1. Overview of Accounting
Prepared by: Kamaruzzaman Abdul Rahim

2. Learning Outcome
After being guided through this topic, students should be able to:
Explain the importance of accounting
Explain what is an economic entity
Explain the different types of businesses and the reporting requirements
Explain the history and development of accounting in Malaysia
Explain the roles of the bodies that regulate the financial reporting practices in Malaysia

3. What is Accounting? Accounting is known as the language of business.
It provides pertinent information helpful in making economic decisions.
Economic decisions are decisions that would result in the provision of resources such as money, materials, machinery, land, buildings and labour that a business entity uses to provide goods and services.
As resources are limited, one must make decisions to use available resources to optimize returns.
Accounting involves the process of identifying, recording and communicating information about an economic entity which can be used to make informed judgements and decisions.

4. What is an Economic Entity?
An economic entity may be an individual, a business, a co-operative or a non-profit organization.
A business is formed with the intention of making profits through selling of goods and rendering of services to members of an economic system.
Examples of business entities involved in the production of goods are Sime Darby Berhad, Top Glove Berhad, and Adabi Sdn. Bhd.
Examples of business entities that provide services are AirAsia Berhad, KPJ Healthcare Berhad and Maybank Berhad.

5. What is an Economic Entity? (cont)
Non-profit organizations such as public service agencies and charitable foundations are established to provide services to various segments of society with no intentions of earning profits.
Examples of some non-profit organizations are the National Science Centre, Mercy Malaysia and Yayasan Salam Malaysia.
Every entity, regardless of its objectives, must establish a system of keeping records of its economic activities and measuring results of its accomplishments. Accounting provides the means for tracking such activities and measuring results.

6. Development of Financial Reporting in Malaysia
The Companies Act 1965 was the first legislation that set out what information companies should provide.  
The Ninth Schedule of the Companies Act 1965 outlines the minimum information that companies are legally required to disclose.
The initiative to adopt the International Accounting Standards (IASs) started in 1978 by the Malaysian Association of Certified Public Accountants (MACPA).

7. Development of Financial Reporting in Malaysia (cont)
In 1979, Malaysia became a member of the International Accounting Standard Committee (IASC).
The MACPA later joined forces with the Malaysian Institute of Accountants (MIA) to carry on adopting the IAS and also to develop local standards known as the Malaysian Accounting Standards (MAS).
Most of the IAS issued by the lASC and International Financial Reporting Standards (IFRS) issued by its predecessor, the International Accounting Standards Board (IASB) have been adopted in Malaysia.

8. Development of Financial Reporting in Malaysia (cont)
The introduction of the Financial Reporting Act 1997 marked a new era in the development of financial reporting in Malaysia, with the establishment of the Financial Reporting Foundation (FRF) and the Malaysian Accounting Standards Board (MASB).
Compliance with MASB approved accounting standards were made mandatory on companies for financial reporting purposes.
The Companies Act 1965 was also amended to incorporate the same requirements.

9. Development of Financial Reporting in Malaysia (cont)
The MASB initially adopted 24 of the extant IAS and MAS issued prior to the establishment of MASB by the Councils of MIA and MACPA. The standards were known as the MASB Standards.
Beginning October 2005, MASB changed the name of its standards to Financial Reporting Standards (FRS).

10. Development of Financial Reporting in Malaysia (cont)
The Two Tier Reporting Framework was introduced in February 2006.
Smaller companies which are called Private Entities are allowed to choose between applying the FRS or the Private Entity Reporting Standards (PERS).
Other companies which are not private entities will use the FRS.

11. Development of Financial Reporting in Malaysia (cont)
A private entity is a private company, incorporated under the Companies Act 1965, and is not required to prepare or lodge any financial statements under any law administered by the Securities Commission or Bank Negara Malaysia; and is not a subsidiary or associate of, or jointly controlled by, an entity which is required to prepare or lodge any financial statements under any law administered by the Securities Commission or Bank Negara Malaysia.
The PERS consist of the old MASB Standards prior to the issuance of the FRS.
Disclosure requirement under PERS is relatively simpler compared to FRS and considered less taxing for smaller companies.

12. Development of Financial Reporting in Malaysia (cont)
On 1 August 2008, the FRF and MASB announced their plan to fully converge with IFRS beginning 1 January 2012.
Inline with the convergence plan, MASB issued a new set of MASB approved standards called the Malaysian Financial Reporting Standards (MFRS) to replace the FRS beginning 1 January 2012.
With the issuance of the MFRS, Non-Private Entities will apply MFRS while Private Entities may choose either the MFRS or PERS.
On 14 February 2014, the FRF and MASB announced the introduction of the Malaysian Private Entity Reporting Standards (MPERS) which shall replace the PERS beginning 1 January 2016.

