Lobbying for the right language

  • Business
  • Saturday, 25 Mar 2017

Malaysia works hard to ensure accounting standards fit local situations

THE Malaysian Accounting Standards Board (MASB) turned 20 early this month. Although a relatively young organisation, it can teach others a thing or two about how to effectively represent the nation’s interests on the global stage.

In recent years, the board has successfully lobbied for changes in the International Financial Reporting Standards (IFRS) so that our companies are not disadvantaged by accounting treatment that ignores local business models and practices.

That deserves some attention. Think of the IFRS as a language spoken in almost every country. But we in Malaysia have trouble using several of its words and phrases. It’s because they refer to things that are alien to us or we have totally different meanings for these words and phrases.

Part of the problem is due to the fact that much of the language came from the advanced western countries. Naturally, the language at times doesn’t reflect situations in developing economies, including ours.

So what the MASB has done is to put up persuasive cases for the language to be tweaked so that it takes into account how things are done here.

This case of Malaysia punching above its weight has surprised many people.

The MASB and the Financial Reporting Foundation (the trustee body that oversees the MASB’s performance) were set up in March 1997 under the Financial Reporting Act.

According to the Act, the board is meant to be a standard-setting body whose functions is “the determination and issuance of accounting standards for the preparation of financial statements”. But there was little need to start from scratch.

In the early days, its so-called local accounting standards were mainly wholesale adoptions of the standards produced by the International Accounting Standards Committee, which was replaced by the International Accounting Standards Board (IASB) in 2001.

But the board was free to skip the international accounting standards that it felt weren’t right for the Malaysian business environment.

Then came the decision in 2008 to bring Malaysia to “full convergence” with the IFRS issued by the IASB.

This meant joining over 100 other countries in applying the same set of accounting standards. The plan was for this to happen by New Year’s Day in 2012.

Many people feared that the move to full convergence would reduce the MASB to a rubber stamp. Surely the board has no choice but to adopt all the IFRS in toto. After all, how much influence can Malaysia have over the actions and policies of the London-based IASB?

There are two standout examples that have proved the naysayers wrong.

The first revolved around IAS 41, the international accounting standard for agriculture. The standard demands that all biological assets used in agricultural activity must be reflected in the financial statements at fair value.

However, there are biological assets (known as bearer plants) that are only for growing produce over their productive lives. Plantation players have argued that the accounting treatment for oil palms and rubber trees should the same as that for factories. It seems pointless and misleading to revalue these plants frequently.

The MASB submitted a proposal to the IASB in 2011 to review the accounting for bearer plants. Three years later, the IASB issued amendments that allowed bearer plants to be measured based on the cost model.

The second example relates to the fact that property developers in Malaysia and in several other Asian countries operate on the sell-and-build concept and therefore recognise revenue based on the progress of construction.

However, an IASB interpretation on agreements for the construction of real estate sparked concerns that revenue can only be taken up in the books when completed units are handed over to purchasers. If so, the developer will have to wait a long time to register profits from their products.

In the end, the IASB addressed this issue and our developers have stopped wringing their hands.

There are other instances of the MASB channelling Malaysia’s voice to the world, as board chairman Mohamed Raslan Abdul Rahman puts it, but these are esoteric accounting matters that are perhaps better appreciated by a niche audience.

The point here is that the MASB has demonstrated that it can fight good fights.

In a 2014 interview, then MASB chairman Datuk Mohammad Faiz Azmi explained that the board’s success was due to its ability to build conceptually sound cases, sustain long-term campaigning and forge regional alliances.

There will certainly be more lobbying ahead. For the board to continue being successful in channeling Malaysia’s voices, businesses here must first make sure that they follow developments in the IFRS and take part when there is public consultation. If they fail to do this, they may one day be forced to use a language they often find hard to understand.

Executive editor Errol Oh wonders about the value of his biological assets.

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