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MASB releases 11 draft interpretations to complement financial reporting standards (5 May 2005)

The Malaysian Accounting Standards Board (MASB) has released 11 draft interpretations to provide clarification or guidance to its financial reporting standards on areas ranging from doing business in the European Union (EU) to how to account for the costs of developing an entity's website. 

The release of the interpretations to professional accounting bodies, regulators, users and other interested parties for comments is part of MASB's consultative process of seeking public views and convergence efforts to align its standards to international financial reporting standards.
 
The coterminous effective date for the interpretations is 1 January 2006, same as that for MASB's financial reporting standards. 
 
The MASB interpretations relate to the euro's introduction, consolidation of special purpose entities, income taxes, operating leases, treatment of website costs, government assistance, disclosure of service concession arrangements, barter transactions involving advertising services, and jointly controlled entities. 
 
According to MASB executive director Dr Nordin Mohd Zain, for Malaysian companies planning to join the European Monetary Union (EMU), the interpretation on the effects of changes in foreign exchange rates, which applies to the changeover from the national currencies of member states of the EU to the euro, may be applicable.
 
Although the effective start of the EMU was 1 January 1999, this MASB interpretation will still be applicable for countries which join the EMU at later stages, or for Malaysian companies in which their subsidiaries join the EMU in the future, he says. 
 
The interpretation on consolidation clarifies the circumstances which an entity should consolidate a special purpose entity that is created to achieve a certain objective, such as for the purpose of securitisation of financial assets.
 
On the income taxes interpretation relating to recovery of revalued non-depreciable assets, he points out that understanding of the term "recovery" is important in determining the measurement of deferred taxes.
 
Meanwhile, the income taxes interpretation on changes in the tax status of an entity or its shareholders is about how an entity should account for the tax consequences of a change in its tax status or that of its shareholders. 
 
Dr Nordin notes this is significant because such a change may result in increasing or decreasing its tax liabilities or assets.
 
The operating leases interpretation suggests how incentives in an operating lease should be recognised in the financial statements of both the lessee and lessor.
 
On the interpretation on evaluating the substance of transactions involving the legal form of a lease, he says it provides guidance on how to determine whether a series of transactions is linked and should be accounted for as one transaction, when an arrangement with an investor involves the legal form of a lease. 
 
It also provides guidance on whether such arrangement meets the definition of a lease under the financial reporting standard and, if not, the appropriate accounting treatment.
 
The interpretation on website costs is about how an entity should account for its expenditure on the various stages of developing its own website, including planning, application and infrastructure development, and development of graphic designs and content. 
 
However, it does not apply to expenditure on purchasing, developing and operating hardware such as web servers, staging servers, production servers and internet connections of a website. 
 
The interpretation on government assistance explains that certain government assistance, although not related to an entity's operating activities, meets the definition of government grants, and should therefore not be credited directly to equity.
 
As to the interpretation on disclosure of service concession arrangements, he says it spells out the information that should be disclosed in the notes in the financial statements of a concession operator and a concession provider.
 
On the interpretation on revenue and barter transaction involving advertising services, he says it shows the circumstances under which a seller can reliably measure revenue at the fair value of advertising services received or provided in a barter transaction. 
 
The interpretation on jointly controlled entities, meanwhile, provides guidance in the venturer's books on the recognition of gains and losses resulting from contributions of non-monetary assets to a jointly controlled entity in exchange for an equity interest in that entity. 


Comment Period
Interested parties are welcome to give comments on the 11 [draft] Interpretations EDs to the MASB by 30th June 2005. Copy of the [draft] Interpretations is available free of charge at:
 
Malaysian Accounting Standards Board
Suites 5.01-5.03, 5th Floor
No. 338, Jalan Tuanku Abdul Rahman
50100 Kuala Lumpur
Tel: 03-2715 9199
Fax: 03- 2715 9212
E-mail address: masb@masb.org.my

Alternatively, the proposed Standards are also available on MASB website at http://www.masb.org.my. The public may also provide their comments electronically through ED Online on our website.


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Dr Nordin Mohd Zain
Executive Director
Email: nordin@masb.org.my