13. Development of Financial Reporting in Malaysia (cont)
The MPERS is similar to the set of mini IFRS issued by IASB for small and medium-sized entities known as the IFRS for SMEs, with slight changes made to the IFRS for SMEs for it to become MPERS in order to incorporate Malaysia’s business environment.
Beginning 1 January 2016, Private Entities may choose to apply the MFRS or MPERS.
To improve financial reporting by the public sector and in line with the Government’s Economic Transformation Plan, the Federal Government of Malaysia will gradually move from modified cash basis accounting to accrual basic accounting beginning year end 2015.

14. Development of Financial Reporting in Malaysia (cont)
Inline with the move to accrual accounting, the Malaysian Public Sector Accounting Standards (MPSAS) have been introduced to support public sector financial reporting.
The MPSAS were developed based on the international accounting standards, i.e. International Public Sector Accounting Standards (IPSAS) issued by the International Public Sector Accounting Standards Board.

15. Private Entity (PE) or Non-Private Entity (Non PE)
Example 1
Public company (Non PE)
Sistem Televisyen Malaysia Berhad (Parent company)
Subsidiary company
Subsidiary company
Subsidiary company
Metropolitan TV Sdn Bhd
Natseven TV Sdn Bhd
CH-9 Media Sdn Bhd
Private company
(Non PE)
Private company
(Non PE)
Private company
(Non PE)
Use MFRS

16. Private Entity (PE) or Non-Private Entity (Non PE)
Example 2
Public company (Non PE)
Maybank Berhad
(Parent company)
Subsidiary company
Subsidiary company
Subsidiary company
Maybank Islamic Berhad
Maybank Asset Managemant Sdn Bhd
Etiqa International Holding Sdn Bhd
Public company
(Non PE)
Private company
(Non PE)
Private company
(Non PE)
Use MFRS

17. Private Entity (PE) or Non-Private Entity (Non PE)
Example 3
Private company
(PE)
Adabi Consumer Industries
Sdn Bhd
(Parent company)
Subsidiary company
Subsidiary company
Subsidiary company
Product Optima
Sdn Bhd
Adabi Distribution
Sdn Bhd
Baktisan Pertama Sdn Bhd
Private company
(PE)
Private company
(PE)
Private company
(PE)
Use either MFRS or MPERS

18. Forms of Business A business entity in Malaysia may take the form of:
a sole proprietorship
a general partnership; or
a limited liability partnership
a company incorporated under the Companies
Act, which can be:
a private company (Sdn Bhd)
an unlisted public company (unlisted Bhd)
a listed public company (listed Bhd)

19. Reporting Requirements (Non-Incorporated Entity and LLP)
To comply with the Approved accounting Standards in the preparation of its financial statements; and
To submit its financial statements to the Director General of Inland Revenue Board for the purpose of determining assessable income under Income Tax Act
The financial statements do not have to be audited, unless its constitutions requires

20. Reporting Requirements (Private Company)
To comply with the Approved accounting standards in the preparation of its financial statements; and
To submit its audited financial statements to the Director General of Inland Revenue Board for the purpose of determining assessable income under Income Tax Act
To comply with the Companies Act. Specifically, its financial statement must be audited, should reflect a true and fair view, and should be submitted to the Companies Commission within 6 months of its financial year end

21. Reporting Requirements (Unlisted Public Company)
All reporting requirements of a private company are applicable. Additionally:
It must also comply with the SC’s corporate disclosure policy concerning high standards of disclosure and dissemination of information. However, it does not have to comply with the SC’s guidelines which related to listed public companies
If it is a bank or financial institution licensed under BAFIA, it must comply with the Bank Negara Malaysia’s guidelines

22. Reporting Requirements (Listed Public Company)
Its reporting requirements are more extensive as it has to comply with:
the Approved Accounting Standards
the Companies Act
the Securities Commission‘s guidelines
the Bursa Malaysia Listing Requirements
the Income Tax Act; and
the Bank Negara Malaysia’s guidelines, if it is a bank or financial institution

23. Reporting Requirements (Listed Public Company)
More specifically, a listed public company should submit:
a quarterly financial statements to the Securities Commission and the Bursa Malaysia
other interim and periodic financial reports to the Securities Commission
the final audited financial statements to the SC, the Bursa Malaysia, the Companies Commission, and the Director General of Inland Revenue; and
financial statement that have been drawn up to show a true and fair view and are in compliance with Approved Accounting Standards.

