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MASB issues 3 Exposure Drafts and 3 Draft Interpretations (15 June 2009)

The Malaysian Accounting Standards Board (MASB) today released three Exposure Drafts and three Draft Interpretations for public comments. The Exposure Drafts and Draft Interpretations, which are virtually identical to those issued by the International Accounting Standards Board (IASB), are: 

  • ED 64 Business Combinations
  • ED 65 Consolidated and Separate Financial Statements
  • ED 66 First-time Adoption of Financial Reporting Standards
  • [draft] IC Interpretation 15 Agreements for the Construction of Real Estate
  • [draft] IC Interpretation 16 Hedges of a Net Investment in a Foreign Operation 
  • [draft] IC Interpretation 17 Distribution of Non-cash Assets to Owners

About the Exposure Drafts
 
ED 64, 65 and 66, when finalised, will replace FRS 3 Business Combinations, FRS 127 Consolidated and Separate Financial Statements and FRS 1 First-time Adoption of Financial Reporting Standards respectively. 
 
ED 64 and ED 65 are a result of a joint effort between IASB and its US counterpart to improve accounting for business combinations. Among the proposals is simplifying the accounting for goodwill in a step or partial acquisition. FRS 3 requires entities to measure the fair value of each asset and liability at each step for the purposes of measuring the portion of goodwill attributable to that step whilst ED 64 proposes that goodwill should be calculated as a residual of the fair values of the assets and liabilities at acquisition date. It is also proposed that any interest in the investment held immediately before the acquisition should be measured at fair value and any related gain or loss recognised in profit or loss.
 
For non-controlling equity interests (NCI or formerly known as minority interests), the Exposure Draft proposes to allow an acquirer to choose between two methods of measuring NCI either using the method required by FRS 3, or measuring at fair value. 
 
Other proposed improvements is that acquisition-related costs, ie fees incurred in a business combination, will generally have to be recognised as an expense at the time of the acquisition (rather than included in goodwill). ED 65 also clarifies that changes in the parent's ownership interest that do not result in the loss of control of a subsidiary should be accounted for as transactions between equity holders in their capacity as equity holders. Hence, such changes would not result in a gain or loss being recognised in profit or loss.
 
ED 66 attempts to restructure FRS 1 and does not contain any technical changes. It aims to make it easier for readers to understand FRS 1 and to allow it to accommodate future changes resulting from new or amended FRSs for first-time adoption requirements. 


About the Draft Interpretations
 
[draft] IC Interpretation 15 proposes to standardise accounting practice for revenue recognition among real estate developers. It provides guidance on how entities determine whether an agreement is within the scope of FRS 111 Construction Contracts or FRS 118 Revenue. The Interpretation proposes that revenue is recognised by reference to the stage of completion if (1) the agreement meets the criteria of a construction contract under FRS 111 or (2) the significant risk and rewards of ownership of the real estate is transferred to the buyer continuously as construction progresses. When finalised, it will replace FRS 201 Property Development Activities.
 
[draft] IC Interpretation 16 provides guidance to entities that apply hedge accounting on foreign currency risk arising from its net investments in foreign operations. It states that (1) a parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation (2) presentation currency does not create an exposure to which an entity may apply hedge accounting (3) the hedging instrument may be held by any entities within the group. 
 
[draft] IC Interpretation 17 proposes to clarify how an entity should measure distributions of assets other than cash when it pays dividends to its owners. A dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity. An entity should measure the dividend payable at the fair value of the net assets to be distributed. In addition, an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss. 
 
Interested parties, including the business communities, are encouraged to study the Exposure Drafts and Draft Interpretations and provide feedback to MASB. 
 
The exposure period expires on 17 July 2009. The Exposure drafts are available on MASB website at http://www.masb.org.my. The public is encouraged to provide their comments electronically through ED Online on our website. Alternatively, copies of the draft interpretations are available free of charge from MASB office.

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For enquiries, please contact:
Malaysian Accounting Standards Board
Wisma UOA Pantai
Suites 5.02, Level 5
No. 11, Jalan Pantai Jaya
59200 Kuala Lumpur
Tel: 03-2240 9200
Fax: 03-2240 9300
Email: masb@masb.org.my