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.
If you need assistance with writing your essay, our professional essay writing service is here to help!Find out more
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 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.
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 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. Because of being as a member of International Auditing Practices Committee (IAPC), therefore, MIA is responsible to support the IFRC’s work and also determine International Accounting Standards (IAS) as the basis of approved standards in the auditing field of Malaysia (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. Moreover, there is also a professional body for company secretary and administration, that is, Malaysian Association of the Institute of Chartered Secretaries & Administrators (MAICSA). Besides, the Malaysian Association of Accounting Administrators is the profession who is formed to recognize the two-tiered of professional accountant and is sponsored by MIA.
Companies Act 1965 (CA 1965) is published by the Commissioner of Law Revision yet the Company Commission of Malaysia enforces and administers it. Basically, it is the principle legislation developed to govern the formation and procedure of companies existing in Malaysia. The CA 1965 not only provides formal rules on accounting such as presenting financial statements in a true and fair view, but also enacts a provision to protect the rights and interests of shareholders and investors. For example, according to the section 167 of CA 1965, all of the Malaysian existing companies are required to keep and maintain proper accounting records so as to have the ability to explain companies’ transactions and financial position sufficiently and subsequently enables the true and fair view from all of the accounting information. Apart from this, the requirement of preparing accounts and reports based on the Approved Accounting Standards (AAP) that MASB issued as well as complying with the disclosure requirements of the Ninth Schedule of CA 1965 are developed for every company for the purpose of delivering the companies’ affairs with a true and fair view.
According to the CA Malaysia, there is a need for the appointment of approved auditors to audit the companies’ accounts and present true and fair view as well as stress on the auditors’ independence for companies that are operating in Malaysia and registered under the Companies Commissioner of Malaysia. A standard setting body with the ability of functionally independent is established by MIA and which is operating under the assistance of the latter accounting profession and is called the Auditing and Assurance Standards Board (AASB). AASB plays an important role in the development of accounting and auditing field in Malaysia. It can be evidenced from the need of promoting and ensuring high quality professional standards to be adhered and subsequently lead to the international convergence of standards. In addition, AASB also has the responsibility of the consideration for the new or revised International Auditing and Assurance Standards that International Auditing and Assurance Standards Board (IAASB) issued for Malaysia to adopt. Furthermore, AASB is required to review and deliberate any issues and developments that are derived from other jurisdictions that is relating to auditing practices in Malaysia. Moreover, the Audit Act 1957 also states that there is a close link between accounting and auditing, for instance, auditors are responsible to audit accounts that are prepared by professional bodies.
It is generally known that types of tax in Malaysia include personal and corporate income tax, goods and service tax (GST) real property gains tax (RPGT), etc. In fact, Malaysia is a self-assessment tax regime (SAS) as it is shown in the Year of Assessment 2010 (YA 2010) that different classes of people is subject to different percentage of tax rate. Basically, the establishment of Income Tax Act 1967 (ITA 1967) is to determine the chargeable income and the tax payable and ascertain whether it is reasonable to the tax payers. The imputation system is used by companies to compute the tax. In fact, taxes paid by the companies on its profits are used to frank dividends paid to shareholders. In Malaysia, the RPGT is re-introduced and which is stated in the Real Property Gains Tax (Exemption) (No. 2) Order 2007, only for the disposal of real property held for five years or below is subjected to the RPGT of 5% and it is only applicable to the capital land transaction In terms of the GST, it is the indirect tax or value added tax (VAT) that imposed on both local and imported goods and services. It is proposed by government for the purpose of replacing sales and service tax, but implementation has not been taken. It is noted that taxation is considered as parts of the business expenditure. Thus, it is important for the companies to comply with the ITA 1967 during the process of preparing and presenting the financial statements as well as the statement of computation of chargeable income. Companies are required to prepare both statements due to the double deduction, non-taxable, non-deductible and deductible issues.