24. Reporting Requirements (summary)
Act/Requirement/Guidelines/Standards
Business forms/entities
Income Tax Act
Applies to all business entities with assessable income
Approved Accounting Standards
Apply to all entities, whether or not incorporated, and whether or not listed
Companies Act
Apply only to companies incorporated under the Act

25. Reporting Requirements (summary)
Act/Requirement/Guidelines/Standards
Business forms/entities
Securities Commission Guidlelines
Apply to all public companies, whether listed or not listed
Bursa Malaysia Listing Requirements
Apply to companies listed on the Bursa Malaysia Exchange
Central Bank Guidelines
Apply to only Bank and Financial Institutions licensed under BAFIA

26. Regulatory and Professional Bodies
Regulatory bodies
A regulatory body is an organization responsible for monitoring the activities of entities or individuals.
Regulatory bodies are formed or given power under the terms of an Act.
Their activities include imposing requirements, restrictions and conditions, setting standards in relation to any activity, and securing compliance, or enforcement.
Examples of regulatory bodies are Securities Commission Malaysia, Bank Negara Malaysia and Malaysian Institute of Accountant.
   

27. Regulatory and Professional Bodies (cont)
Professional bodies plays a role in supporting the financial reporting process.
Examples of professional bodies are MICPA, ACCA, CIMA and ICAEW.  
   

28. Financial Reporting Environment in Malaysia

29. Malaysian Accounting Standards Board
The MASB is established under the Financial Reporting Act 1997, as an independent authority to develop and promote high quality accounting and reporting standards that are consistent with international best practices for the benefit of users, preparers, auditors and the public in Malaysia.
The MASB also contributes directly to the international development of financial reporting.
The MASB comprises eight members appointed by the Minister of Finance, and includes the Chairman of the MASB, the Accountant-General and six other members who are well-versed and experienced in financial accounting and reporting, and in one or more of the fields of accountancy, law, business and finance. In addition, the Minister of Finance has appointed three advisors to the MASB, each from the Bank Negara Malaysia, the Securities Commission and the Registrar of Companies.

30. Malaysian Accounting Standards Board (cont)
The MASB, together with the Financial Reporting Foundation (FRF), make up the frameworks for financial reporting in Malaysia.
The FRF is a trustee body that has responsibility for the oversight of the MASB's performance, financial and funding arrangements, and as an initial source of views for the MASB on proposed standards and pronouncements, but has no direct responsibility with regards to standard setting.
The Financial Reporting Foundation (FRF) comprises representation from all relevant parties in the standard setting process, including preparers, users, regulators and the accountancy profession.
Although the FRF and MASB are charged with the responsibilities of developing accounting and financial reporting standards, the power to ensure compliance rests with other bodies such as the Securities Commission Malaysia, Bank Negara Malaysia, Bursa Malaysia and the Companies Commission of Malaysia.

31. Securities Commission Malaysia
The Securities Commission Malaysia was formed on 1 March 1993 under the Securities Commission Act 1993.
It is a self-funding statutory body with authority to carry out investigation and with enforcement power over entities whose securities are issued to the market.
It is entrusted with responsibilities to systematically develop, regulate and provide a safe investment platform for capital market investors which include protecting investors’ rights against fraud and misconducts.

32. Securities Commission Malaysia (cont)
The SC’s regulatory functions are:
Supervising exchanges, clearing houses and central depositories;
Registering authority for prospectuses of corporations other than unlisted recreational clubs;
Approving authority for corporate bond issues;
Regulating all matters relating to securities and derivatives contracts;
Regulating the take-over and mergers of companies;
Regulating all matters relating to unit trust schemes;
Licensing and supervising all licensed persons;
Encouraging self-regulation; and
Ensuring proper conduct of market institutions and licensed persons.
The organizational structure of the SC comprises nine Commission members appointed by the Ministry of Finance including the Executive Chairman and seven other private and government representatives.

33. Bank Negara Malaysia
Bank Negara Malaysia is the central bank of Malaysia.
It was established on 26 January 1959 under the Central Bank of Malaysia Act 1958.
On 25 November 2009, Central Bank of Malaysia Act 1958 was replaced with the Central Bank of Malaysia Act 2009.
BNM is a wholly owned statutory body of the Malaysia government with a current paid-up capital of RM100 million, and reports directly to the Ministry of Finance on matters pertaining to monetary and financial sector policies.

