MASB Issues Two New / Revised Accounting Standards (15 August 2006)

The Malaysian Accounting Standards Board (MASB) today issued two more Accounting Standards on exploration & mining and on amendment to employee benefits for listed companies in Malaysia. Both of these Standards are identical to International Financial Reporting Standards and will take effect from 1 January 2007.

FRS 6 Exploration for and Evaluation of Mineral Resources

FRS 6 deals with exploration for and evaluation of mineral resources, an important economic sector in the country, and seeks to increase transparency by requiring improved disclosures for exploration and evaluation assets.

In a statement issued today, MASB executive director Dr. Nordin Mohd Zain said the mineral resources standard is issued for the first time in Malaysia that permits an entity to continue using accounting policies applied before adoption of the Standard. Modest improvements were made to the recognition and measurement practices with regard to the recognition of impairment on exploration and evaluation assets.

He said, "The extractive industries are important economic sectors in many economies and few jurisdictions have accounting standards in this area. The IASB, in line with its convergence effort, is undertaking a comprehensive research project towards the development of an acceptable approach to resolving accounting issues that are unique to upstream extractive activities. This includes considering the arguments for and against the use of fair value as the measurement objective for the balance sheet recognition of a reserve/resource asset and for disclosures. The aim is to gauge whether the research project should direct attention only to historical cost models or whether it should continue to also consider the possible application of fair value models to reserve/resource assets."

Amendment to FRS 1192004 Employee Benefits C Actuarial Gains and Losses, Group Plans and Disclosures

Dr. Nordin says the amendment to the Employee Benefits Standard introduces an additional recognition option for actuarial gains and losses arising in post-employment defined benefit plans. This option allows an entity to recognise actuarial gains and losses in full in the period in which they occur, outside profit or loss, in a statement of recognised income and expense.

"The amendment also specifies how group entities should account for defined benefit group plans in their separate or individual financial statements and requires entities to give additional disclosures," he says.

Dr. Nordin added that, "On the international front, there is an increasing public interest for high quality and well-understood financial reporting of employee benefits and in particular, defined benefit plans. The IASB has recently announced that they will be conducting a joint project with the US Financial Accounting Standards Board (FASB) to consider revisions to the employee benefit standard in particular, defined benefit pension plans."

The revision to IAS 19 Employee Benefits will be conducted in 2 phases. The first phase will consider revisions that would achieve significant improvements in the short term, with a view to an interim standard in 2010. Other aspects of accounting for employee benefits will be considered in the second phase.


Summary of FRS 6

  1. The FRS:

    1. permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. Thus, an entity adopting FRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies.
    2. requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount.
    3. varies the recognition of impairment from that in FRS 136 Impairment of Assets but measures the impairment in accordance with that Standard once the impairment is identified.
    4. requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources, including

      1. its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets.
      2. the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.
  2. FRS 6 is effective for annual periods beginning on or after 1 January 2007. Earlier application is encouraged.

Summary of Amendment to FRS 1192004 Employee Benefits ¨C Actuarial Gains and Losses, Group Plans and Disclosures

  1. The amendment permits an additional method in recognising the actuarial gains and losses for the defined benefit plan, namely an entity could recognise the actuarial gains and losses in the period in which they occur outside profit or loss in a statement of recognised income and expense.
  2. The other features of the amendment are:

    1. clarification that a contractual agreement between a multi-employer plan and participating employers that determines how a surplus is to be distributed or a deficit funded will give rise to an asset or liability.
    2. accounting requirements for group defined plans in the separate or individual financial statements of entities within a group.
    3. additional disclosures, among others, that provide information about trends in the assets and liabilities in a defined benefit plan and the assumptions underlying the components of the defined benefit cost.