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MASB issues a new framework and amends existing standards (14 February 2014)

The Malaysian Accounting Standards Board (Board) has today issued:

(a) a new financial reporting framework for private entities, the Malaysian Private Entities Reporting Standard (MPERS); and
(b) amendments to several standards for non-private entities.

 

The MPERS

All private entities shall apply the MPERS for its financial statements beginning on or after 1 January 2016.

The MPERS is word-for-word the IFRS for SMEs issued by International Accounting Standards Board (IASB) in July 2009 except for the requirements on income tax and property development activities. To date, over 80 countries have adopted the IFRS for SMEs or announced plans to do so.

Datuk Ali Tan Sri Abdul Kadir, chairman of the Financial Reporting Foundation, the oversight body of the Board, said, “This is another landmark achievement in addition to convergence with IFRS in 2012. According to the SME Master plan (2012-2020), private entities (which primarily are SMEs) will be the key driver of economic growth to propel the country to a high income nation by 2020. Consequently it is timely to equip them with adequate IFRS-based knowledge as they gain prominence in the regional and global markets.”

MASB's chairman, Dato’ Mohammad Faiz Azmi said, “The adoption of MPERS is partly in response to the recommendation by the World Bank’s Report on the Observance of Standards and Codes (ROSC) - Malaysia (published in February 2012).The World Bank recommended that the review of the Private Entity Reporting Standards, which are based on 2003 version of international accounting standards,to be given priority as they are outdated and the changes to the accounting standards and reporting framework should be based primarily on the needs of the users of the financial statements and public interest considerations.The Board believes the MPERS meets the World Bank recommendations as it is primarily based on the IFRS for SMEs which was developed by IASB and does take into account the needs of non-listed entities in Malaysia.”

Maintenance of the MPERS

The IASB is currently undertaking a review of the IFRS for SMEs and has issued an Exposure Draft of proposed amendments in October 2013. The Board has also issued it to the Malaysian public for comments and interested parties are encouraged to provide their feedback to the Board. Similar to the MFRSs due process, the Board will not issue Exposure Drafts based on IASB final revisions. This approach enables the Board to update the MPERS requirements with that of the revised IFRS for SMEs. Nonetheless, the Board has the prerogative to amend or revise the MPERS when the need arises given that it is a standard distinct from the IFRS for SMEs. 

Amendments to standards for non-private entities

The amendments, which are word-for-word the International Financial Reporting Standards (IFRSs), are:

Malaysian Financial Reporting Standards (MFRSs)

·         MFRS 9 Financial Instruments (Hedge Accounting and amendments to MFRS 9, MFRS 7 and MFRS 139)

·         Defined Benefit Plans: Employee Contributions (Amendments to MFRS 119)

·         Annual Improvements to MFRSs 2010–2012 Cycle

·         Annual Improvements to MFRSs 2011–2013 Cycle

Financial Reporting Standards (FRSs)

·         FRS 9 Financial Instruments (Hedge Accounting and amendments to FRS 9, FRS 7 and FRS 139)

·         Defined Benefit Plans: Employee Contributions (Amendments to FRS 119)

·         Annual Improvements to FRSs 2010–2012 Cycle

·         Annual Improvements to FRSs 2011–2013 Cycle

 

ABOUT THE AMENDMENTS

MFRS 9 Financial Instruments (Hedge Accounting and amendments to MFRS 9, MFRS 7 and MFRS 139)

This pronouncement is identical to IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) issued by IASB.  

The new hedge accounting model together with corresponding disclosures about risk management activity were developed in response to concerns raised by preparers of financial statements about the difficulty of appropriately reflecting their risk management activities. The new model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk management activities in their financial statements. The most significant improvements apply to those that hedge non-financial risk, and they are expected to be of particular interest to non-financial institutions. As a result of these changes, users of the financial statements will be provided with better information about risk management and about the effect of hedge accounting on the financial statements. The MFRS 9 hedge accounting model, if adopted, applies prospectively with limited exceptions.

As part of the Amendments, an entity is now allowed to change the accounting for liabilities that it has elected to measure at fair value, before applying any of the other requirements in MFRS 9. This change in accounting would mean that gains caused by a worsening in the entity’s own credit risk on such liabilities are no longer recognised in profit or loss. The Amendments will facilitate earlier application of this long-awaited improvement to financial reporting.

The Amendments also remove the mandatory effective date from MFRS 9. However, an entity may still choose to apply MFRS 9 immediately. The new effective date will be decided when the IASB’s IFRS 9 project is closer to completion. 

Similar pronouncement is also issued as FRS 9 Financial Instruments (Hedge Accounting and amendments to FRS 9, FRS 7 and FRS 139) in the FRS Framework.

Defined Benefit Plans: Employee Contributions (Amendments to MFRS 119)

The Amendments are identical to Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) issued by IASB.

The Amendments provide a practical expedient in accounting for contributions from employees or third parties to defined benefit plans.

If the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the related service is rendered, instead of attributing the contributions to the periods of service. 

