1. 1 How A Developing Economy Embraces IFRS: Malaysia 25 March 2006

2. 2 How A Developing Economy Embraces IFRS: Malaysia Embrace: “Integral part of …” Embrace: “Integral part of …” IFRS an integral part of the capital market & corporate governance structure IFRS an integral part of the capital market & corporate governance structure Malaysia’s experience vs Asia’s experience Malaysia’s experience vs Asia’s experience Historical, structural, political (will) Looking back 1972 - 2001 Looking back 1972 - 2001 Strategy & Challenges Strategy & Challenges Looking forward 2006 - beyond Looking forward 2006 - beyond Strategy & Challenges Strategy & Challenges

3. 3 Integral part of the capital market & corporate governance structure Malaysia has a history of a formal integration of accounting standards into the economic fabric since 1972 Malaysia has a history of a formal integration of accounting standards into the economic fabric since 1972 Integration into law of the country in 1997, earlier than many others Integration into law of the country in 1997, earlier than many others Integration into governance structure in 2000 within Code of Corporate Governance Integration into governance structure in 2000 within Code of Corporate Governance Integration into capital market in 2001 within: Integration into capital market in 2001 within: Capital Market Masterplan, and Financial Market Masterplan

4. 4 Integration Strategy Degree of integration EconomicLegalCapitalGovernance 1972 199720002001 MasterPlans 2006 7 & 8 Malaysia Plan (1996-2005)9 Malaysia Plan Fin Rpt Act Corp Gov Code Adoption 1978 Capital Financial

5. 5 Relatively long history of adoption 1978 – 1997 Adoption of IAS 1973 IASC Formed 1972 Presentation of Accounts

6. 6 1978 Adoption of first 4 IAS by MACPA 1978 Adoption of first 4 IAS by MACPA 1986 Next 13 IAS adopted 1986 Next 13 IAS adopted 1992 All IAS adopted by MACPA and MIA 1992 All IAS adopted by MACPA and MIA 1997 Accounting standards setting function taken over by Malaysian Accounting Standards Board under Act of Parliament 1997 Accounting standards setting function taken over by Malaysian Accounting Standards Board under Act of Parliament 1978 - 1997 Economic

7. 7 Financial Reporting Act 1997 Financial Reporting Act passed by Parliament in March 1997 (prior to Asian financial crisis) Financial Reporting Act passed by Parliament in March 1997 (prior to Asian financial crisis) Formation of Financial Reporting Foundation and Malaysian Accounting Standards Board Formation of Financial Reporting Foundation and Malaysian Accounting Standards Board New to Malaysia and the region New to Malaysia and the region Dedicated independent body Dedicated independent body First time accounting standards has the force of law First time accounting standards has the force of law Non-compliance means breach of law Non-compliance means breach of law Stringent enforcement infrastructure by Securities Commission, Central Bank and Registrar of Companies Stringent enforcement infrastructure by Securities Commission, Central Bank and Registrar of Companies Legal

8. 8 Compliance is Mandatory Mandatory for: Publicly Listed Companies under Exchange – 1,000 Companies registered with the Registrar – 701,000 !! Financial Institutions under Central Bank – 23 Dedicated Enforcement Infrastructure: Publicly Listed Companies – Securities Commission Registered companies – Companies Commission Financial Institutions – Central Bank

9. 9 Malaysian Accounting Standards Board Mandate: Develop financial reporting standards Develop Islamic accounting standards Extensive consultative process Philosophy: independence Funded by: Securities Commission (1/3) Securities Exchange (1/3) Ministry of Finance (1/3) Public, accounting firms, NGOs (Nil) Public, accounting firms, NGOs (Nil) Independence

10. 10 MASB Working Group 1 IAS IFRS 2 MASB 3 Public Working Group 7 MASB 8 FRF 9 MASB * 6 FRF Public 45 MASB 10 Discussion Paper prepared Review of DP Finalise DP into ED Public Exposure Final review Review of comments FRS issued Approval 9-15 months Consultative Process & Autonomy * No need for Parliamentary approval

11. 11 MASB Standards vs International Accounting Standards MASB Standards are IAS Plus Similar to IAS, plus Guidance added, plus Other requirements added Harmonization 1997 – 2001: Harmonization

