Simpler Accounting Standards for Private Companies (14 June 2006)

Private companies particularly small and medium sized companies can look forward to a set of simpler accounting standards for them soon. The Malaysian Accounting Standards Board (MASB) today proposes a new standard known as Private Entity Reporting Standards (PERS) and invites the companies to give feedback to the Board. 

'The proposed standard is a comprehensive set of accounting guidelines for owner manager companies and for companies with no public interest', said Dr Nordin Mohd Zain, the Executive Director of the Malaysian Accounting Standards Board today. 'The standard is formulated to provide relief to privately run companies from burden of compliance with the complex international accounting standards but at the same time retain the basic concepts for a useful understanding of their financial statement.'
He added, 'The proposed Standard prescribes the cost bases to measure assets and liabilities of the private entities. It removes certain disclosure requirements which the Board believes are less useful for decision making or are onerous for private companies to comply. The idea is balancing the cost and benefits of financial information to owners and shareholders of privately run companies. If a private company wishes to comply with the Financial Reporting Standards (FRS) instead of the PERS, it can choose to do so by using the complete set of FRS issued by the Board.' 
Nordin said that views from companies on this locally developed standard are important in developing the accounting standard for private companies. 
The Board has targeted to finalise the proposed Standard by the end of this year and will replace the existing set of PERS issued by the Board early this year. Companies and other interested parties are welcome to give comments to MASB by 15 September 2006. Copies of the Exposure Draft are available for free at:
Malaysian Accounting Standards Board
Suites 5.01-5.03, 5th Floor,
No. 338, Jalan Tuanku Abdul Rahman
50100 Kuala Lumpur
Tel: 03-27159199
Fax: 03-27159212
E-mail address: masb@masb.org.my
Alternatively, the Exposure Draft is available on MASB website at  The public may provide their comments electronically through ED Online on the website.


Notes to Editor:

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

Salient Features of the Exposure Draft

(a) Scope of PERS

The proposed PERS shall be applied only to private entities.
The Standard is not applicable to private entities running programs for charities and other social and publicly accountable activities because such charitable entities are accountable to the public. These private entities shall comply with FRS.

(b) Effective Date

The proposed PERS is effective for annual periods beginning on or after 1st July 2007.

(c) Framework for PERS
The Framework for PERS uses the concepts in MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements [Proposed Framework]. 
However, the Framework for PERS focuses on information needs by owners, who are also managers of the private entities to be the most significant user of PERS. For other stakeholders, such as employees, lenders, suppliers and trade creditors, customers, government and their agencies, they are able to obtain the required information from the entity to meet their specific needs. 

Since the PERS focuses on proprietary needs rather than investor needs, the Framework generally prescribes the use of cost bases as the measurement basis for private entities.

(d) Accounting Policies

Compliance with the full set of FRS
Private entities are allowed to comply with FRS, if and only if, they comply with the full FRS in their entirety, and the entities shall disclose in its financial statements that it have complied with the full FRS. A private entity that has complied with the PERS and subsequently changed its policy to comply with the full FRS would not be allowed to change from the full FRS to PERS unless there was a change in circumstances.

Optional reversion to specific FRS
A private entity that applies the PERS may choose to apply certain FRS in its entirety. For example, if the entity chooses not to apply the Section on property, plant and equipment in the PERS, it shall apply FRS 116 Property, Plant and Equipment in their totality. In addition, the entity shall disclose the reason why that specific FRS is applied. A private entity that has chosen to apply specific FRS shall not be allowed to revert to the PERS. 

Absence of guidance in PERS
In the absence of guidance in the PERS, a private entity is required to consider the applicability of the following sources of guidance: (a) FRS dealing with similar issues; (b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework for Private Entity as set out in the PERS. 
However, if an entity undertakes share-based payment transactions and derivatives or hedging transactions, such entity is required to comply with FRS 2 Share-based Payment and sections on hedging in FRS 132 & FRS 139 on Financial Instruments respectively. If a private entity undertakes business combinations and presents consolidated financial statements, such entity is required to comply with FRS 3 Business Combinations, FRS 127 Consolidated and Separate Financial Statements, FRS 128 Investments in Associates and FRS 131 Interests in Joint Ventures respectively.

Changes in accounting policies and correction of errors
The effects of a change in accounting policy or the correction of prior period errors shall be adjusted to the opening balance of retained earnings for the period in which the policy is first adopted or errors are being corrected. Comparative information shall be presented as reported in the financial statements of the prior period.

(e) Balance Sheet
A private entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its balance sheet.
The proposed PERS prescribes only the cost bases as the measurement basis for PERS. For investments in securities and other investments [except for properties], the PERS adopts the measurement basis in FRS 125 Accounting for Investments. Hence, for investments classified as current assets, they shall be measured at the lower of cost and market value. For investments classified as long term assets, they shall be measured at either cost or in the case of marketable equity securities, the lower of cost and market value determined on a portfolio basis.

(f) Income Statement
The PERS prescribes that private entities shall present an analysis of expenses using a classification based on the nature of expenses.

(g) Notes to Financial Statements
The provisions in this Section are essentially the same as the section in FRS 101 Presentation of Financial Statements dealing with Notes to Financial Statements.

Related party disclosures
The disclosure requirements in this Section are essentially the same as FRS 124 Related Party Disclosures, which includes disclosure of the total compensation to key management personnel.

(h) Other Appendices

The proposed PERS also includes an appendix on:
(a) Application of FRS - the appendix provides the list of topics found in the full set of FRS but removed from the PERS; and

(b) Illustrative Financial Statements