logo
MASB issues comprehensive standard on financial instruments and limited amendments (17 November 2014)

The Malaysian Accounting Standards Board (MASB) today has issued the following pronouncements:

(1) Malaysian Financial Reporting Standards (MFRS Framework)

  •  
MFRS 9 Financial Instruments (IFRS 9 Financial Instruments as issued by IASB in July 2014)
  •  
Equity Method in Separate Financial Statements (Amendments to MFRS 127)
  •  
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to MFRS 10 and MFRS 128)
  •  
Annual Improvements to MFRSs 2012–2014 Cycle 

(2) Financial Reporting Standards (FRS Framework)

  •  
FRS 9 Financial Instruments (IFRS 9 Financial Instruments as issued by IASB in July 2014)
  •  
Equity Method in Separate Financial Statements (Amendments to FRS 127)
  •  
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to FRS 10 and FRS 128)
  •  
Annual Improvements to FRSs 2012–2014 Cycle

They are word for word that of the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).

ABOUT THE PRONOUNCEMENTS

MFRS 9 Financial Instruments (IFRS 9 as issued by IASB in July 2014)

MFRS 9 is equivalent to IFRS 9 Financial Instruments issued by the IASB in July 2014. The Standard replaces earlier versions of MFRS 9 and introduces a package of improvements which includes a classification and measurement model, a single forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting.

Classification and Measurement [new measurement category added]

Classification determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. MFRS 9 introduces an approach for classification of financial assets which is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, thereby removing a source of complexity associated with previous accounting requirements.

In essence, if a financial asset is a simple debt instrument and the objective of the entity’s business model within which it is held is to collect its contractual cash flows, the financial asset is measured at amortised cost. In contrast, if that asset is held in a business model the objective of which is achieved by both collecting contractual cash flows and selling financial assets, then the financial asset is measured at fair value in the balance sheet, and amortised cost information is provided through profit or loss [FVOCI]. This business model was added in this MFRS 9. If the business model is neither of these, then fair value information is increasingly important, so it is provided both in the profit or loss and in the balance sheet [FVTPL].

Impairment [new expected loss impairment model]

During the financial crisis, the delayed recognition of credit losses on loans (and other financial instruments) was identified as a weakness in existing accounting standards. MFRS 9 introduces a new, expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. The model requires an entity to recognise expected credit losses at all times and to update the amount of expected credit losses recognised at each reporting date to reflect changes in the credit risk of financial instruments. This model is forward-looking and it eliminates the threshold for the recognition of expected credit losses, so that it is no longer necessary for a trigger event to have occurred before credit losses are recognised.

Hedge accounting [unchanged from November 2013]

MFRS 9 introduces a substantially-reformed model for hedge accounting, with enhanced disclosures about risk management activity. The new model represents a significant overhaul of hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements. In addition, as a result of these changes, users of the financial statements will be provided with better information about risk management and the effect of hedge accounting on the financial statements.

The new requirements were first published in November 2013 by the IASB and are unchanged in the IFRS 9 issued by IASB in July 2014.

Pending the completion of the project on “macro hedging”, the IASB decided to allow an accounting policy choice to apply either the hedge accounting model in IFRS 9 or IAS 39 in its entirety, with the additional choice to use the IAS 39 accounting for macro hedges if applying IFRS 9 hedge accounting.

Mandatory effective date

MFRS 9 is effective for annual periods beginning on or after 1 January 2018. Entities can however choose to apply MFRS 9 before then. From February 2015, entities newly applying MFRS 9 will need to apply the version published in November 2014. This means that entities would need to apply the classification and measurement, impairment and hedge accounting requirements.

As an exception to this, prior to January 2018, the own credit changes can be applied at any time in isolation without the need to otherwise change the accounting for financial instruments.

Equity Method in Separate Financial Statements (Amendments to MFRS 127)

The Amendments allow a parent and investors to use the equity method in its separate financial statement to account for investments in subsidiaries, joint ventures and associates, in addition to the existing options. The Amendments are effective on 1 January 2016.

The Amendments respond to requests that the IASB had received during its inaugural public agenda consultation in 2011. The IASB believes the Amendments will help some jurisdictions move to IFRSs for separate financial statements.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to MFRS 10 and MFRS 128)

The Amendments address an acknowledged inconsistency between the requirements in MFRS 10 Consolidated Financial Statements and those in MFRS 128, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. 

The main consequence of the Amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not), as defined in MFRS 3 Business Combinations. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

The Amendments apply prospectively and are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted.

Similar amendments are also made to FRS 10 Consolidated Financial Statements and FRS 128 Investments in Associates and Joint Ventures in a document entitled “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to FRS 10 and FRS 128)”.

Annual Improvements to MFRSs 2012–2014 Cycle

Annual Improvements to MFRSs 2012–2014 Cycle is identical to Annual Improvements to IFRSs 2012–2014 Cycle issued by the IASB. They are a collection of amendments to four MFRSs in response to five issues. All amendments are effective for annual periods beginning on or after 1 January 2016.

Standard Subject of amendment
MFRS 5 Non-current Assets Held for Sale and Discontinued Operations Changes in methods of disposal
MFRS 7 Financial Instruments:Disclosures Servicing contracts
Applicability of the amendments to MFRS 7 to condensed interim financial statements
MFRS 119 Employee Benefits Discount rate: regional market issue
MFRS 134 Interim Financial Reporting Disclosure of information ‘elsewhere in the interim financial report’

 

Similar amendments are also made to FRSs.

Amendments to MFRS 5

The Amendments introduce specific guidance in MFRS 5 for when an entity reclassifies an asset (or disposal group) from held-for-sale to held-for-distribution to owners (or vice versa), or when held-for-distribution is discontinued.

Amendments to MFRS 7

The Amendments provide additional guidance to clarify whether servicing contracts constitute continuing involvement for the purposes of applying the disclosure requirements of MFRS 7.

The Amendments also clarify the applicability of Disclosure–Offsetting Financial Assets and Financial Liabilities (Amendments to MFRS 7) to condensed interim financial statements.

Amendment to MFRS 119

The Amendment clarifies that the high quality corporate bonds used to estimate the discount rate for post-employment benefit obligations should be denominated in the same currency as the liability. The Amendment also clarifies that the depth of the market for high quality corporate bonds should be assessed at a currency level.

Amendment to MFRS 134

The Amendment clarifies the meaning of disclosure of information ‘elsewhere in the interim financial report’ as used in MFRS 134. The Amendment requires such disclosures to be given either in the interim financial statements or incorporated by cross-reference from the interim financial statements to some other statement that is available to users of the financial statements on the same terms as the interim financial statements and at the same time.

Electronic copies are available for download at MASB website. Printed copies of Amendments to MFRSs / FRSs are available free of charge and printed copies of MFRS 9 are available for sale at MASB office.

The “Notice of Issuance” can be downloaded here.

END

 

For enquiries, please contact:

Malaysian Accounting Standards Board
Suites 5.2, Level 5

Wisma UOA Pantai
No. 11, Jalan Pantai Jaya
59200 Kuala Lumpur

Tel: 03-2240 9200

Fax: 03-2240 9300

Email: technical@masb.org.my