I refer to the article in Monday’s StarBiz entitled "Upgrade accounting standards, says don".
I am writing to address some issues raised as I believe we must not give the wrong impression that the accounting profession is causing damage to the Malaysian economy as implied in the article.
Firstly, I can assure readers that accounting standards are of inconsequential interest to FDIs in making a decision on investing in Malaysia. Rather they will be more concerned with the investment climate in our country. Foreign investors are more concerned with matters such as the legal environment, infrastructure, taxes, trained/skilled labour (including properly trained accountants schooled in the best methods of maintaining financial records) etc.
Secondly, I do not believe Malaysian accounting standards are behind those in Singapore and Hong Kong. And to compare us to Indonesia and Brunei is adding insult to injury. As someone who has been intimately involved in standard setting in Malaysia in the past and currently still taking an active interest in its development, I can assure your readers that Malaysia has been in the forefront of setting accounting standards and is second to none in the region. In fact, internationally we are even way ahead of some OECD countries in willingness to adopt current standards set by the International Accounting Standards Committee (IASC).
Thirdly, perhaps the article should have referred to foreign indirect investment in the stock market rather than FDIs. But here the foreign fund managers, I believe, are more interested in the way we manage our PLCs. True, they are concerned with accounting, but of greater concern to them is the issue of corporate governance (CG). The issue of CG, which incorporates accounting, is an issue very close to my heart.
Since giving up accounting some five plus years ago I have been very closely involved with CG in my capacity as an independent non-executive director and I can tell readers that the companies I am involved with spend a considerable amount of time on the issue of good accounting with our accountants and auditors. In my consultation with fellow retired accountants who also get involved with PLCs they tell me the same is happening in companies they are involved.
Since the KLSE brought in its new rules on CG, Malaysian companies now are very cognisant of good CG and along with it good accounting practices. I dare say that in this area of CG we may well be ahead of our neighbours.
Fourthly, on the two accounting issues which concern the experts and which according to them are turning away FDIs. On this business of fair value accounting, a little bit of history first to get the right perspective.
The IASC was founded sometime in the late 60s/early 70s by principally British accountants to add a new dimension to accounting standards. At that time the Americans were way ahead in this field and completely ignored the IAS of the IASC. The IASC had to play catch up and in order to make their standards truly international as the name implies the British/Europeans had to make the Americans accept IAS. So they had to accommodate the Americans by accepting US standards. Lately, we have seen IAS going more American. But this has left the British not so happy, hence they are not adopting fair value accounting yet. So we are not alone and the British are not criticised.
Fifthly, on the matter of goodwill accounting, I would like to reassure readers that accountants have been debating, even fighting for more then 100 years on this impossible subject. For the uninitiated, goodwill or badwill is the difference between what you pay to buy a business and the – wait for it – “fair value” of the underlying net assets of that business. This time fair value includes all assets and liabilities (not confined to financial instruments only as explained earlier).
The accounting treatment of this balancing figure has been written on so much paper that whole forests have been killed. May I suggest to the whole accounting profession, academics included, to stop writing about this subject and adopt a simple solution that will bring the FDIs running here.
The conventional wisdom is to keep this as a permanent item on the balance sheet and assess the value frequently and if there is an impairment in value, write it down. The valuation methodology is surely quite simple. As long as you can sell that business for not less than what you paid for it then keep it as it is. If not, write it down to what is an acceptable value for the business.
I know some accountants will then seek me about merged businesses after acquisition when you don’t have that business to sell off anymore. In this case, the solution would be to value the merged business and see if it still stands up to that test.
Finally, as a former standard setter I would assure readers that if I had declined to introduce some accounting standards, it has always been in the national interest.
For example, in the late 80s there was pressure from the international agencies referred to in the article for the MACPA then (now MICPA) to adopt the standard on “Government Grants and Assistance.” As chairman then of the MACPA’s Accounting Standards Committee, I managed to convince the MACPA that this standard is not in the national interest and up till now I am glad to see that this standard has not been adopted. This standard if adopted would truly have chased the FDIs of that time away for they would have had to disclose information detrimental to the very reason why they chose to invest in Malaysia.
And to the MASB, I would like to politely request that we stick to plain old conventional historical accounting that everyone understands. If you have to bring in any other form of accounting, do not forget what happened to Current Cost Accounting (CCA) in the late 70s/early 80s in the aftermath of the oil crisis. It (CCA) did not last long. The same could happen to so-called fair value accounting, which I suspect is a knee jerk reaction to Enron/Worldcom. But if you do introduce fair value accounting, I would respectfully request that such financials are not mixed up with historical accounts and instead present then as a separate account for the FDIs to chew over.
DATUK OH CHONG PENG
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