The Malaysian Accounting Standards Board (MASB) has issued three revised Financial Reporting Standards (FRSs), amendments to five existing FRSs and four new Interpretations. These pronouncements, except for one amendment, are word for word to those issued by the International Accounting Standards Board (IASB) and are already effective internationally.
The revised FRSs and new Interpretations:
• FRS 1 First-time Adoption of Financial Reporting Standards
• FRS 3 Business Combinations
• FRS 127 Consolidated and Separate Financial Statements
• IC Interpretation 12 Service Concession Arrangements
• IC Interpretation 15 Agreements for the Construction of Real Estate
• IC Interpretation 16 Hedges of a Net Investment in a Foreign Operation
• IC Interpretation 17 Distributions of Non-cash Assets to Owners
• Amendments to FRS 2 Share-based Payment
• Amendments to FRS 5 Non-current Assets Held for Sale and Discontinued Operations
• Amendments to FRS 138 Intangible Assets
• Amendments to FRS 139 Financial Instruments: Recognition and Measurement
• Amendments to IC Interpretation 9 Reassessment of Embedded Derivatives
Except for Amendments to FRS 139, the new requirements take effect on 1 July 2010 and at the same time the existing FRS 1, FRS 3 and FRS 127 as well as FRS 2012004 Property Development Activities will be withdrawn.
FRS 1 revised does not contain any technical changes. The revision made is to improve the structure of the Standard to accommodate future changes so that it is easier for readers to understand.
The revisions to FRS 3 and FRS 127 are as a result of the convergence effort between IASB and its US counterpart. The changes from current practice, among others include the requirement that all acquisition-related costs to be recognised as period expenses and for purchases and sales of non-controlling shareholdings when control is retained to be accounted for as an equity transaction, which means that the related gains or losses shall be recognised in equity. Other main changes is the requirement to allocate losses to NCI, non-controlling interests (formerly known as minority interest), even if it results in the NCI to be in a deficit position.
As for the Interpretations, IC Interpretation 15 may have a significant impact to the real estate industry, particularly those involved in multiple-unit developments, such as apartments and condominiums and sell the units before the construction is completed.
The Interpretation requires entities to determine whether the sale and purchase agreements are construction service contracts or sale of goods and whether the percentage of completion method is appropriate for some agreements whilst for others, revenue is recognised only at the point the constructed goods are delivered to the customers. With the issuance of IC Interpretation 15, FRS 2012004 is withdrawn.
As for other Interpretations, they provide clarification as to the appropriate accounting treatment to be applied. IC Interpretation 12 prescribes how concession operators should account for the rights and obligations arising from service concession arrangements with the government.
Depending on the contractual terms, the Interpretation requires the operator to recognise a financial asset if it has an unconditional contractual right to receive cash or an intangible asset if it receives a right (licence) to charge users of the public service. Some contractual terms may give rise to both a financial asset and an intangible asset. As for IC Interpretation 16, it clarifies the hedging rules in FRS 139 pertaining to an entity’s hedge of foreign currency risk arising from its net investment in a foreign operation.
According to the Interpretation, the risk eligible for hedging in this aspect is restricted to the exchange differences between the functional currency of a parent and the functional currency of the foreign operation. On IC Interpretation 17, it clarifies that an entity should measure the dividend payable at the fair value of the assets (eg available-for-sale securities) to be distributed when the dividend is appropriately authorised and is no longer at the discretion of the entity. On settlement of the dividend, the difference between the dividend paid and the carrying amount of the assets distributed is recognised in profit or loss. If the dividend remains unpaid at the end of the entities’ reporting period, the dividend payable carrying amount is reviewed with any changes recognised in equity.
The amendments to FRSs are mainly from the remaining IASB annual improvements project that MASB did not adopt in the Improvements to FRSs issued in September 2009 as they are related to some of the above revised FRSs.
For the Amendments to FRS 139, an additional transitional provision is added in view of the comments from the financial service industry and the development currently taking place in IASB.