Impact of MPSAS to financial reporting · Impact of MPSAS to financial reporting Jabatan Akauntan Negara Malaysia May 2017 The information contained herein is of a general nature

Impact of MPSAS to financial reporting

Jabatan Akauntan Negara Malaysia

May 2017

The information contained herein is of a general nature and is not intended to address the circumstances of any

particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the

future. No one should act on such information without appropriate professional advice after a thorough examination

of the particular situation.

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Malaysian law is a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. KPMG PLT (LLP0010081-LCA) was

registered on 27.12.2016 and from the date thereof, was converted from a

conventional partnership, KPMG, to a limited liability partnership. All rights

reserved. Printed in Malaysia.

© 2017 KPMG PLT, a limited liability partnership established under Malaysian law is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG PLT (LLP0010081-LCA) was registered on 27.12.2016 and from the date thereof, was converted from a conventional partnership, KPMG, to a limited liability partnership. All rights reserved. Printed in Malaysia.

Document Classification: KPMG Confidential

1



Thong Foo Vung

18 May 2017



2

What is Malaysian Public Sector

Accounting Standard (“MPSAS”)?

• MPSAS is also known as ”Piawaian Perakaunan Sektor Awam Malaysia”

issued by Accountant General’s Department.

• MPSASs are converged with IPSASs.

• Applicable to all public sector except for Government Business Enterprises

(“GBEs”).

• Effective for the statutory body on or after 1 January 2020 [Letter dated 20

January 2017].



May 2017















3

Why government bodies do not

apply MFRS?

• MFRS are drawn for entities that make profits and

generate return on equity investor.

• Key characteristic that differ from other entities which

makes MFRS not suitable for public sectors:

a) Volume and financial significance of non-exchange

transactions

b) Assets held by the public sector are normally held

to provide service rather than generating profits



4

Definition of Government Business

Enterprises (“GBE”)Criteria of a GBE:

a) An entity with power to contract in its own name

b) Has been assigned the financial and operational authority to carry on a business

c) Sell goods and services, in the normal course of business with profit or full cost recovery

d) Not reliant on continuing government funding to be a going concern

e) Controlled by a public sector

Is it a GBE?

Malaysian Financial

Reporting Standards

(“MFRS”)

Malaysian Private

Entities Reporting

Standard (“MPERS”)

Malaysian Public

Services Accounting

Standards (“MPSAS”)

Yes No

Choice of either….

Definition is being

reviewed to be less

restrictive



May 2017















5

Major differences between MPSAS, MFRS & MPERS



6

Introducing ‘service potential’ as part of the definition and recognition criteria.

Service potential

Fact pattern:

■ A local authority builds a park for the use of public.

■ There will be no entrance collection on these parks.

MFRS/MPERS

• No future economic benefit

from the operation of the park

• Expense the cost to income

statement

MPSAS

• No future economic benefit from the operation

of the park

• But it can serve the public over the next 15

years

• Capitalise as asset if:

• Probable future economic benefit or service

potential will flow to the entity

• Cost or fair value can be reliably measured



May 2017















7

(MPSAS 12/MFRS 102/MPERS Section 13)

Measurement of inventory

Fact pattern:

■ A statutory body bought 500 bags of fertilizer at a cost of RM100 per bag. It is to be

sold to rural planters at a subsidise price of RM10 per bag.

■ What is the carrying value recorded under

a) MFRS?

b) MPERS?

c) MPSAS?

Framework Explanation Carrying amount

recorded

MFRS/

MPERS

MFRS & MPERS require the inventory to be

written down to net realisable value (“NRV”).

RM10 per bag

MPSAS MPSAS requires the inventory to be recognised

at the lower of cost and current replacement cost.

RM100 per bag



8

(MPSAS 23)

Revenue from non-exchange

transactions

Fact pattern:

■ A public school acquires a land for RM50,000 from local government.

The fair value of the land is RM100,000.

■ How is this accounted for under MPSAS?

Dr Cr

Asset (Land) 100,000 -

Cash - 50,000

Revenue - 50,000

Asset recognise at

fair value

Amount of the

increase in net

asset recognised



May 2017















9

(MPSAS 23)

Non-exchange

transactions

Transaction where an entity either

receives or gives without directly

giving or receiving equal exchange

Recognition Asset and corresponding revenue

Measurement

Asset: Fair value at date of

acquisition

This is

silent

under

MFRS &

MPERS

Revenue from non-exchange

transactions (continued)

Revenue: Amount of the increase

in net asset recognised



10

Impairment of non-cash generating

assetsFact pattern:

In 2011, a government school acquired a bus for RM200,000 to provide

transportation to student living in the rural area at a minimal fair of RM1. It

has a 10 year useful life. The company that provides this transportation is

making a huge loss. The future cashflow is expected to be similar. Is there a

need to impair the buses?

