economic Entity?

An economic entity may be an individual, a business, a

co-operative or a non-profit organization.
A business is formed with the intention of making profits
through selling of goods and rendering of services to
members of an economic system.
Examples of business entities involved in the production of
goods are Sime Darby Berhad, Top Glove Berhad, and
Adabi Sdn. Bhd.
Examples of business entities that provide services are
AirAsia Berhad, KPJ Healthcare Berhad and Maybank
Berhad.

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What is an Economic Entity?

(cont.)

Non-profit organizations such as public service agencies

and charitable foundations are established to provide
services to various segments of society with no intentions of
earning profits.
Examples of some non-profit organizations are the National
Science Centre, Mercy Malaysia and Yayasan Salam
Malaysia.
Every entity, regardless of its objectives, must establish a
system of keeping records of its economic activities and
measuring results of its accomplishments. Accounting
provides the means for tracking such activities and
measuring results.

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Development of Financial
Reporting in Malaysia

The Companies Act 1965 was the first legislation that set
out what information companies should provide.
The Ninth Schedule of the Companies Act 1965 outlines
the minimum information that companies are legally
required to disclose.
The initiative to adopt the International Accounting
Standards (IASs) started in 1978 by the Malaysian
Association of Certified Public Accountants (MACPA).

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Development of Financial
Reporting in Malaysia (cont.)

In 1979, Malaysia became a member of the International

Accounting Standard Committee (IASC).
The MACPA later joined forces with the Malaysian
Institute of Accountants (MIA) to carry on adopting the
IAS and also to develop local standards known as the
Malaysian Accounting Standards (MAS).
Most of the IAS issued by the lASC and International
Financial Reporting Standards (IFRS) issued by its
predecessor, the International Accounting Standards
Board (IASB) have been adopted in Malaysia.

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Development of Financial
Reporting in Malaysia (cont.)

The introduction of the Financial Reporting Act 1997

marked a new era in the development of financial
reporting in Malaysia, with the establishment of the
Financial Reporting Foundation (FRF) and the
Malaysian Accounting Standards Board (MASB).
Compliance with MASB approved accounting standards
were made mandatory on companies for financial
reporting purposes.
The Companies Act 1965 was also amended to
incorporate the same requirements.

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Development of Financial
Reporting in Malaysia (cont.)

The MASB initially adopted 24 of the extant IAS and MAS

issued prior to the establishment of MASB by the Councils
of MIA and MACPA. The standards were known as the
MASB Standards.
Beginning October 2005, MASB changed the name of its
standards to Financial Reporting Standards (FRS).

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Development of Financial
Reporting in Malaysia (cont.)

The Two Tier Reporting Framework was introduced in

February 2006.
Smaller companies which are called Private Entities
are allowed to choose between applying the FRS or the
Private Entity Reporting Standards (PERS).
Other companies which are not private entities will use
the FRS.

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Development of Financial
Reporting in Malaysia (cont.)

A private entity is a private company, incorporated under the

Companies Act 1965, and is not required to prepare or lodge
any financial statements under any law administered by the
Securities Commission or Bank Negara Malaysia;

Disclosure requirement under PERS is relatively simpler

compared to FRS and considered less taxing for smaller
companies.

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Development of Financial
Reporting in Malaysia (cont.)

On 1 August 2008, the FRF and MASB announced their plan to

fully converge with IFRS beginning 1 January 2012.

Inline with the convergence plan, MASB issued a new set of

MASB approved standards called the Malaysian Financial
Reporting Standards (MFRS) to replace the FRS beginning 1
January 2012.

On 14 February 2014, the FRF and MASB announced the

introduction of the Malaysian Private Entity Reporting
Standards (MPERS) which shall replace the PERS beginning 1
January 2016.

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Development of Financial
Reporting in Malaysia (cont.)

The MPERS is similar to the set of mini IFRS issued by IASB for
small and medium-sized entities known as the IFRS for SMEs,
with slight changes made to the IFRS for SMEs for it to become
MPERS in order to incorporate Malaysias business environment.

