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The last two decades have seen the accounting development in Malaysia as lack of improvement and stringent compliance on companies operating in Malaysia. Although the Malaysia economy has been opened up to more investment from local and foreign due to globalization, it is undeniable that it is still in the process of upgrading as accounting professions have increased with heightening emphasis upon the importance of accounting standards and appropriate accounting practices. Basically, the field of legal, institutional, regulatory, international changes, accounting principles, etc plays a significant role in the development of accounting in Malaysia.
A tendency towards adopting the style of accounting institutions and practices of western developed countries that colonized the developing countries has been dominated in the latter countries (Ali, Lee & West, 2008). Apparently, the Malaysian accounting development is strongly influenced by the accounting framework that the United Kingdom (UK) applied.
Summary of The British Colonial Presence-The Alliance and Independence
The British colonial presence can be considered as a key phrase that brought about the noteworthy influences and changes on the Malaysia's history. Such influences and changes can be traced back to the 1785, the time that the approval of occupying island of Penang and building fort in there is granted to the Francis Light, a former British naval officer and private trader, from the sultan of Kedah. In 1786, Light established the settlement of George Town on the island of Penang. The contribution of turning Penang Island into a state with free-trade policy that Light made helps the Malacca to be the premier trader center in the Malay Peninsula. Presence of British colonial is continuously expanded by the official of British East India Company, Thomas Stanford Raffles, and Tengku Hussein, a contender for the throne of Malacca, on the Malay Peninsula in 1819. An agreement of consenting the British settles and establishes trading port in Singapore is reached between Stanford Raffles and Hussein in exchange for the formal recognition of Hussein as the sultan of Malacca. The advantageous geographic location and free-trade policy that Singapore possesses assist in attaining the astonished financial success. In 1945, British resumed its control for the purpose of establishing themselves as a durable administrative power. Because of the ethnic tensions often influence political arrangements, therefore, British proposed and implemented the Malayan Union plan in 1946. However, the problem of ethnic tensions still exists even though the British has taken action to promote the national unity among different ethnic groups. An Alliance partnership is established and which comprises United Malays National Organization (UMNO), Malaysian Chinese Association (MCA) and Malayan Indian Congress (MIC) from 1952 to 1955. In fact, the Alliance won the municipal, local and the federal elections and thus emerged as an agent for unified Malayan interests. Malaya gained independence from British in 1957 (Library of Congress, 2006).
The Influences between the Malaysian History and Environmental Factors in Accounting Field
The independence of Malayan State since 1957 has transformed the Malayan economy into a new era of development. History of accounting system in Malaysia marks its opening of the use of accounting standards and practices after the pullout of Britain with subsequent accounting development significantly influenced by the after-effect of British colonization. The Malaysian Association of Certified Public Accountants (MACPA) has became the first accounting bodies to be established in the Malayan State in 1958 with the aim of advancing accounting professions in all aspects and to educate the appropriate accounting practices and standards to businesses in Malaysia. Subsequent efforts have also been made in line with the British colonial effect as the government has passed the Companies Act 1965 and Accounting Act 1967 that are both based on the laws and regulations developed in the UK during the 1960's. Apart from this, compromise of the non-Malay rights could not be hindered by prejudicial legislation or governmental intervention is reached because of the British colonization. As a member of the Commonwealth, it is almost inevitable that Malaysia is highly influenced by any changes in the legal, economy, culture and politics environment of UK. This is especially true as the Malaysian Accounting Standards Board (MASB) constantly reviews and updates the Malaysian accounting standards if the accounting standards in UK have made any amendments.
Culture and Classification
The cultural-based theory of the Hofstede-Gray framework is applied for the aim of explaining the differences or deficiencies in accounting practices. In fact, the Hofstede-Gray theory is widely used by a number researcher as the accounting values and the cultural dimension is associated with the theory. Based on the surveys that the researchers conducted, it is noted that the Gray's approach is probably the most well-known exponent of the cultural approach to understand the nature of accounting practices, while the Hofstede's approach is just one of a number of ways to study culture. The use of the Hofstede-Gray theory helps the researchers to understand the way the national accounting practices are formed (Parera, 1989) (Gerhardy, 1990) and to determine normatively whether the accounting techniques are appropriate to the particular countries (Baydoun & Willet, 1995). According to Figure 1, it can be seen that the Hofstede-Gray theory is a combination of, Gray's accounting values which include professionalism, uniformity, conservatism and secrecy with the Hofstede's cultural values which comprise power distance, uncertainty avoidance, individualism and masculinity.
