Contributors from Malaysia were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?
By Lawrence Chai managing director 3E Accounting
Many economists are turning more positive on the economic outlook for Malaysia this year due to the improving global trade prospects. This year, Malaysia has taken a huge step to keep up with the thriving digital world by launching the world’s first Digital Free Trade Zone (DFTZ). The DFTZ is the lifeblood of Malaysia’s cross-border e-commerce and internet economy where it acts as a catalyst to support internet companies to trade goods, provide services, innovate, and co-create solutions. Among others, the DFTZ will help SMEs to export their products globally with ease and enable global marketplaces to source goods from local manufacturers.
Apart from the recent launch of DFTZ, the remarkable partnership between Malaysia’s largest financial service providers – Malayan Banking Bhd (Maybank) and CIMB Bank Berhad with China’s Ant Financial Services Group to enable the Alipay mobile wallet in Malaysia is another highlight in Malaysian economy. We can see a multiplicity of benefits from the partnership where one of them is the booming tourism industry. Malaysia expects to receive more Chinese tourists than before where the Alipay mobile wallet will be an alternative cashless payment for Chinese tourists.
Other than that, the implementation of New Companies Act 2016 on January is positive for entrepreneurs and SMEs in Malaysia. Among others, the new Act aims to strengthen corporate governance and promote accountability of directors when running companies. On top of that, the new Act will ease the doing of business and make Malaysian company law more competitive and flexible.
The implementation of New Companies Act 2016 has its one-off effect to Malaysian economy where it reshaped the legal framework of company incorporation in Malaysia. Companies can now be incorporated with a single individual being a single shareholder and a single director. We expect to see a more vibrant business environment with more investment opportunities under the new Company Act. On the other hand, the frequent updates of GST system in Malaysia have imposed certain challenges to accounting firms in Malaysia where GST agents will need to have more training sessions in order to keep abreast with the updates.
Looking at the year ahead, we expect to see recovery in the Malaysian economy, with GDP growth set to pick up this year. The government’s financial policies are on track to meet medium-term objectives in a baseline scenario of moderate growth, low inflation, and external uncertainties. All these are contributing to the economic growth in the country. Another positive prospect is that Malaysia will see a lower cost of doing business. It’s believe that start-ups and SMEs in Malaysia will soon enjoy no further cost when running their businesses due to audit exemption (the amended policy is said to be announced soon) . In other words, Malaysian economy has a positive outlook in its economic performance.
By Teoh Wuey Sze, partner at Russell Bedford Malaysia, a member of the Malaysian Institute of Accountants and a fellow of ACCA
With effect from 1 January 2016, the Malaysian Private Entities Reporting Standard (MPERS) has been adopted in Malaysia. MPERS is an adaptation of the International Financial Reporting Standards (IFRS) for Small and Medium-sized entities issued by the International Accounting Standards Board (IASB) in 2009. MPERS seeks to bring the financial reporting of private entities in line with current global financial reporting standards. Its goal is to bring about comprehensive and credible disclosures and to help achieve comparability among businesses in order to facilitate investor and business decision-making.
On 31 January 2017, the Companies Act 2016 and Companies Regulations 2017 came into force. Key changes are:
- Simplify company incorporation and decision making
- Facilitate share capital management and restructuring
- Reaffirm the importance of audit and financial reporting
- Enhance corporate governance and responsibilities
- Modernise insolvency laws to manage distressed and insolvent companies
In the digital economy, particularly relevant to the accounting profession is data analytics, especially in raising audit and governance quality.
Taking the cue from the recommendations proposed by the Committee to Strengthen the Accountancy Profession (CSAP), the Malaysian Institute of Accountants (MIA) is collaborating with various stakeholders to formulate its vision for accelerating the profession’s development through education. To achieve the targeted number of 60,000 accountants by year 2030, MIA is focusing on both capacity and competency and is committed to drafting a holistic Competency Framework in 2017 which will lay out the desired outcomes and map out the measures needed to achieve them.
Opportunities for small and medium practices (SMPs) include business opportunities arising from increased tax-related compliance requirements resulting from the CbCR (Country-by country Reporting) Rules 2016. Also another opportunity is in the diversification of services into the provision of business advisory services.