Beginning 1 January 2016, Private Entities may choose to apply

the MFRS or MPERS.

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Private Entity (PE) or

Non-Private Entity (Non PE)
Example 1

Public
company
(Non PE)

Maybank Berhad
(Parent company)

Subsidiary
company
Maybank
Islamic
Berhad
Public company
(Non PE)

Subsidiary
company

Subsidiary
company

Maybank Asset
Managemant
Sdn Bhd
Private company
(Non PE)

Etiqa International
Holding Sdn Bhd
Private company
(Non PE)

Use MFRS
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Private Entity (PE) or

Non-Private Entity (Non PE)
Adabi Consumer Industries
Sdn Bhd
(Parent company)

Example 2

Subsidiary
company

Subsidiary
company
Product
Optima
Sdn Bhd
Private company
(PE)

Adabi
Distribution
Sdn Bhd
Private company
(PE)

Private
company
(PE)
Subsidiary
company

Baktisan Pertama
Sdn Bhd
Private company
(PE)

Use either MFRS or PERS/MPERS

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Reporting Entity
Reporting Entity
All entities such as sole proprietorship, partnership or corporation that prepare financial
reports and submit to the regulatory bodies responsible for monitoring their activities.

Sole Proprietorship
Owned

by a single owner
Registered under the owners
personal name, such as Zamani
Enterprise or a trade name, such
as Bangi Kopitiam
Not required to submit financial
reports to any regulatory bodies
Owners of sole proprietorships
submit financial statements of
their business to the Inland
Revenue Department to
determine their taxable income

Partnership
Owned

by two or more individuals,

but not exceeding twenty
Governs by the Partnership Act
1961 and typically has a partnership
agreement that sets out the terms
and conditions of the partnership
Subjected to minimal rules and
regulations
Owners of a partnership submit
financial statements of their business
to the Inland Revenue Department to
determine their individual taxable
income

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Company
A business

owned by two or
more individuals
Established as a separate
legal entity under the
Companies Act 1965
A shareholder of a company
has limited liability and the
ownership is transferable
A company is required to
submit its annual report to the
Companies Commission of
Malaysia and several other
regulatory bodies
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Regulatory and
Professional Bodies
Regulatory bodies
A regulatory body is an organization responsible for monitoring the activities of entities or individuals.
Regulatory bodies are formed or given power under the terms of an Act.
Their activities include imposing requirements, restrictions and conditions, setting standards in relation to any activity, and securing compliance, or
enforcement.
Examples of regulatory bodies are Securities Commission Malaysia, Bank Negara Malaysia and Malaysian Institute of Accountant.

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Regulatory and
Professional Bodies (cont.)
Professional bodies
Professional bodies plays a role in supporting the financial reporting process.
Examples of professional bodies are MICPA, ACCA, CIMA and CTIM.

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Malaysian
The MASB is established
under the Accounting
Financial Reporting Act 1997, as an
independent authority
to develop and
promote high quality accounting
Standards
Board
and reporting standards that are consistent with international best
practices for the benefit of users, preparers, auditors and the public in
Malaysia.
The MASB also contributes directly to the international development of
financial reporting.
The MASB comprises eight members appointed by the Minister of
Finance, and includes the Chairman of the MASB, the Accountant-General
and six other members who are well-versed and experienced in financial
accounting and reporting, and in one or more of the fields of accountancy,
law, business and finance. In addition, the Minister of Finance has
appointed three advisors to the MASB, each from the Bank Negara
Malaysia, the Securities Commission and the Registrar of Companies.

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The MASB, together

with the
Financial Reporting
Malaysian
Accounting
Foundation (FRF),
make up Board
the frameworks
Standards
(cont.) for financial
reporting in Malaysia.

Although the FRF and MASB are charged with the

responsibilities of developing accounting and financial
reporting standards, the power to ensure compliance rests
with other bodies such as the Securities Commission
Malaysia, Bank Negara Malaysia, Bursa Malaysia and the
Companies Commission of Malaysia.

