TITLE : FINANCIAL ACCOUNTING & REPORTING IN MALAYSIA.

PREFACE

The impetus to writing this book, entitled "Financial Accounting and Reporting in Malaysia" or FARM in short, started about five years ago in the course of my involvement with the Accounting and Auditing Standards Committees of the Malaysian Institute of Accountants (MIA) and the Malaysian Association of Certified Public Accountants (MACPA). The increase in the accounting pronouncements in the last decade has prompted a need to bridge the gap between current thinking of the accountancy profession and the practitioners, preparers, accountancy students and other users. A book that focuses on local accounting principles and practices was felt necessary to guide users on the preparation and presentation of financial statements that are in confommity with the accounting pronouncements.

Initially, the drafting progressed slowly mainly because there was no urgency to complete the book. However, in the more recent years, the need for the book became more apparent because there have been a number of significant changes in the accounting principles and practices, both internationally and locally. In the international scene, the International Accounting Standards Committee (IASC) has revised practically all the old lASs and issued revised lASs for operations by member bodies. Also, attention has shifted from the debacles of the goodwill and intangible asset accounting in the 1980s to the more contemporary accounting issues of derivatives and financial instruments.

The Malaysian accounting standard-setting bodies, notably the MIA and the MAaCPA, have also started to issue the revised lASs for application in Malaysia. Some of the revised lASs are still in the exposure draft stage in Malaysia at the time of writing this text. At the same time, some local accounting standards and technical guidelines have also been pronounced. In the course of my dealings and contact with the ever busy practitioners and preparers, many of them have expressed an urgency to update their knowledge on accounting principles, particularly in the light of these new pronouncements. A book, such as FARM, may thus help to fulfil this need.

The remarkable growth of the Malaysian economy has witnessed some significant changes in the corporate sector which have a direct bearing upon accounting principles and practices. For example, the emergence of large scale privatisation projects of the Govemment, such as the highway development projects, has created a need for some accounting guidance on toll concession rights. Similarly, the increase in the number of convertible securities, warrants, options and other derivative instruments, has called for an urgency to develop an accounting standard for these instruments. The temms of business acquisitions and mergers have also changed over the years. Contingencies based on profit guarantee and deferred considerations are nowadays structured in the temms of business combinations in Malaysia.

The Securities Commission (SC) has recently issued a set of guidelines entitled "Policies And Guidelines on Issue/Offer of Securities (1995)", which is applicable to public companies. In the guidelines, the SC has expressed great importance on due diligence and professional responsibilities of advisers, promoters, directors and management of public companies, and the maintenance of high standards of disclosures and accounting standards. Various requirements are specified for corporate disclosures, which generally, are aimed at a disclosure-based reporting that focuses on the usefulness of information. On accounting standards, the SC requires that the information disclosed must be in accordance with best practices (GAAPs) which are at least (emphasis added) those required under the Companies Act, 1965, and the lASs approved for operations in Malaysia/MASs issued by the relevant Malaysian accounting standard-setting bodies.

In view of these significant developments, more refined accounting principles and measures are required to enhance the utility of the financial statements issued by enterprises in Malaysia. This book explores some of the accounting issues of these developments, and wherever applicable, provides some thought on what the author considers as plausible accounting principles.

This book has thus been drafted with the accounting practitioners, preparers, students and other users in mind. It explains the principles and issues in each approved accounting standard and relates them to the actual practices in Malaysia. Where applicable, comparisons are also made with the statutory requirements, such as those of the Companies Act, 1965 and the Securities Commission's guidelines. In each accounting topic, the principles and issues are summarised, explained, demonstrated with illustrative questions and answers, qnd if applicable, followed by extracts of actual practices quoted from the published accounts of Malaysian companies. About 183 extracts from 100 published accounts of Malaysian companies and enterprises are used as examples in this book. In areas where therefore no local accounting pronouncements, references to overseas standards are made. Currentqtrends in reporting and the current thinking of the accountancy profession are also addressed in the book.

There are 22 chapters in this book and each chapter begins with some learning objectives to guide readers on what can be expected upon completion of the chapter. The format in the chapters are more or less standardized for the purpose of easy reference. The introduction in each chapter highlights the key accounting issues in the topic(s) concerned. This is immediately followed by a summarised discussion of the requirements of statutes and accounting standards related to the topic(s). Exposure drafts, which have been issued, are also discussed so that readers can compare theme with the existing standards. Thus, these serve as a 'quick reference' for users who want to know the mandatory accounting requirements relating to each area of accounting. The subsequent sections of each chapter discuss in detail, the accounting principles and issues and relate them to actual practices in Malaysia.

Chapter 1 provides an overview of the financial accounting and reporting practices in Malaysia. Chapter 2 focuses on income measurement and recognition. Chapters 3 to 7 relate to recognition and measurement of asset items. Chapters 8 to 11 focus on recognition and measurement of liability items. Chapters 12 and 13 are on equity and earnings per share respectively. Chapters 14 to 18 focus mainly on issues of business combinations and consolidated financial statements, including cash flow statements and foreign subsidiaries. Chapter 19 deals with disclosure issues of segmental information and related party relationships and transactions, i.e., the disclosure-based accounting standards. Chapters 20 and 21 address some of the accounting issues of the specialized industries in Malaysia, such as plantation, aquaculture, insurance, banks, unit trust funds and extractive industries. Last but not least, Chapter 22 looks at the voluntary and social reporting practices, interim reporting and the provision of forecast information. Issues which are of current interest are also discussed briefly and these include accounting for financial instruments, compound financial instruments such as warrants and convertibles, and aspects of hedging and hedge accounting. Plausible accounting principles in these areas are provided to enable users to gain an understanding of the practices in some of the more developed economies.

It is my hope that this book can assist practitioners, preparers and users to keep pace with the new pronouncements. Altematively, the book can be used as a reference for the local accounting and reporting practices because the examples provided in the book inXude some of the latest trends in reporting. Accountancy students in universities and those sitting for professional accountancy examinations should find this book particularly useful when relating accounting theories and principles to actual practices.

I hereby dedicate this book to my wife and children for without their patience and support, the drafting of this book would not have been possible.

TAN LIONG TONG Associate Professor Department of Accounting and Finance Faculty of Economics and Management Universiti Putra Malaysia

Date 1 July 1997