Challenges for SMPs include technical competencies and quality, as well as talent acquisition – with different skills and expertise especially when technology is advancing at an unprecedented rate. Another challenge is keeping up with new regulations and standards, rising costs (e.g. salaries for skilled and qualified professionals) and a high dependency on traditional services (e.g. audit, tax compliance).
In the future I expect that globalisation and the rise of the digital economy are set to significantly disrupt the way businesses are done. Therefore, the need for professional accountants transcends beyond the conventional accounting, taxation and auditing practices.
SMPs need to keep up with these wider trends and capitalise on these changes through; capacity building and capability development, having multidisciplinary skills to better anticipate and adapt to emerging trends, adapting and innovating quickly, continuous up-skilling.
By Andrew Heng, partner, Baker Tilly Malaysia
There have been developments in the Malaysian economic situation, including the cost cutting pressure in audit fees. Although the Malaysian economy has remained resilient despite the uncertainty from global headwinds, the falling oil prices that cause the weakening in Ringgit remains a key concern as it increases the cost of living in Malaysia and rises inflation from expensive goods and services. Consequently, many organisations are cutting cost by reducing their administrative overheads by going to a smaller audit firm etc.
The trends in the Malaysian market last year include the Malaysian Private Entities Reporting Standard. On 1 January 2016, all private entities are required to adopt the Malaysian Private Entities Reporting Standard (“MPERS”) – a new financial reporting framework based on the International Financial Reporting Standard for Small and Medium-sized entities (“IFRS for SMEs”) issued by the International Accounting Standards Board (“IASB”) in 2009.
Another trend is the new Companies Act 2016 (“CA2016” or the “Act”) and Companies Regulations 2017 came into force on 31 Jan 2017. CA2016 is the culmination of more than a decade’s worth of thorough review, debate and collective insights from regulatory, professional and industry bodies to create a set of regulations which can be both practically and effectively applied.
To address the economic challenge in Malaysia, our government has taken a proactive approach to tap into the China market by supporting the Belt and Road Initiative (BRI), a massive transnational economic cooperation blueprint for growth and development for Eurasia proposed by China. Since then, we have seen a lot of initiatives being carried out between China-Malaysia and Malaysia is now at the stage of recovering our economic performance.
We have setup a Belt and Road desk that is staffed by a team of professionals in the area of accounting, tax and corporate advisory, with extensive experience and knowledge in both the Malaysian and China market, to connect and assist businesses in both countries to expand in line with the Belt and Road initiative.
There are challenges but also opportunities in the market such as cost-cutting put pressure on audit fees where clients are more conscious about their spending due to challenging economic environment and they are more willing to switch auditors who offer lower audit fee. There is, however, an opportunity as iImprove services offering and value-added services to maintain clients’ relationship.
Accountants are at risk of being replaced by robots which is a challenge because we are in the age of digital disruption and many have said that sooner or later automation will replace our jobs with obsolescence and accountants are at the top of the hit list. However, whilst the knowledge, skills and abilities are necessary for the entry-level, accountants now have to have high level of computer, strategic and analytic skills so as to be able to integrate the accounting and information system to propel the industry forward.
In the short term my expectation is that trainings and support to our people in adopting the new audit software will be provided. In the long term my expectation is to work with Chinese companies under the Belt and Road desk to provide accounting, tax and advisory advice to facilitate trade as well as collaborate with other organisations/associations for mutual benefits.
By Gary Yong, senior partner, Nexia SSY, Malaysia
"Whither the auditor or Wither?" And "Have we lost our way?"
To my recollection, it was in 1983 when Carrian Group (Hong Kong) hit the profession with accounting fraud, murder of an auditor, suicide of management and all the attendant intrigue and mysteries. Financial scandals and breaches of jurisdictions continued: 1991 Bank of Credit and Commerce International, 1995 – Barings Bank, 2001 – WorldCom and Enron, 2008 – Sub-prime Mortgage debacle and Bernard Madoff, 2011 Olympus, 2014-2016 The Federation Internationale de Football Association (FIFA), political masters and leaders indicted for corruption and fraud; the litany of woes continues. In all of these and as many more undisclosed, the core component is the financial element. Thus, enters the protagonist – the accountant/auditor! What was our role and what were the expectations? Were we whistleblowers? Were the messengers shot? (An entire international firm was shut down in 2002). Contemplate the Whither or Wither.