KLSE is the stock exchange holding company in Malaysia and is developed in accordance with the section 15 of the Capital Markets and Service Act 2007. In 2004, it is renamed and is currently called as Bursa Malaysia Berhad. The establishment of Bursa Malaysia Berhad is to allow the activity of trading of shares can be provided in the market and subsequently assists in enhancing competitive position as well as responding to global trends. There is no authority and legal power for the Bursa Malaysia Berhad to execute compliance. Hence, penalty of reprimanding, suspending and de-listing in the stock exchange would be imposed to the errant companies. For example, listing companies have to follow the rules and regulations of the clause 335 of the listing manual during the process of preparing and presenting companies’ annual audited accounts and making sure that all of the companies’ accounts are prepared based on the CA 1965 as well as the AAS. The listing requirements are set by the Bursa Malaysia Berhad in order to regulate the public limited companies (PLC) in terms of the submission of reports and additional disclosure. Apart from this, there is also another requirements which established by the Bursa Malaysia Berhad for the purpose of enhancing the disclosure of information on corporate governance via the promotion of greater transparency and accountability.
In 19th November 2011, MASB established the Malaysian Financial Reporting Standards (MFRS) for the purpose of bringing the Malaysian accounting standards to be fully International Financial Reporting Standards (IFRS) – compliant. Basically, MFRS framework make up of the existing as well as the new and revised accounting standards that are issued by International Accounting Standard Board (IASB). The primary objective of such convergence is to reduce the gap between Financial Reporting Standards (FRS) between the IFRS and subsequently facilitate the transparency and the comparability of the companies’ financial statements. However, there is several inconsistency exist such as IAS 41 Agriculture and IFRS 9 Financial Instruments and hence are not adopted by the MASN during the process of narrowing the gap between FRS and IFRS.
In terms of the presentation of financial statements, MFRS 101 or FRS 101 stated that PLC that operating in Malaysia is required to prepare and disclose the financial statements including, statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and the notes to account. In fact, the MFRS 101 or FRS 101 is the same with the IAS 1, which is the presentation of financial statements.
Basically, MFRS 127 or FRS 127 is established for the purpose of enhancing the relevance, reliability and comparability of the information in the parent’s separate financial statements as well as the group’s consolidated financial statements. In Malaysia, a requirement of using uniform accounting policies for reporting is set for the group to follow. Furthermore, there is a need for entity to follow the IAS 39 Financial Instruments: Recognition and Measurement if it is required to present separate financial statements or investments in subsidiaries by the local regulations. The MFRS 127 or FRS 127 is consistent with the IAS 27, Consolidated and Separate Financial Statements.
In 1974, Malaysia’s top 80 firms in the KLSE have half of it shares owned by foreigners while the other half is mostly controlled the Malaysian Chinese. However, government has gradually transformed these firms into stated owned enterprises which have almost 40% of the Malaysia’s market shares owned by the government. Major changes came in during the 1990s where most of these state owned companies have went into privatization. Till now, companies have been developed into several forms mainly the sole proprietor that business is solely owned by an individual, partnership where two or more persons jointly owned the business with unlimited liability, private limited company that must at least have 2 and maximum of 50 members, public limited company that is able to be listed in KLSE to offer subscription of shares to public.
Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.View our services
Foreign currency translation has been one of the uprising factors that companies in Malaysia are needed to take note of because of the increase and extensiveness of globalization in the business context. Foreign currency translation can be defined as the conversion of currency accounting figures from one country to another due to differences financial reporting requirements. This means that different countries would have different functional currency and multinational companies are required to translate its foreign operations or transactions that use functional currency into the required presentation currency for its financial statement. Malaysia needs to pay extra attention to the accounting development in relation to the aspect because Malaysia is one of the largest palm oil and crude oil producer which both are mainly transacted in USD around the world. Most of these companies would use USD as their functional currency which induces translation risk when it is converted into the presentation currency. Thus, the accounting standard of foreign currency translation which is MFRS 121 will take into account the effect of the currency translation changes or risk that the companies faced with the use of appropriate recognition and measurement method developed by IFRS.
It is a known fact that the accounting development in Malaysia over the last 15 years has been based on the accounting principles that MASB adopted while recent accounting practices has seen accounting profession exercising its responsibilities that are comply with MFRS. MFRS is nevertheless the latest accounting principles that Malaysia accounting is accounted for which equivalents with IFRS and apply in any accounting period from or after 1 January 2012. This marks the first time adoption of MFRS for annual periods in Malaysia and is an effort by MASB to implement Malaysia’s accounting policy to be in line with the convergence project initiated and developed by IASB and FASB. The previous FRS is then replaced by MFRS to place full convergence on Malaysia accounting standard in order to cope with globalisation and to ensure Malaysia’s business is on the same field at international level. Some major elements of MFRS have been listed below.