However, if the amount of the contributions is dependent on the number of years of service, an entity is required to attribute those contributions to periods of service using the same attribution method required by MFRS 119 for the gross benefit (i.e. either based on the plan’s contribution formula or on a straight-line basis).

The Amendments are effective for annual periods beginning on or after 1 July 2014 with earlier application permitted.

Similar Amendments are also made to FRS 119 Employee Benefits in a document entitled “Defined Benefit Plans: Employee Contributions (Amendments to FRS 119)”.

Annual Improvements to MFRSs 2010–2012 Cycle

Annual Improvements to MFRSs 2010–2012 Cycle is identical to Annual Improvements to IFRSs 2010–2012 Cycle issued by IASB. They are a collection of amendments to seven MFRSs in response to eight issues.

These Amendments are effective for annual periods beginning on or after 1 July 2014 with earlier application permitted.

Standard

Subject of Amendment

MFRS 2
Share-based Payment

Definition of vesting condition

The Amendment clarifies the definition of ‘vesting conditions’ by separately defining ‘performance condition’ and ‘service condition’ to ensure consistent classification of conditions attached to a share-based payment.

MFRS 3
Business Combinations

Accounting for contingent consideration in a business combination

  • The Amendment clarifies that when contingent consideration meets the definition of financial instrument, its classification as a liability or equity is determined by reference to MFRS 132 Financial Instruments: Presentation.

  • The Amendment also clarifies that contingent consideration that is classified as an asset or a liability shall be subsequently measured at fair value at each reporting date and changes in fair value shall be recognised in profit or loss.

MFRS 8
Operating Segments

Aggregation of operating segments

The Amendment requires the disclosure of judgements made in applying the aggregation criteria to operating segments. This includes a brief description of the operating segments that have been aggregated and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics.

Reconciliation of the total of the reportable segments’ assets to the entity’s assets

The Amendment clarifies that reconciliation of the total reportable segments’ assets to the entity’s assets is required if that amount is regularly provided to the chief operating decision maker.

MFRS 13
Fair Value Measurement

Short-term receivables and payables

The Amendment relates to the IASB’s Basis for Conclusions which is not an integral part of the Standard. The Basis for Conclusions clarifies that when IASB issued IFRS 13, it did not remove the practical ability to measure short-term receivables and payables with no stated interest rate at invoice amounts without discounting, if the effect of discounting is immaterial. 

MFRS 116 Property, Plant and Equipment

Revaluation method – proportionate restatement of accumulated depreciation / amortisation

The Amendment clarifies the accounting for the accumulated depreciation / amortisation when an asset is revalued. It clarifies that:

  • the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset; and

  • the accumulated depreciation / amortisation is calculated as the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses.

MFRS 138 Intangible Assets

MFRS 124
Related Party Disclosures

Key management personnel

The Amendment extends the definition of ‘related party’ to include an entity, or any member of a group of which it is a part, that provides key management personnel services to the reporting entity or to the parent of the reporting entity.

Similar Amendments are also made to FRSs in a document entitled “Annual Improvements to FRSs 2010–2012 Cycle”.

Annual Improvements to MFRSs 2011–2013 Cycle

Annual Improvements to MFRSs 2011–2013 Cycle is identical to Annual Improvements to IFRSs 2011–2013 Cycle issued by IASB. They are a collection of amendments to four MFRSs in response to four issues. 

These Amendments are effective for annual periods beginning on or after 1 July 2014 with earlier application permitted.

Standard

Subject of Amendment

MFRS 1
First-time Adoption of Malaysian Financial Reporting Standards

Meaning of ‘effective MFRSs’

The Amendment relates to the IASB’s Basis for Conclusions which is not an integral part of the Standard. The Basis for Conclusions clarifies that a first-time adopter is permitted but not required to apply a new or revised Standard that is not yet mandatory but is available for early application. 

MFRS 3
Business Combinations

Scope exceptions for joint ventures

The Amendment clarifies that MFRS 3 excludes from its scope the accounting for the formation of all types of joint arrangements (as defined in MFRS 11 Joint Arrangements) in the financial statements of the joint arrangement itself, but not to the parties to the joint arrangement for their interests in the joint arrangement.

MFRS 13
Fair Value Measurement

Scope of paragraph 52 (portfolio exception)

The Amendment clarifies that the scope of the portfolio exception of MFRS 13 includes all contracts accounted for within the scope of MFRS 139 Financial Instruments: Recognition and Measurement or MFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in MFRS 132 Financial Instruments: Presentation.

MFRS 140 Investment Property

Clarifying the interrelationship between MFRS 3 and MFRS 140 when classifying property as investment property or owner-occupied property

The Amendment clarifies that the determination of whether an acquisition of investment property meets the definition of both a business combination as defined in MFRS 3 and investment property as defined in MFRS 140 requires the separate application of both Standards independently of each other.

 

Similar Amendments are also made to FRSs in a document entitled “Annual Improvements to FRSs 2011–2013 Cycle”.

The new pronouncements and the “Notice of Issuance” are available for download from MASB website (http://www.masb.org.my). 

END 

 

For enquiries, please contact:

Malaysian Accounting Standards Board
Suite 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”.