In Malaysia, we were not spared. Large scale corruption and scandals surfaced. The authorities and the profession stepped up surveillance and governance; the Audit Oversight Board (AOB) came into force on 1st April 2010 (a date which could be looked at with bemusement for some?). Auditing the auditors commenced in earnest and since a significant number of public listed entities (more than 90%) are audited by the large international firms, they were hugely impacted.
The Malaysian Accounting Standards Board and Securities Commission introduced additional measures viz convergence of Financial Reporting Standards, new format of Auditors' Report and Key Audit Matters. ISQC was brought to the forefront to spearhead quality enhancement and quality control. The accounting profession environment was reviewed as a consequence of the issues raised in the Report on the Observance of Standards and Codes in Accounting and Auditing (ROSC AA) released by the World Bank in 2012.
The Committee to Strengthen the Accountancy Profession in Malaysia (the CSAP) was established as part of the country action plan to address said issues. The Report on the Strengthening of the Accountancy Profession in Malaysia (Report) which was prepared by the CSAP was presented to the Minister of Finance (MOF) in August 2015. The Report can be accessed at www.sc.com.my.csap-141211.pdf. The MOF has accepted the Report and its 15 Recommendations in 2016 and mandated the Securities Commission (SC) to set up an Implementation Committee to look into the implementation of the recommendations and to oversee the implementation process.
Other regulatory challenges include the Companies Act 2016 which came into effect on 30 January 2017 and the repeal of the Companies Act 1965. The Malaysian Accounting Standards Board has brought Malaysia to be in full convergence with the International Financial Reporting Standards (IFRS).
There are opportunities, challenges and expectations for the future. As the business landscape continues to evolve (for better or worse?) such challenges creates the opportunities. But have we lost our way? As I recall, at the time of introduction of accounting standards, the intention was to create a universal "boiler plate" such that a financial description or item meant the same in any part of the world in content and composition.
The setting up of the International Federation of Accountants (IFAC), the global organization for the accounting profession has admirably achieved this. Today, we have International Financial Reporting Standards (IFRS) which provides a common global language so that company accounts are understandable and comparable across international boundaries. Now that IFAC has succeeded in standardizing financial reporting, do we really need to disclose the detailed schematics of the accounting policies and methodologies?
The Annual Report today runs into volumes (>100 pages) and I would wager that most stakeholders will not pore over such details or even grasp the intricacies of such methodologies (say) of impairment and financial instruments? The accountants are the ones who have the skills set to present the financial statements and since it is clearly stated that the said financial statements are in accordance with IFRSs, do we need to disclose and define CGU, inherent and adverse risks, etc, etc? There is an elephant in the room! And my opinion is that we have painted ourselves into a corner!
And the future? Digitisations and technology have been celebrated as a blessing and regarded as the digital revolution. In my era, accounting work done manually lost out to that produced by computers. The accuracy, reliability and speed seemed infallible. Even with the maxim of "Garbage in Garbage out", computers won hands down. The technological environment today has overwhelmed our lives and profession.
We are moving to data analytics to plan and perform our audits. Robots will replace bookkeepers. Data produced in this digital revolution seems totally reliable. Unfortunately, the negative aspects include computer fraud, a black market in computerised extortion and the inhabitants of the dark side of the world wide web, the hackers. The long arm of this nether world seems limitless, even presidential elections can be rigged!
So what or who can be relied on? What is the truth? How do we filter alternative news? How do we determine given information is true or false? It seems that we have to revert to the old adage: "In God we trust, everything else we audit." And so finally, we need to return to the human element and state that: "In our opinion, the financial statements ….gives a true and fair view….". The weight on the shoulders of our profession has inevitably increased manifold!
The views expressed above are the personal opinion of the author and does not necessarily reflect the opinion of the firm.