MFRS 8 is adopted from IFRS 8 that has replaced IAS 14 of Segment Reporting. The main change made is on its requirement of segment identification and the measurement and disclosure of operating segment information. Any company in Malaysia that adopted MFRS 8 will automatically be considered as adopting the international accounting standard of IFRS 8. This particular standard has provide the definition of an operating segment that qualifies in the financial statement and its identification is required to be based on the company internal report that assessed and reviewed the allocation of resources and performance of that segment as according to the latest changes. Besides, the standard also provides the measurement purpose of the amount of operating segment recorded which is for resources allocation and performance measurement purposes of the operating segment. Lastly, the disclosure of operating segment information must be based on the core principles that requires information disclosed to enable users to make informed decision on the nature and financial effect and its economic environment that the company is operating in order to aid Malaysian companies with operating segments operating in different locations or management.
MFRS 118 Revenue is one of the major elements that MASB has included by the adoption of IAS 18 that the IASB has issued and amended but is still under the development of the convergence project. Companies in Malaysia are considered adopting the international accounting standard of IAS 18 if MRS 118 is applied in its financial statement. The MFRS 118 mainly adopted from IAS 18 has included important guidance on accounting practices for revenue by stating the objectives, scope and definition of revenue. These are described in relation to the definition of income in the Framework of Preparation and Presentation of Financial Statements that stated revenue as an income that is in the ordinary course of business activities. The measurement and identification of revenue is also included while different type of revenue from sales of goods, rendering a service, royalties, interests and dividends are also provided with guidance and disclosure requirements where Malaysian companies mostly possessed of.
The MFRS 120 Accounting for Government Grant and Disclosure of Government Assistance is developed to aid business in Malaysia that needs to account for its grant or assistance provided by Government. It is equivalent to IAS 20 with the issuance and amendments made by IASB and Malaysian companies that adopt MFRS 120 will simultaneously comply with IAS 20. Basically, this standard provides guidance on the definition of government grant and government assistance and its disclosure on the presentation of grants that is relating to asset or income as well as its repayment method. The approaches and reasons for accounting of government grant using income approach or capital approach are also given in order for users to clearly identify the government intention on providing grant or assistance to any Malaysian companies. However, this standard does not apply to government grants covered by MFRS 141 Agriculture and other exceptions such as the participation of government in the ownership of business.
The MFRS 141 Agriculture apply on its own as evidenced in MFRS 120 that excludes this sector because agriculture is consider an essential sector for the Malaysia economy and accounting must placed its emphasis on it. MFRS 141 is adopted from IAS 41 and will be simultaneously applied to any Malaysia companies that adopt MFRS 141. This standard mainly prescribe how should the agriculture activities and biological assets should be accounted for, measured, presented, and disclosed by the management of the company. The measurement for biological assets is complicated and required specific guidance provided by the standards such as the initial recognition that requires the use of reliably measured fair value and any changes in fair value less costs to sell is included in profit and loss. Nevertheless, agricultural activities land is not covered under this standard but in IAS 16 while government grant for biological activities is included.
MFRS 121 is adopted from IAS 21 has that has made changes to replace SIC-11, SIC-19 and SIC-30 that mainly focuses on the definition and changes of reporting currency, functional currency and presentation currency. The adoption of MFRS 121 by any Malaysian companies would also means it is adopting IAS 21 in accordance to international standards. This is an important standard especially for companies that operates internationally or have dealings in different currency. Mainly, the standard applies its accounting treatment on any transaction and balances of foreign currencies but not derivative transaction and the translation of foreign operation into reporting currency or consolidation purposes. The method of reporting and disclosing the changes of foreign exchange transaction, balances or operations is also included.
The MFRS 123 is an equivalent standard to IAS 23 issued by the IASB while any Malaysian company that applies MFRS 123 is also considered as adopting the IAS 23. This standard has its scope limited mainly to borrowing costs that is relating to capital expenditure such as the acquisition, construction and production of an asset to expand business that is considered part of the cost to obtain the relevant assets. The standard has prescribed the definition of a qualifying assets and the eligibility of borrowing costs as capitalisation. The recognition and measurement for borrowing costs is also provided as well as the disclosure requirement relates to the borrowing costs amount and its capitalisation rate.
