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MASB releases draft accounting interpretations (30 Mar 2007)

The Malaysian Accounting Standard Board (MASB) has released two draft accounting interpretations to professional accounting bodies, regulators, users and other interested parties for comments.

These interpretations are international interpretations exposed for comments by the IASB in 2006. Draft IC Interpretation 9 Reassessment of Embedded Derivatives is IFRIC Interpretation 9 and Draft IC Interpretation 10 Interim Financial Reporting and Impairment is IFRIC Interpretation 10.
 
Introducing Draft IC Interpretation 9, MASB executive director Dr Nordin Mohd Zain explains, "Basically this interpretation clarifies the treatment for embedded derivatives under FRS 139 Financial Instruments: Recognition and Measurement. FRS 139 requires embedded derivatives to be separately recognised and measured when the entity first becomes a party to the contract. Questions were raised whether an embedded derivative has to be reassessed subsequently. The interpretation concludes that reassessment is forbidden unless the instrument contract terms changed and affects its cash flows significantly. Also, reassessment would be an onerous exercise because frequent monitoring is required."
 
On Draft IC Interpretation 10, Dr Nordin says it addresses the issue of whether or not an entity could subsequently reverse impairment losses on goodwill and investments in equity instruments and financial assets carried at cost recognized in an interim period. He explains that the interpretation concludes that an entity shall not reverse such impairment losses. 
 
Dr Nordin adds, "Reversal of impairment losses on goodwill is not allowed because of the complex nature of the item itself. It is often difficult to separate the increase of goodwill as recovery of impairment losses from increase in internally generated goodwill. As for investments in equity instruments and financial assets carried at cost, the IASB could not find an acceptable way to tell apart reversals of impairment losses from other increases in fair value. Therefore, prohibiting reversals was the only appropriate solution."
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The effective date for Draft IC Interpretation 9 and certain provisions of Draft IC Interpretation 10 is proposed to be co-terminuos with FRS 139.

Interested parties, including the business communities, are encouraged to study the draft interpretations and provide feedback to MASB. The exposure period for the draft interpretations expire on 29 June 2007. The draft interpretations 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 at:


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For enquiries, please contact:
Dr Nordin Mohd Zain
Executive Director
Malaysian Accounting Standards Board
Email: nordin@masb.org.my