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Securities Commission
Malaysia

The Securities Commission Malaysia was formed on 1

March 1993 under the Securities Commission Act 1993.
It is a self-funding statutory body with authority to carry out
investigation and with enforcement power over entities
whose securities are issued to the market.
It is entrusted with responsibilities to systematically develop,
regulate and provide a safe investment platform for
capital market investors which include protecting investors
rights against fraud and misconducts.

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Bank Negara Malaysia

Bank Negara Malaysia is the central bank of Malaysia.

It was established on 26 January 1959 under the Central
Bank of Malaysia Act 1958.
On 25 November 2009, Central Bank of Malaysia Act 1958
was replaced with the Central Bank of Malaysia Act 2009.
BNM is a wholly owned statutory body of the Malaysia
government with a current paid-up capital of RM100 million,
and reports directly to the Ministry of Finance on matters
pertaining to monetary and financial sector policies.

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Bank Negara Malaysia

(cont.)

The central role of the BNM includes practicing prudent

monetary policy to ensure low and stable inflation rate
and sustaining the purchasing power of the Malaysian
Ringgit.
BNM is also responsible for instituting stable financial
system and developing the financial sector in Malaysia.

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Bursa Malaysia

Bursa Malaysia is an integrated Exchange with a frontline

key role as a capital market regulator, responsible for
ensuring orderly, transparent and systematic
administration of securities and derivatives markets traded
in the Exchange.
The history of the formation of Bursa Malaysia dates back to
the year 1930, when the first formal securities business
organization in Malaysia called Singapore Stockbrokers
Association was established and re-registered in 1937 as the
Malayan Stockbrokers Association.

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Bursa Malaysia (cont.)

On 14 April 2004, KLSE was renamed Bursa Malaysia

Berhad and demutualized to enhance its competitive
position and efficiency in the exchange sector, in response to
global trends and demands for the Exchange, to be
customer-driven and market-oriented. Subsequently, on 18
March 2005, Bursa Malaysia was listed on the Main Board of
the Bursa Malaysia Securities Berhad.

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Companies Commision of
Malaysia

The Companies Commission of Malaysia or Suruhanjaya

Syarikat Malaysia is a statutory body formed in 2002
under the Companies Commission of Malaysia Act 2001.
It serves as an agency to incorporate companies and
register businesses.
It also governs the business information provided by
companies to the public. It plays an important role to
improve corporate governance practices in Malaysia.

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Accountant Generals
Department of Malaysia

The Accountant Generals Department of Malaysia or

Jabatan Akauntan Negara Malaysia (JANM) was
established with the creation of the Accountant General
position under the Ministry of Finance, before Malaysia
achieved its independence.
The JANM manages the nations accounting and
financial reporting aspects, especially in accordance with
the Financial Procedures Act 1957 (revised 1972),
Unclaimed Monies Act 1965 and the Pension Fund Act
1991.

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The Malaysian Institute of

Accountants
The Malaysian Institute of Accountants (MIA) is a statutory body
established under the Accountants Act 1967, with the aim to
regulate and develop the accountancy profession in Malaysia.
The MIA regulates practitioners who are accountants.
The Accountants Act 1967 provides that only registered members
of the MIA can hold themselves as accountants.
The MIA's responsibilities include education and quality
assurance, as well as enforcement which are carried out to ensure
that credibility of the profession is maintained and public interest is
continuously upheld.

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The Malaysian Institute of Certified Public Accountants (MICPA)

formerly known as Malaysian Association of Certified Public
Malaysian
Institute
ofby
Accountants wasThe
formed
in 1958, as a company
limited
guarantee underCertified
the CompanyPublic
OrdinanceAccountants
1940.
Its involvement as technical advisory to Malaysian regulatory
and Other Professional Bodies
bodies has played a key role in the development and organization
of business and financial reporting environment in Malaysia.
For more than five decades, the Institute has been providing a
platform for accounting graduates to further their accounting
profession career as certified public accountants through its
professional examination and membership.

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