This relevant standard that relates to investment property is of importance to the Malaysia accounting practices due to the booming of property house prices that induces substantial increase in property for investment. MFRS 140 is developed in accordance to IAS 40 and many changes have been made to IAS 40 such as lease related property, the measurement approach of investment property and its disclosure requirement. Nevertheless, MFRS 140 provides guidance on the treatment for accounting of investment property in Malaysia and its disclosure method excluding accounting for lease property. Definition to include property as investment nature has been provided while measurement method of fair value model or cost model for investment property is prescribed clearly with distinction between initial recognition and post recognition.
The MFRS 112 is developed by the MASB based on IAS 12 with several revisions made on the recognition and disclosure of income taxes especially deferred tax assets and liabilities. Any Malaysian company that adopts MFRS 112 is equivalent to adopting IAS 12. The income tax in Malaysia is important especially in its treatment for tax consequences as tax evasion is considerably high while tax law is not stringently enforced. The standard provides guidance for accounting treatment of income taxes in Malaysia by prescribing the definition, recognition and measurement for current tax expenses, assets and liabilities with emphasis on future settlement of deferred tax assets and liabilities. Examples of income taxes accounting treatment has been provided in detail to assist users in understanding the complexity of income taxes while presentation and disclosure requirements are also included.
MFRS 124 mainly relates to the disclosure requirement of party that is related to the ordinary course of business which is adopted from IAS 24 that is issued and revised by IASB. Revisions has been made in 2009 to simplify the definitions and meanings of related party and allowed certain exceptions of related parties for disclosure especially when it is government-related. Basically, the standard requires the disclosure of transaction between the company and any related parties or any transaction between parents and subsidiaries. Most importantly, this would enable user to pay attention on the financial effect of related party transaction on the company’s financial position and profitability. The accounting development in Malaysia has never been lacking of frauds and embezzlements due to related party and this standard would provide enhanced transparency to prevent related party unauthorised transactions.
The MFRS 119 is an adoption of IAS 19 that is issued by IASB and Companies in Malaysia that uses MFRS 119 would automatically be considered to adopt the international standard of IAS 19. The purpose of MFRS 119 is to provide guidance for entity to be able to recognise appropriately the liability and expenses in relation to employee benefits provided by the entity. The accounting treatment provided by this standard encompasses recognition and measurement of short term and long term employee benefits, termination benefits and post employment benefits that includes defined contribution plan and defined benefits plan. Example illustrating accounting treatment has been provided clearly and the difference of recognition and measurement for the post employment benefits is also clearly stated. Undeniably, it is important to the Malaysia economy as the culture of Malaysia is considers to be emphasizing on the employee benefits that the company is able to provide recently.
It is undeniably that the Asian Financial Crisis in 1997 not only introduces the importance of CG but also exposes the weaknesses of Malaysian CG practice to the public attention. Since then, Malaysia has taken initiative to implement schemes such as High Level Finance Committee on CG (HLFC) which have published the Report on Corporate Governance that provides definition of CG in the Malaysia context and laid the basis for the establishment of Code of Corporate Governance in 2000. Although the code itself is not mandatory, it further became a consequence of the listing requirement in Malaysia to include statement of corporate governance to attract more foreign investment due to globalisation and enhance the Malaysia economic growth. Basically, the code has enacted a series of principles and best practices of CG to improve the regulatory framework of the CG in Malaysia. Nevertheless, the reforms of corporate governance in Malaysia still exist to enhance shareholders value and protect the interests of all stakeholders especially the minorities by improving the corporate ethics and accountability.
The Security Commission Malaysia has launched a five year CG Blueprint to provide a platform for CG in Malaysia to be enhanced through market and self discipline of company while promoting the standard of CG by instilling the essence of CG into the culture of company rather than a mere compliance requirement. AS a result, the Malaysian Code of Corporate Governance 2012 is developed with further recommendation on duties and responsibilities of board of directors, the management of shareholder expectation
Cite This Work
To export a reference to this article please select a referencing stye below:
Related ServicesView all
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: