Malaysia Issues Roadmap for Private Entities Financial Reporting Framework
The Malaysian Accounting Standards Board has published a roadmap which explains the board’s plan with regards to private entities that meet specified criteria to use the Financial Reporting Standards for Small and Medium-sized Entities (FRS for SMEs) beginning in 2016.
The FRS for SMEs, which was issued as MASB ED 72 for public comments in 2010, is virtually identical with the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) issued by the International Accounting Standards Board (IASB) in July 2009.
Currently, all private entities have the option to use either the Private Entity Reporting Standards (PERS) or the Malaysian Financial Reporting Standards (MFRSs).
Under the roadmap, the financial reporting framework for private entities uses size threshold based on annual revenue of RM500,000 as the differentiator. The plan came about after having considered the feedback received on the Request for Views on Private Entities, the Way Forward issued in February 2012.
“The MASB recognises the importance of private entities (which primarily are SMEs) to the economy," says MASB's chairman, Mohammad Faiz Azmi.
SMEs represent over 97% of the total business establishments in Malaysia, contributing about 32% to the nation’s gross domestic product.
"It is clear that promoting a viable SME sector is essential in the nation's focus towards broadening and sustaining the growth momentum. In this regard the MASB believes it is for the benefit of the SMEs, specifically the larger ones to comply with international standards so that they would present financial statements that are comparable to its counterparts in other jurisdictions,” says Azmi.
Datuk Ali Abdul Kadir, chairman of the Financial Reporting Foundation, the oversight body of the MASB said, "An international language of disclosure and transparency is a goal worth pursuing on behalf of users, such as capital providers, of larger SMEs financial statements who seek comparable financial information to make well-informed decisions. The increasing worldwide acceptance of financial reporting using IFRS for SMEs have led the MASB to give a lot of thought in making this milestone decision.”
However, he added that, “the MASB did not jump on the bandwagon for the sake of joining the crowd. IFRS for SMEs, which is a set of simplified IFRSs built on an IFRS foundation, is designed specifically for SMEs and is internationally recognised.”
Based on a recent report by the IASB, over 80 jurisdictions have either adopted the IFRS for SMEs or stated a plan to adopt it within the next three years.
“We hope that with this advance notice, private entities would have sufficient time to prepare themselves for the changeover," advises Azmi. "We also urge all stakeholders to consider how they could assist affected private entities in the migration from the PERS to the FRS for SMEs which the MASB expects to issue during the first half of 2013.”
On the cost of implementation, Datuk Ali says “incremental training costs is unavoidable but if the affected private entities have been practicing continuous professional education programme, training cost is expected to be marginal particularly if they do not enter into complex business transactions. In addition, training materials are available free from the IASB website and therefore implementing the FRS for SMEs is not expected to be an expensive exercise for such entities."
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