The Malaysian Accounting Standards Board (MASB) today issued a revised Standard on Related Party Disclosures and a new Interpretation. It also issued amendments to FRSs and Interpretations. These pronouncements are word for word to those issued by the International Accounting Standards Board (IASB). Some are already effective internationally whilst some will be effective next year.
The issuance of these pronouncements is part of MASB’s roadmap towards achieving full convergence with the International Financial Reporting Standards (IFRS) in 2012. This issuance would reduce the gap between the IFRSs and FRSs.
Related Party Disclosures
The revised FRS 124 simplifies the definition of related party, clarifies its intended meaning and eliminates inconsistencies from the definition. The changes from current practice among others include a partial exemption from disclosures for government-related entities. It requires disclosure of related party transactions between government-related entities only if the transactions are individually or collectively significant.
Prior to the issuance of the revised FRS 124, no disclosure of transactions is required in financial statements of state-controlled entities of transactions with other state-controlled entities. The partial exemption from disclosures for government-related activities as required in the revised FRS 124 are intended to put users on notice that such related party transactions have occurred and to give an indication of their extent.
Improvements to FRSs (2010) contain amendments to 10 FRSs and one Interpretation. IASB started the annual improvements process since 2008 to cater for amendments that are considered non-urgent but necessary. The objective of the annual improvements project is to enhance the quality of existing IFRSs and this is achieved by amending existing IFRSs to clarify guidance and wordings or to correct for relatively minor unintended consequence, conflicts or oversights. In view of the IFRS convergence plan in 2012, the MASB has accelerated the due process in the issuance of the Improvements as they help to clarify the requirements of or provide further explanation into existing FRSs.
Extinguishing Financial Liabilities with Equity Instruments
The IC Interpretation 19 addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor to extinguish all or part of the financial liability. It does not address the accounting by the creditor. The amendment is as a result of request for guidance on the application of FRS 139 Financial Instruments: Recognition and Measurement and FRS 132 Financial Instruments: Presentation when an entity issues its own equity instruments to extinguish all or part of a financial liability.
The Interpretation was issued by the IFRS Interpretations Committee as there were diversities in practice on how entities measured the equity instruments issued to extinguish a financial liability. Some recognised the equity instruments at the carrying amount of the financial liability and do not recognised any gain or loss in profit or loss. Others recognised the equity instruments at the fair value of either the liability or the equity instruments issued and recognised any difference between that amount and the carrying amount of the financial liability in profit or loss.
IC Interpretation 19 will standardise practice among debtors applying FRSs to a debt for equity swap. It clarifies that the entity’s equity instruments issued to a creditor are part of the consideration paid to extinguish the financial liabilities.
Amendments to IC Interpretation 14
The Amendments to IC Interpretation 14 apply in the limited circumstances when an entity is subject to minimum funding requirement and makes an early payment of contributions to cover those requirements. The amendments permit the entity to treat the benefit of such early payment as an asset.
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