34. Bank Negara Malaysia (cont.)
 The central role of the BNM includes practicing prudent monetary policy to ensure low and stable inflation rate and sustaining the purchasing power of the Malaysian Ringgit.
BNM is also responsible for instituting stable financial system and developing the financial sector in Malaysia.

35. Bank Negara Malaysia (cont.)
The main functions of the BNM include being the banker, financial and economic adviser to the Malaysian government; the sole authority for issuing ringgit currency and managing Malaysia international’s reserves. In addition, BNM has seven other functional areas which relate to the country’s economic and monetary policy, investment and operations, and financial institution regulation, payment systems, supervision, organizational development and provide and enhance information transparency and disclosure to various stakeholders.
The Acts that are under the purview of the BNM include the Development Financial Institutions Act 2002, Anti-Money Laundering and Anti-Terrorism Financing Act 2001(Act 613) and Money Services Business Act 2011, Financial Services Act 2013, Islamic and Financial Services Act 2013.

36. Bursa Malaysia
Bursa Malaysia is an integrated Exchange with a frontline key role as a capital market regulator, responsible for ensuring orderly, transparent and systematic administration of securities and derivatives markets traded in the Exchange.
The history of the formation of Bursa Malaysia dates back to the year 1930, when the first formal securities business organization in Malaysia called Singapore Stockbrokers’ Association was established and re-registered in 1937 as the Malayan Stockbrokers’ Association.

37. Bursa Malaysia (cont)
The Malayan Stock Exchange was formed in 1960 and the public trading of shares officiated in Malaysia. It became the Stock Exchange of Malaysia in 1964 and changed to Stock Exchange of Malaysia and Singapore in 1965, following the secession of Singapore from Malaysia. In 1973, when the Malaysia and Singapore currency interchangeability ended, the Exchange was distinguished as the Kuala Lumpur Stock Exchange Berhad and the Stock Exchange of Singapore. In 1974, the operations of Kuala Lumpur Stock Exchange Berhad were handed over to the Kuala Lumpur Stock Exchange (KLSE), a company incorporated as a company limited by guarantee.

38. Bursa Malaysia (cont)
On 14 April 2004, KLSE was renamed Bursa Malaysia Berhad and demutualized to enhance its competitive position and efficiency in the exchange sector, in response to global trends and demands for the Exchange, to be customer-driven and market-oriented. Subsequently, on 18 March 2005, Bursa Malaysia was listed on the Main Board of the Bursa Malaysia Securities Berhad.
Currently, the Bursa Malaysia which is an exchange holding company under the purview of the Securities Commission and the Ministry of Finance has ten subsidiaries which are the Bursa Malaysia Securities Berhad, Bursa Malaysia Derivatives Berhad, Bursa Malaysia Derivatives Clearing Berhad, Labuan International Financial Exchange Inc, Bursa Malaysia Securities Sdn Bhd, Bursa Malaysia Depository Sdn Bhd, Bursa Malaysia Information Sdn Bhd, Bursa Malaysia Bonds Sdn Bhd, Bursa Malaysia Islamic Services Sdn Bhd and Bursa Malaysia Depository Nominees Sdn Bhd.

39. Bursa Malaysia (cont)
The products of the Exchange comprise equities, derivatives, offshore listing and services, and bonds and Islamic instruments.
It has two listing markets for company shares, which are the Main Market and ACE Market. The Main Market listing is for established companies while the ACE market is a listing of all business sectors with growth potential and is sponsor-driven.
The Bursa Malaysia Listing Requirements documents the listing regulatory procedures and reporting requirements of listed companies that incorporate the Malaysia Code on Corporate Governance as part of the reporting.

40. Companies Commision of Malaysia
The Companies Commission of Malaysia or Suruhanjaya Syarikat Malaysia is a statutory body formed in 2002 under the Companies Commission of Malaysia Act 2001.
It serves as an agency to incorporate companies and register businesses.
It also governs the business information provided by companies to the public. It plays an important role to improve corporate governance practices in Malaysia.
The CCM is responsible for the administration and enforcement of the following legislation:
Companies Act 1965
Registration of Business Act 1956
Trust Companies Act 1949
Kootu Funds (Prohibition) Act 1971
Limited Liability Partnership Act 2012

41. Accountant General’s Department of Malaysia
The Accountant General’s Department of Malaysia or Jabatan Akauntan Negara Malaysia (JANM) was established with the creation of the Accountant General position under the Ministry of Finance, before Malaysia achieved its independence.
The JANM manages the nation’s accounting and financial reporting aspects, especially in accordance with the Financial Procedure’s Act 1957 (revised 1972), Unclaimed Monies Act 1965 and the Pension Fund Act 1991.

