The road to IAS

Dr Hassan Ali gives a local insight into the role of the MASB and the adoption of IFRS

The Malaysian Accounting Standards Board (MASB) has been very busy over the last two years. Apart from implementing domestic accounting standards in accordance with International Financial Reporting Standards (IFRS), it has been trying to play a more active role with the world body by providing input on issues relating to its implementation. So far, its role has been very promising and constructive. It is worth noting that MASB is among one of the most aggressive members in promoting its adoption at a pace that others can only envy.

Domestically, MASB has embarked upon a series of discussions in trying to answer some fundamental questions about its future and the consequences of adopting the framework and standards set by IFRS. While some local analysts have criticised MASB for not holding enough discussions and forums, particularly on changes that are deemed fundamentally important to the future of the entire accounting profession, others have embarked on a wider criticism of accusing the board of ignoring constructive suggestions by other local professional bodies.

In hindsight, it is easy to understand why there has been a rush in pushing the changes within a short period of time. Since 2004, MASB board members have had their attention occupied by the 2005 deadline, not forgetting the need to fulfil public sector demands of synchronising government accounting practices with the generally accepted accounting principles (GAAP).

Moving to the next lap

However, the push for changes has been worthwhile. Preliminary feedback received from users is encouraging. Hence, having benefited from gaining first-hand experience in tackling domestic issues during its implementation phase, it is time for MASB to move to the next lap by participating actively in the policy-making process of the world body.

One area where MASB can play an active role is to be involved in projects that are co-ordinated by the International Accounting Standards Board (IASB). Although competition for projects is very intense among members, MASB can establish itself in the forefront of specialised issues. For example, issues on accounting for financial instruments, intangible assets and leases have not been fully resolved; and the debates on implementing new changes are still prevailing among its active members. Another example is the adoption of legislative laws to curb money laundering and the impact on its accounting treatment. As members begin to carve their territorial dominance on specific-related issues, MASB should similarly strategise its move in carving its own niche.

Throughout the entire year, MASB has provided a strong leadership that focuses on harmonising its standards with the rest of the world. MASB enjoys a close working relationship with other professional bodies like ACCA, CIMA, CPA (Australia), NIA (Australia) and ICAEW (UK). This can be attributed to the close relationship between the Malaysian Government and fellow member countries.

Improvement in implementation

The leadership provided by MASB may appear strong but the implementation processes appear to be hurriedly adopted without sufficient feedback. There has been too much concern on the timeframe instead of application. There should be a broader consensus among users (apart from the consultative role of the Financial Reporting Council) to establish a process of interpreting IFRS policies while alerting any incompatibility with the local standards. The feedback should represent a wider frame that should include consumer groups, non-governmental organisations, representatives from small and medium-sized enterprises, industry practitioners, interest group organisations and academics. Accounting firms, private consultants and the legal profession should also be actively involved. While the existing consensus relies on the issuance of exposure drafts, a wider spectrum of consensus that casts across all of the above sectors will dampen any criticism of incompatible adoption. This can be achieved by organising symposiums, forums, conferences and even public dialogues through the local media.

Concern on incompatibility

In one of its press statements, MASB indicated that the adoption is crucial so as to align the local practices with those recommended by the London based international setter. There are concerns by some squatters that full adoption will entail a major impact on its accounting treatment and balance sheet. One typical example is the treatment on turning property trusts into equity. Arguments presented by industry observers warned of the danger that property trusts when translated into equity may overstate the value of the firm, potentially misleading investors and general users on the firm’s debt-equity ratio. While several countries such as Australia are aware of such criticisms, and are willing to entertain breaches of international standards in select circumstances, MASB prefers to remain loyal to its core.

Another example is the treatment of financial instruments, and the manner in which an instrument is classified remains contentious. The adoption of IFRS will clearly change the accounting treatment because it does not prescribe to any particular method on the carrying amount of liability and equity elements in a single instrument.

There can be further complications when an exception is made for a specific industry, because it will expose users to the notion that some parts can be compromised while others cannot. This is one of the major concerns when adopting accounting policies and trying to grapple with consensus across all sectors. It can also be argued that MASB has provided ample opportunities for users to voice their concerns on accounting changes, although one may also counter-argue that the channel of communication remains limited.

Users are also assured that the crux of adopting such changes is in the national interest and such changes have already been critically analysed for the betterment of the accounting profession. The major worry, however, is the exclusion of small and medium-sized enterprises in the decision-making process. These enterprises were only told to adopt it wholeheartedly for the sake of national interest.

Until now, MASB has provided guidance only on provisions that has a gap left by the international standard setter. Nevertheless, it is difficult for anyone to argue that IFRS standards are entirely inconsistent with MASB standards, although there are still several important issues that were not particularly addressed by the new standards. So far, the compliance was undertaken successfully with a blend of Malaysian jurisdiction incorporated into the standard itself. However, this historic transformation that is felt across all organisations, and may affect the country’s economy if not carried out successfully, should be taken at a wider scale to avoid further public criticism. Failing to respond to users’ feedback may only arouse suspicion and even develop a higher resistance to change.

Dr Hassan Ali is an associate professor with the School of Business, Swinburne University of Technology (Sarawak Campus), Malaysia. He can be contacted at hali@swinburne.edu.my.