MALAYSIA could be losing out in the global competition to attract foreign direct investment (FDI) in having accounting standards which are not progressive enough, according to a local university don.
Universiti Putra Malaysia Graduate School of Management Associate Professor Tan Liong Tong said Malaysian accounting standards still had a long way to go to catch up with the best, contrary to claims by some parties that they were now “world class.”
“I certainly cannot agree with that,” he said.
“If you are asking the view of those in the (accounting) profession or those issuing standards, they'll tend to give you the impression that we are among the top,” he said.
However, Tan said there was evidence from independent parties such as the World Bank and other international agencies which gave a different picture and Malaysia a rating below even those of its neighbours. It was also a view he shared: “We are not on par with Singapore or Hong Kong, but perhaps if we compare with Indonesia or Brunei – we could possibly be better,” he said.
Although Tan acknowledged that a large number of standards have been issued over the past five years since the establishment of the Malaysian Accounting Standards Board (MASB), he said this process was necessary purely because Malaysia needed to play catch-up. “When the standard setting process was under the (accounting) profession, prior to the establishment of MASB, there was practically no advancement.”
Asked why this was so, he said “there could be vested interests.”
Tan feared that standards development could slow down, if not grind to a halt, for the same reason.
He said this could clearly be seen in the failure to adopt “core standards” like those affecting goodwill and intangible assets. He said that standards affecting agriculture – an important mainstay of the economy – have also not been discussed. “We are not even close to having a standard in these areas,” he said.
Tan said that as the practice of accounting was evolving rapidly worldwide, he was very concerned with Malaysia's lack of focus and inconsistent treatment in the basis of accounting.
“What we have at this juncture is creating a lot of confusion,” he said, adding the some standards in place were based on fair value, some were based on historical cost and yet others on a variation of both.
According to Tan, an example of this lack of focus is in situations of business combinations and acquisitions where there isn't a “core standard” for goodwill in place which plays havoc on standardisation. He said goodwill had been an issue discussed by the Malaysian accounting profession since the 1980s and until today, there is still no will to solve the problem.
Goodwill matters because its amount in an acquisition can exceed millions of ringgit and this may hit a company's bottom line directly. But Malaysia does not have a standard on goodwill accounting which means companies have the freedom to do anything at will. Some companies write off goodwill in the year of acquisition while others maintain it in their books as an asset.
But why is there reluctance to do anything? According to former MASB technical director Ooi Soon Kiam, one reason could be that the introduction of new standards would significantly impact corporate earnings.
“To implement the changes now would require a huge cleaning up of the balance sheet and it would have a very significant effect on the income statement,” he said. “The vested parties might not be willing to accept it.”
Ooi explained that in the past, acquisitions were made at “book value” resulting in large goodwill figures during the boom years. He said that some of these goodwill figures should be categorised as intangible assets and may need to be written down as the valuations fall during the current economic conditions. “It is difficult to estimate but the figure runs up to the hundreds of millions,” he said of the potential write-down from the books in adopting fair value accounting.
Ooi said that the large write offs were also “very frightening” because people were unsure what the loss recorded in the income statement signalled.
“Why is this amount paid for by the company has no value now?” He said it was therefore not surprising that a standard which will expose these losses are being resisted.
According to Ooi, there is a need for Malaysian accounting to move towards using fair value rather than historical cost in line with international practice. “It's a matter of phasing it in,” he said.
He said some companies had a misplaced fear that the adoption of fair value accounting would impact their share prices.
“They need not to worry as the market would probably already have discounted to fair value,” he said.
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