Basically, there are two different perspectives to determine the culture and classification, to be precise, one from the Gray perspective and another from Hofstede. From the perspective of Gray, Malaysia is a country with high statutory control and uniformity in terms of authority and enforcement. While from the view of measurement and disclosure, Malaysia is a state with high secrecy and conservatism and which can be evidenced from Figure 2 and Figure 3 respectively. However, Malaysia scored high on the power distance and masculinity, yet scored low on the uncertainty avoidance and individualism on the Hofstede's standpoint.
According to the survey conducted by Itim (2012), Malaysia scored 104 on the dimension of power distance. It can be explained that hierarchical order is acceptable for the Malaysian and hence inherent inequalities as well as centralization are possible to be reflected, but leadership and gaps of authority are challenging if there is hierarchy in the organization. Furthermore, with a score of 50, Malaysia can be considered as a masculine society, a highly success-oriented and driven. Generally, equity, competition and performance are the main concern in the masculine society. For instance, attitude of ferocious and no holds barred battles might happen between candidates during the election. Moreover, Malaysia is a low preference for uncertainty avoidance as it scored only 36. In such dimension, there is no any ambiguous or unknown situations exist due to the culture of relaxed attitude permeates. Besides, a mark of 26 is scored and it means that Malaysia is a collectivistic society. Therefore, a low degree of interdependence manifests that there is a close long-term commitment among members and the culture of loyalty is the uppermost concern and overrides most of the societal rules and regulations.
Regulatory Framework of Accounting
Regulatory framework of accounting is established for the purpose of providing high quality and reliable information to satisfy the needs of external users. In fact, it plays a major role to ensure that the financial statements are prepared by the organizations in accordance with the rules and regulations (Collis & Hussey, 2007). In Malaysia, existing companies are required to comply with the rules and regulations such as Companies Act 1965, Financial Reporting Act 1997, Accounting Standards, Income Tax Act 1967, the Securities Commission Guidelines 1995, Kuala Lumpur Stock Exchange (KLSE) Listing Requirement and Bank Negara Malaysia Guidelines, etc during the process of preparing and presenting financial statements. Thus, it is obvious that regulatory framework is developed in the field of accounting profession, company law, auditing, taxation as well as stock exchange and implementation is taken in order to provide a true and fair view.
It is known that there are four professional accounting bodies in Malaysia, namely, Malaysian Institute of Accountants (MIA), The Malaysian Institute of Certified Public Accountants (MICPA), Malaysian Accounting Standards Board (MASB) and Financial Reporting Foundation (FRF). Fundamentally, MIA is a statutory accounting profession which is established according to the Accountants Act 1967. The establishment of such accounting body is to regulate and develop the accountancy profession in Malaysia. Hence, MIA is responsible to meet and maintain the education, quality assurance as well as enforcement for the aim of ensuring that credibility of the profession is maintained and the public interest is continuously upheld. In addition, MIA also has the ability of monitoring the international and local accounting trends and developments as well as consulting regularly with the government and regulatory bodies. According to the MIA Official Website, it is noted that MIA not only plays a significant role in the Malaysia, but also international and regional arena. Evidence of the involvement in ASEAN Federation of Accountants (AFA) and International Federation of Accountants (IFAC) to develop and advance the global accounting professional bodies can be proved. Furthermore, such involvement also enables MIA to work for the betterment by bringing home to the latest developments in the overseas. Indeed, there is a requirement provided under the provisions of the Act and stated that the person who is registered as a member of MIA only can be recognized as an accountant (MIA Official Website).
On the other hand, MICPA is the accounting profession who is established in 1958 according to the Companies Ordinances and is formally called as "The Malayan Association of Certified Public Accountants"; while MASB is established as an independent authority according to the Financial Reporting Act 1997. The MASB and the FRF make up the new framework of financial reporting in Malaysia. Basically, FRF has no direct influence on standard setting as such duty is solely rest on MASB. Therefore, FRF is responsible for the oversight of, such as MASB's performance and initial source of view for proposed standards.
Companies Act 1965 (CA 1965) is published by the Commissioner of Law Revision yet the Company Commission of Malaysia enforces and administers it.
Hofstede's Cultural / Societal Values
Gray's Accounting Values
Source: Baydoun and Willet (1995)
Figure 2: Authority and Enforcement
Source: Willet, (1997)
Figure 3: Measurement and Disclosure
Source: Willet (1997)
1984 MACPA issued the first Malaysian Accounting Standard