12. 12 Integration with Master Plans Malaysia’s 5-year Master Plans Malaysia’s 5-year Master Plans Code of Corporate Governance issued in 2000 Code of Corporate Governance issued in 2000 Capital Market Masterplan Capital Market Masterplan Financial Sector Masterplan Financial Sector Masterplan “Recommendations for achieving highest standard for financial reporting for corporate governance among capital and financial market players in Malaysia” “Recommendations for achieving highest standard for financial reporting for corporate governance among capital and financial market players in Malaysia” Governance & Capital Issued in 2001

13. 13 2005: Convergence Harmonization Convergence

14. 14 Malaysia Malaysia Support convergence. IFRS Convergence not an issue. Support convergence. IFRS Convergence not an issue. Question of managing implementation Question of managing implementation Participate early in standards setting development Participate early in standards setting development Objective: Ownership. Strictly adhere to due process, buy-in Objective: Ownership. Strictly adhere to due process, buy-in Discretion on implementation date for each standard Discretion on implementation date for each standard Alliance with recognized bodies, lead if necessary Alliance with recognized bodies, lead if necessary Asia Asia Developing economies seem to have no choice but to converge Developing economies seem to have no choice but to converge participate in free trade/globalization participate in free trade/globalization funding for industrialization funding for industrialization No choice but to participate regionally, greater representation No choice but to participate regionally, greater representation No choice but to have regular discourse to identify commonalities, or diversities No choice but to have regular discourse to identify commonalities, or diversities Strategy

15. 15 Malaysia Malaysia Changing mindset – old habits die hard, price for having long history Changing mindset – old habits die hard, price for having long history Interpretations Interpretations Managing change Managing change Cost of complex standards vs benefits to owner manager companies Cost of complex standards vs benefits to owner manager companies Region Region Lack of regional participation Lack of regional participation Lack of voice, representation Lack of voice, representation Where problems are common, countries must be forthcoming Where problems are common, countries must be forthcoming Where problems are not common, endeavour to find a consensus Where problems are not common, endeavour to find a consensus IASB IASB Developed economies focus Developed economies focus Board representation Board representation Changing goalpost Changing goalpost Challenges

16. 16 Convergence impact: Convergence impact: Tough for many countries Tough for many countries Suddenly have to migrate to new environment Suddenly have to migrate to new environment Accounting standards are now law of these countries Accounting standards are now law of these countries Australia (2002) Spore (2003) Phil (2004) Europe (2005) Australia (2002) Spore (2003) Phil (2004) Europe (2005) Language matters Language matters Malaysia – not as bad …relatively Malaysia – not as bad …relatively Have been on IAS all along Have been on IAS all along We made standards a law in 1997 We made standards a law in 1997 Standards in English, no need for translation Standards in English, no need for translation Addressing Challenges – Changing mindset

17. 17 Addressing Challenges - Interpretations Discourse with Affected Parties Degree of Buy-in

18. 18 Australia -eliminate choices Hong Kong - redefine subsidiaries HongKong - State controlled entities, leases NZealand -agriculture, leases Singapore -leasehold land Malaysia -implementation dates Addressing Challenges – Sharing with others

19. 19 In Malaysia, 95% of 701,000 companies are SMEs. Initial intent to cover ALL companies was noble. In Malaysia, 95% of 701,000 companies are SMEs. Initial intent to cover ALL companies was noble. But as Standards become more complex But as Standards become more complex Burden of compliance by SMEs becomes main issue Burden of compliance by SMEs becomes main issue MASB announced 2 – tier reporting standard 1.1.2006 MASB announced 2 – tier reporting standard 1.1.2006 PLCs, subsidiaries, assoc., JV must comply IFRS PLCs, subsidiaries, assoc., JV must comply IFRS Other private entities: A choice of IFRS or MASB Standards (which are IAS compliant) Other private entities: A choice of IFRS or MASB Standards (which are IAS compliant) Addressing Challenges – Costs vs Benefits

20. 20 Moving Forward Convergence is the way forward Understanding the needs of developing economies important for significant buy-ins in the region Challenges: Regional diversity remains a challenge Help is needed: IFRS likely to remain complex Goalposts keeps changing Implementation on the ground Malaysia stands ready to offer: Significant learning curve Active in Islamic accounting standards Common understanding about SMEs Models to follow

21. 21 Conclusion Success of convergence contingent upon how developing economies “ embrace ” IFRS Malaysia fortunate to have: a history infrastructure political will to drive international convergence Others may not be as fortunate, but Asia can learn from each other Asian diversity is a beauty Malaysia stands ready