The announcement of full adoption of IFRS in Malaysia
caught no one within the nation’s accounting industry by surprise.
However, the actual date of the deadline was news to most. Carolyn
Canham speaks to several of the profession’s leaders about the
opportunities and challenges IFRS presents.

 

Malaysian accounting standards have been based on international
standards since 1978, and since 2006 the move to make them
identical to their international counterparts has picked up pace.
Therefore, when the Malaysian Accounting Standards Board (MASB)
said local standards would fully converge with IFRS by 2012, few
stakeholders were caught by surprise. Most will be prepared for the
changes the move will bring, however, some industry figures
speaking with The Accountant warned smaller companies and
firms might struggle with aspects of convergence.

The existing Malaysian standards are already word-for-word
identical with IFRS. The difference lies in standards Malaysia has
not adopted. The two major ones are IAS 39 – Financial Instruments:
Recognition and Measurement, which will be effective from 1 January
2010, and IAS 41 – Agriculture, which is currently being reviewed
for adoption.

BDO Binder audit partner Tang Seng Choon was involved in a
number of MASB working groups so the announcement came as no
surprise to him. However, he said compliance with IAS 39 by 2010
would come as a shock to some stakeholders, including both
companies and professional services firms, and many might not be
prepared.

Seng Choon is not concerned about BDO’s capacity to deal with
the changes – he sits on the BDO International IFRS working
committee and is up-to-date on the standards. He does, however,
concede the firm will need to “look inwards”. “We need to see
whether our firm has the expertise to tackle those things… I need
to retrain my seniors and the managers in charge of engagement
teams to be more focussed on IAS 39 – that standard comes in
hundreds of pages,” he says.

BDO Binder’s clients are less prepared. Seng Choon says: “The
major companies in Malaysia are talking about readiness and early
adoption, but a lot of other companies in Malaysia, although
listed, are really smaller, mid-sized companies and they may have
some problems.”

The BDO partner’s sentiments are echoed at
PricewaterhouseCoopers Malaysia (PwC). Ng Mi Li is a senior
executive director and technical partner at the Big Four firm and a
council member of the Malaysian Institute of Certified Public
Accountants (MICPA). Mi Li says PwC is prepared for convergence
with IFRS and has for some time assisted clients with subsidiaries
that prepare IFRS financial statements. Local tertiary institutions
are also aware of the need to incorporate IFRS into their curricula
in order to equip future graduates with IFRS knowledge, she
adds.

However, Mi Li’s colleague, Loh Lay Choon, a board member of the
Financial Reporting Foundation in Malaysia, says the preparers of
financial statements are at various degrees of readiness. “Those
corporations with overseas subsidiaries are obviously better
prepared than those without significant foreign subsidiaries in
IFRS jurisdictions,” she says.

Stephen Oong, an audit partner in the technical department of
Ernst & Young Malaysia (E&Y), is less concerned about the
implementation of IAS 39. He explains the long lead-up to the
implementation of the standard means many stakeholders will already
be prepared. Oong points out that the MASB originally planned for
IAS 39 to be effective from 1 October 2006. “At that point in time
the accounting firms got themselves ready. We also gave a lot of
training and seminars to all our clients to get them geared up. So
I think in that sense, people who were ready at that point in time
are ready,” he says.

Oong says there has also been a test exercise to examine how
ready Malaysian companies are for IAS 39. “That was done about two
years ago and more than 20 listed companies participated in a trial
run of adoption and application of IAS 39,” he says. “When that
exercise was completed, the conclusion was Malaysian companies were
actually ready.”

MASB executive director Nordin Zain is also positive the
accounting profession and listed companies are prepared for the
final steps to conversion.

“We worked together with market players to carry out field tests
on agriculture, impact study on IAS 39 and field studies on IFRS
for Private Entities. Participation from stakeholders was
forthcoming and that has helped us identify problem spots and hence
issues of implementation to address,” Zain says. “The market was
unaware about 2012 before the announcement. I would have thought
they were expecting it to be earlier than 2012, so it is a good
break for them.”

Zain says that although some smaller listed companies may not be
as prepared as the larger ones, they must accept the
responsibilities that come with being public interest entities.
“The fact that they are listed… means they are publicly
accountable companies. It is a conscious decision they have made
and therefore they have to play by international rules,” he
says.

The MASB executive director is also optimistic about the
preparation of the accounting profession.

“The education and training programme has been very active in
this part of the world,” Zain says. “I am glad to see a healthy
growth of reputable outfits offering training to the accounting
profession and I am glad too for the amount of energy and effort
put up by the Big Four accounting firms in Malaysia in getting
their clients ready for the standards.”

While preparation for IAS 39 is a concern to some, the
agriculture standard is also a topic of discussion. According to
Zain, the nation is the largest palm oil producer in the world and
the third-largest rubber producer, therefore the agriculture
standard has the potential to affect a lot of people.

Determining the fair value of biological assets is one major
concern within the scope of IAS 41. Oong explains most plantation
companies are concerned whether there are sufficient resources in
terms of people who have the capability to determine the fair value
of biological assets. However, he adds that when the MASB engaged
the valuers and plantation stakeholders in public forums, the
valuers said they do have the capability to do the valuation.

Gary Yong, a member of the public practice committee of the
MICPA and a partner at Nexia International member firm SSY
Partners, is concerned fair value causes problems in general.

“I don’t know about the Western world, but in the Asian context
it is rather difficult,” he says, adding that in the case of a
barter trade, for example, “how does one place a fair market value?
Very honestly, it is open to abuse.”

All the firms expect revenue opportunities to arise from the
adoption of the new standards – particularly IAS 39. However, Seng
Choon warns that although he expects increased fee income, there
will also be increased time costs that may not be translated into
fees. “The local going wages underestimate the full compliance of
these standards and a lot of time spent by the auditors may not be
translated into fees,” he explains.

Despite any reservations, most partners are pleased convergence
dates have been settled. Seng Choon explains: “I am quite happy
that the road map has been clearly spelled out so that we can
actually have a full convergence by 2012. Otherwise, when I do an
international engagement, I have to think about what is in IFRS,
what is in Malaysian GAAP and it is very difficult sometimes.”

Yong is an exception – saying he has some reservations about
IFRS: “I have been in practice since 1975, and it has come to the
point where form has become more important than substance. That is
my concern.”

He is also concerned about the setting of standards being
handled mainly by academics, adding: “The practitioners,
fortunately or unfortunately, do not play a major role.

“I confess myself that when we have an exposure draft, one
doesn’t find time to take a look at it and then before you know, it
is implemented and then when we start to really look at it and try
and apply it, we say ‘whoops, it does cause a problem’. All these
suppositions or what may happen hypothetically academically doesn’t
in real life, so it is difficult.”