42. Accountant General’s Department of Malaysia (cont)
The JANM’s objectives are:
To enhance the accountability and transparency of the Federal Government’s accounting management;
To enhance the accounting and financial management system of Government agencies,
To assist the Government in making effective decisions;
To develop and implement the human resource management system for accounting services; and
To enhance the enforcement of the Unclaimed Monies Act 1965. 
The Accountant General represents the government of Malaysia in the Malaysian Institute of Accountants Council. In addition, the Accountant General is also one of the eight members of the MASB. Thus, the JANM plays a vital role as the link between the private sector and public sector accounting.

43. The Malaysian Institute of Accountants
The Malaysian Institute of Accountants (MIA) is a statutory body established under the Accountants Act 1967, with the aim to regulate and develop the accountancy profession in Malaysia.
The MIA regulates practitioners who are accountants.
The Accountants Act 1967 provides that only registered members of the MIA can hold themselves as accountants.
The MIA's responsibilities include education and quality assurance, as well as enforcement which are carried out to ensure that credibility of the profession is maintained and public interest is continuously upheld.

44. The Malaysian Institute of Accountants (cont)
The MIA monitors international and local accounting trends and developments, and consults regularly with the government and regulatory bodies.
In the international and regional arena, the MIA plays a significant role in developing and advancing the global accounting profession, through its involvement in organizations such as the Asean Federation of Accountants (AFA), and the International Federation of Accountants (IFAC).
Currently, accounting graduates from Malaysian universities listed under Schedule 1 of Part 1 of the Accountants Act 1967 can become MIA members after acquiring a minimum of three years relevant accounting working experience without further need to obtain a professional accounting qualification. The second route to become an MIA member in Malaysia is through the membership of professionally recognized accounting bodies.

45. The Malaysian Institute of Certified Public Accountants (MICPA) and Other Professional Bodies
The Malaysian Institute of Certified Public Accountants (MICPA) formerly known as Malaysian Association of Certified Public Accountants was formed in 1958, as a company limited by guarantee under the Company Ordinance 1940.
Its involvement as technical advisory to Malaysian regulatory bodies has played a key role in the development and organization of business and financial reporting environment in Malaysia.
For more than five decades, the Institute has been providing a platform for accounting graduates to further their accounting profession career as certified public accountants through its professional examination and membership.

46. The Malaysian Institute of Certified Public Accountants (MICPA) and Other Professional Bodies
MICPA is also a founding member of the International Federation of Accountants (IFAC), which presents its position as a well-recognized professional accounting body which aims to contribute to the protection of public interest, and advancement of the accounting profession, business, economies and capital market, both locally and internationally. The IFAC member body compliance programme promotes the exercise of international standards and qualities, where the programme monitors areas of regulatory and standard-setting framework, and professional accountancy organization’s role and responsibilities in relation to audit, accounting, ethics, discipline and continuous development.

47. The Malaysian Institute of Certified Public Accountants (MICPA) and Other Professional Bodies
In addition to the MICPA, other international professional accounting bodies in Malaysia such as the ACCA, ICAEW, CPA (Australia) and CIMA have gained significant presence for the professional accounting memberships.
The accounting professional body membership in Malaysia is important, as it is linked to the membership requirements of the Malaysian Institute of Accountants (MIA). The MIA is the sole issuer of the license to practice as an accountant in Malaysia, and as such, membership to the MIA is crucial for the accounting profession in Malaysia.

48. The Malaysian Institute of Certified Public Accountants (MICPA) and Other Professional Bodies
The professional accounting bodies’ membership can contribute to the education and development of MIA members through the bodies’ continuous development programme. Being members of professional accounting bodies, gives certain recognition on the validity of acquisition of requisite accounting knowledge, skills and qualities and reputation to a person to qualify and maintain his/her professional accounting bodies membership as well as giving international mobility of workplace.

49. Function or Role of Accounting
Record keeping function
Primary function is to keep a systematic record of financial transactions where financial statements are prepared to report regularly to the interested users.
Protect business properties
To prevent unwanted and unjustified used of business property through a proper accounting system.

50. Function or Role of Accounting
Legal requirement function
To devise such an accounting system that help a business entity to fulfill its legal requirement such as tax return, compliance to particular acts etc.
Communicating the result
To communicate the results (performance, financial positions, cash flow etc) to the interested parties or the stakeholders .