Impairment indicator for MFRS/MPERS

• Observable indication of decline

in asset value

• Increase in interest rates that

would affect the discount rate

used in calculating value-in-use

• Carrying amount of asset more

than market capitalisation

• Internal evidence on declining

economic performance

Impairment indicator for MPSAS

• Cessation or near cessation

of the demand or need for

the service by the asset

• Decision to halt construction

of asset before completion or

in a usable condition

• Internal evidence on

declining service

performance



May 2017















11

(MPSAS 21)

MeasurementImpairment loss =

Carrying amount > recoverable service

amount

Recoverable service

amountHigher of non-cash-generating asset’s fair

value less costs to sell and value in use.

Present value (PV) of it’s remaining service

potential.

3 approaches to measure value-in-use:

• Depreciated replacement cost approach

• Restoration cost approach

• Service units approach

Value in use of non-

cash-generating asset


assets (continued)This is

silent

under

MFRS &

MPERS



12

Depreciated replacement cost approach

Fact Pattern:

A local council purchases a software license for an application with its mainframe computer

costing RM350,000. It has a 7 years useful life. After 4 years, the demand for this application

has decreased by 30%. It cost RM70,000 to purchase a similar software application license.

Which approach do we use?

How much is the impairment loss?NBV at year 4 (a) 150,000 (350,000 x 3/7)

Replacement cost (b) 70,000

Depreciated replacement cost (c)

30,000 (70,000 x 3/7)

Impairment loss ( a – c) 120,000


assets (continued)



May 2017















13

Fact pattern:

In 2011, a government school acquired a bus for RM200,000 to provide free transportation to

student living in the rural area. It has a 10 year useful life. In 2016, the bus was involved in an

accident costing RM40,000 for restoration. The restoration would not affect the useful life of the

bus. Purchasing a new bus would cost RM 250,000 in 2016.

Restoration cost approachWhich approach do we use?

How much is the impairment loss?NBV at year 5 (a) 100,000 (200,000 x 5/10)

Replacement cost (b) 250,000

Restoration cost (c) 85,000 ((250,000 x 5/10) – 40,000)

Impairment loss (a – c) 15,000


assets (continued)



14

Fact Pattern:

In 2000, a government sector bought a printing machine costing RM40 million. The estimated

useful life would be 40 million copies of books over 10 years. In 2005, a fault in the machine

caused a 25% reduction in the machine’s annual output for the remaining 5 years. The

replacement cost for a new machine would be RM45 million in 2005.

Service unit approachWhich approach do we use?

How much is the impairment

loss?

NBV at year 5 (a) 20,000,000 (40,000,000 x 5/10)

Replacement cost (b) 45,000,000

Service unit cost (c) 16,875,000 ((45,000,000 x 5/10) x 75%)

Impairment loss (a-c) 3,125,000


assets (continued)



May 2017















15

Onerous contracts(MPSAS 19/MFRS 137/MPERS Section 21)

Fact pattern:

A government entity enters into an agreement to clean the tank with a subsidised

amount. The cost of providing the service is expensive. Is there a provision required for

foreseeable loss?

MFRS/MPERSA provision is recognised on the present obligation

under this agreement.

MPSASAgreement entered to provide social benefits with an

expectation not recover the full cost is excluded from

this scope (paragraph 77 of MPSAS 19).



16

Investment property(MPSAS 16/MFRS 140/MPERS Section 16)

Fact pattern:

A government agency provides housing to low income families at a rental that is below

market value. Are these properties classified as investment property (IP) or property,

plant and equipment (PPE)?

MFRS/MPERSThe properties would be classified as IP as they are held

to generate rental income.

MPSAS The properties would be classified as PPE. Although

there is rental income earned, it is considered as

incidental revenue. These houses are held to provide

social service rather than generating income.



May 2017















17

Related parties disclosure(MPSAS 20/MFRS 124/MPERS Section 33)

Fact pattern:

Agency A is a government agency. It transacts with both other government agencies and

non-government agencies. How are these transactions disclosed in the financial

statements?

MFRSDisclosure is only needed for significant transaction with

government-related entities. There is an element of

judgement involved here.

MPERSEntity is exempted from disclosure on transactions with

government-related entities.

MPSAS There is no such exemption provided under MPSAS.



18

(MPSAS 24)

Comparison of the actual financial performance against

approved budget is required.

Reporting of budgets versus actual

There is no such

requirement under

MFRS & MPERS



May 2017















19

(MPSAS 24)


(continued)Presented as a

separate

statement

Source: Illustrative example of MPSAS 24



20

Alternative

method


(MPSAS 24)


(continued)



May 2017















21

Explanation of

material

differences

between budget

and actual


(MPSAS 24)


(continued)



22

Reconciliation


(MPSAS 24)


(continued)



May 2017















23

Consideration for conversion to

MPSAS

MPSAS

Thank you



May 2017













The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Impact of MPSAS to financial reporting · Impact of MPSAS to financial reporting Jabatan Akauntan Negara Malaysia May 2017 The information contained herein is of a general nature