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MASB issues an interim Standard on rate regulated activities and amendments to Standards (11 July 2014)

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

Malaysian Financial Reporting Standards (MFRSs)

  • MFRS 14 Regulatory Deferral Accounts
  • Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to MFRS 116 and MFRS 138)
  • Accounting for Acquisitions of Interests in Joint Operations (Amendments to MFRS 11)
 

Financial Reporting Standards (FRSs)

  • FRS 14 Regulatory Deferral Accounts
  • Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to FRS 116 and FRS 138)
  • Accounting for Acquisitions of Interests in Joint Operations (Amendments to FRS 11)

 

ABOUT THE PRONOUNCEMENTS

MFRS 14 Regulatory Deferral Accounts and FRS 14 Regulatory Deferral Accounts

MFRS 14 and FRS 14 are equivalent to IFRS 14 Regulatory Deferral Accounts issued by the International Accounting Standards Board (IASB). The objective of IFRS 14 is to enhance the comparability of financial reporting by entities that are engaged in rate-regulated activities.

Many countries have industry sectors that are subject to rate regulation. However IFRS (= MFRS) does not provide any specific guidance for rate-regulated activities. The IASB decided to issue IFRS 14 as it could likely remove a major barrier to adoption of IFRS by entities in jurisdictions whose existing generally accepted accounting principles (GAAP) allow the recognition of regulatory deferral account balances arising from provision of goods and services to customers at a price that is subject to rate regulation. As regulatory deferral account balances were not recognised in the MFRS financial statements or the FRS financial statements, the principles specified in IFRS 14 would have no impact to the Malaysian entities.

For the longer term, the IASB has a project to consider the broad issues of rate regulation and plans to publish a Discussion Paper on this subject in 2014. Pending the outcome of this comprehensive Rate-regulated Activities project, the IASB decided to develop IFRS 14 as an interim measure.

IFRS 14 permits first-time adopters of IFRS to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. An entity that already presents IFRS financial statements is not eligible to apply the Standard. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the Standard requires that the effect of rate regulation must be presented separately from other items.

MFRS 14 and FRS 14 are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted.


Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to MFRS 116 and MFRS 138)

The Amendments are equivalent to Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) issued by the IASB.

The Amendments provide additional guidance on how the depreciation or amortisation of property, plant and equipment and intangible assets should be calculated.

MFRS 116 Property, Plant and Equipment and MFRS 138 Intangible Assets both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset.

The Amendments to MFRS 116 prohibit revenue-based depreciation because revenue does not, as a matter of principle, reflect the way in which an item of property, plant and equipment is used or consumed. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component may be affected by inflation, which has no bearing upon the way in which an asset is consumed.

The Amendments to MFRS 138 introduce a rebuttable presumption that an amortisation method that is based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate (for the same reasons as the Amendments to MFRS 116). This presumption can be overcome only in the limited circumstances:

(a) in which the intangible asset is expressed as a measure of revenue, i.e. in the circumstance in which the predominant limiting factor that is inherent in an intangible asset is the achievement of a revenue threshold; or

(b) when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

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 116 Property, Plant and Equipment and FRS 138 Intangible Assets in a document entitled “Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to FRS 116 and FRS 138)”.


Accounting for Acquisitions of Interests in Joint Operations (Amendments to MFRS 11)

The Amendments are equivalent to Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) issued by the IASB.

The Amendments clarify that when an entity acquires an interest in a joint operation in which the activity of the joint operation constitutes a business, as defined in MFRS 3 Business Combinations, it shall apply the relevant principles on business combinations accounting in MFRS 3, and other MFRSs, that do not conflict with MFRS 11. Some of the impact arising may be the recognition of goodwill, recognition of deferred tax assets / liabilities and recognition of acquisition-related costs as expenses.

The Amendments do not apply to joint operations under common control and also clarify that previously held interests in a joint operation are not remeasured if the joint operator retains joint control.

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 11 Joint Arrangements in a document entitled “Accounting for Acquisitions of Interests in Joint Operations (Amendments to FRS 11)”.

Printed copies of Amendments to MFRSs / FRSs are available free of charge and printed copies of MFRS 14 are available for sale at MASB office.

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

 

Click here to download the "Notice of Issuance".