Financial Reporting Environment Statutory and Regulatory Framework. Learning Objectives

(1)

Financial Reporting Environment –

Statutory and Regulatory Framework

Learning Objectives

To describe

the statutory and regulatory requirements for

financial accounting and reporting

(2)

Financial Reporting Environment –

Statutory and Regulatory Framework

In preparing and presenting financial statements, companies in

Malaysia are to comply with the following:

Companies Act 1965

Financial Reporting Act 1997 Accounting Standards

Income Tax Act 1967

The Securities Commission Guidelines 1995 KLSE Listing Requirement

Bank Negara Malaysia Guidelines

The company’s income statements and balance sheet are

considered to present a true and fair view when it comply with AAS (Approved Accounting Standard), Companies Act 1965, relevant regulations and requirement of other statutes.

(3)

COMPANIES ACT 1965

Is the principle legislation governing the formation

and operation of companies in Malaysia.

It provides formal rules on accounting and

requirement for true and fair view reporting.

The provision under the act also protects the right

and interest of shareholders in particular and investors in general, provides facilities for the incorporation of companies, its constitution, its relation with members and creditors, management and winding up.

The Company Commission of Malaysia enforces

(4)

COMPANIES ACT 1965

The Act requires that every company must keep proper accounting and other records to sufficiently explain

transactions and financial position of the company and to enable true and fair profit and loss accounts and balance sheets and related documents to be prepared from time to time (s176;s160;s326;9thSch;AAS) .

For the proper accounting records, the accounts must be recorded and kept:

In such manner as to enable them to be conveniently and properly audited;

Entered in the accounting records within 60 days of the completion of transactions to which they relate; Retained for 7 years after the completion of the related transactions or operations; at the registered office, or at such other place as the directors think fit (s167).

(5)

COMPANIES ACT 1965

Accounts and reports are prepared in accordance

with AAS issued by MASB so as to give a true and fair view of their companies’ affairs

Every company is required to comply with the

disclosure requirements of the Ninth Schedule.

Annual reports must be presented at the AGM of

the company. The 1st _{AGM of shareholders should}

be held not later than 18 months after the date of incorporation of the company and subsequently at least once every calendar year, and at intervals not more than 15 months from the last general meeting (s169).

(6)

COMPANIES ACT 1965

Laying of accounts (s169); audited, approved and

adopted by BOD:

Profit and Loss account Balance Sheet

Directors report

Statements of Directors

Statutory declaration made by directors Auditors report

Consolidated Profit and Loss account and Balance

(7)

Financial Reporting Act 1997

Two bodies were formed to be responsible for the Two bodies were formed to be responsible for the

setting of accounting standards in Malaysia, i.e. FRF

and MASB.

Section 27 Section 27 –– Compliance with approved accounting Compliance with approved accounting

standards for accounts to be prepared and lodged

under any law administered by Securities

Commission, the Central Bank and the Company

Commission of Malaysia (formerly known as the

Registrar on Company). Compliance with FRS are

legislated under s26D.

Section 2 of FRA (amendment to s166A of CA) for Section 2 of FRA (amendment to s166A of CA) for

the compliance with AAS. Basically FRA provides

the enforcement authority to the standards issued by

MASB MASB..

(8)

Accounting Standard

Before new financial reporting regime: Adoption of IAS – 1978.

Malaysian approved accounting standards to be complied

with IAS (adopted/adapted to suit local practice).

Technical committee of MIA and MACPA responsible to

set Malaysian Accounting Standards (MAS) – early 1980s

Under the new financial reporting regime:

Enactment of Financial Reporting Act 1997 as a trustee

body.

1998 – functions of standard setting was taken over by

(9)

Income Tax Act 1967

Mainly concerned with ascertaining of chargeable

income and tax payable under the act.

As taxation is a business expense that needs to be

reflected in the income statement, compliance with Income Tax Act 1967 is legally enforceable.

(10)

Securities Commission (SCA 1993)

Mission – to promote and maintain efficient, secure and

transparent securities and futures market, and

facilitating the orderly development of an innovative

and competitive capital market (www.sc.com.my)

A self-funding statutory body with investigative and

enforcement powers, empowered to regulate all matters relating to securities industry in Malaysia including

issuing, offering or listing of securities in the local capital market.

Among regulatory functions:

To regulate issue of securities and designation of future

contracts.

To regulate all matters relating to unit trust schemes

(11)

Securities Commission Guideline

Issues guideline in relation to accounting and reporting to

regulate the local listed and unlisted public companies, which include the following chapters:

Corporate disclosure policy (c9pB) – contains rules

requiring companies to maintain high standards of disclosure. A listed company is also required to make immediate release, information which are expected to have a material impact on investors’ investment

decisions.

Post-listing obligations (c8pA) – requiring public listed

company to submit annual reporting, interim and periodic financial reporting as well as the related party transaction reporting.

Accounting standard and valuation/revaluation of assets

(c7pB) – requiring public company to comply with the statutory and regulatory framework of accounting (AAS, Companies Act and SC’s revaluation rules.

(12)

KLSE (SA 1983)

A self-regulatory body – membership confined to

individuals and corporations.

Main objective – to provide and maintain market

place for trading of shares in the company.

Does not have a legal power to enforce compliance.

Errant companies are either reprimanded, suspended and de-listed from the exchange.

Clause 335 of listing manual – company annual

audited accounts are to be prepared in accordance

with AAS and pronouncements and ninth schedule of Companies Act 1965.

(13)

KLSE Listing Requirement

Listing requirement to regulate the PLC:

Submission of reports:

Accounts prepared in accordance with AAS and Ninth

Schedule.

Auditors and directors report are to be submitted to

the exchange 4 months from the year ended.

The printed annual report shall be issued to

shareholders within a period not exceeding 6 months from the year end.

For interim reporting – comply with Quarterly

Reporting requirement, i.e. submission for public release the balance sheet, income statement and

explanatory notes, as soon as figures available for 2 months after the end of each quarter.

Additional disclosure – disclosures on material contracts

involving directors’ interest, statement on details of substantial shareholdings, details on properties held.

(14)

KLSE Listing Requirement

Disclosure Information on Corporate

Governance (chap.15 of KLSE RLR,2001):

Significant changes made to new listing

requirements to promote greater transparency and

accountability via enhancement of disclosure, due

diligence and corporate governance.

Purpose is to ensure a transparent and informed

market as well as promoting responsible conduct among market participants.

(15)

Bank Negara Malaysia

Issued guidelines on financial reporting practices for

banking and financial institutions (BAFIA 1989), including:

Guidelines on the suspension of interest on NPL

(BNM/GP3)

e.g. the classification of interest accrued on NPL as credit to interest-in-suspense account.

(16)

Bank Negara Malaysia

Guidelines on the specimen financial statements for the

banking industry (BNM/GP8), namely:

Classification of assets and liabilities. Liquidity of assets and liabilities.

Maturity analysis of assets and liabilities. Concentration of assets and liabilities. Additional disclosure:

Types of credit facilities granted.

Maturity structure of credit facilities. Provision for bad and doubtful debt. Interest in suspense.

Principle types of revenue and expenses. Credit risk and concentration.