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THE MALAYSIAN
JOURNAL OF THE MALAYSIAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
AccountantMay - June 2014 www.micpa.com.my PP 3809/03/2013 (031857)
Outcome Based Budgeting in MalaysiaDynamic Risk Management - Accounting in an Age of Complexity
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
FEATURE P.3
The Malaysian AccountantEDITORIAL BOARD
Datuk Robert Yong Kuen Loke (Chairman)Tan Theng Hooi (Alternate Chairman)
Abdul Halim Md LassimKhaw Hock Hoe, Alex
Loh Lay ChoonNg Gan Hooi, Patrick
Ng Kim TuckTan Chin Hock
Yong Yoon Shing, GaryChia Kum Cheng (Co-opted)
Ahmad Faris Yahaya (Co-opted)
PRINCIPAL OFFICE BEARERSPresident
Ken Pushpanathan
Vice PresidentDato’ Abdul Rauf Rashid
PRINCIPAL OFFICERSExecutive Director
Foo Yoke Pin ([email protected])
Operations Manager Victor Liew ([email protected])
Head, Examination Yong Ngeak Choo ([email protected])
Membership Services ManagerLee How Lai ([email protected])
Senior Technical ManagerHoh Kim Hyan (hkh.tech@micpa .com.my)
Technical Manager (Tax)Tan Yu Yin ([email protected])
Senior Marketing ManagerEileen Grace Lee ([email protected])
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The Malaysian Accountant is published by: The Malaysian Institute of
Certified Public Accountants (3246-U)15, Jalan Medan Tuanku
50300 Kuala Lumpur, MalaysiaTel: 03-2698 9622 Fax: 03-2698 9403
E-mail: [email protected]: www.micpa.com.my
Note: The views expressed in this journal are not necessarily
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FEATURE P.7
PERSPECTIVE 2
FEATURE
• Outsource Finance and Accounting to Cut Cost 3
• Outcome Based Budgeting in Malaysia 7
• Dynamic Risk Management - Accounting in an Age of 10
Complexity
INSTITUTE NEWS
• NACRA Launch Event 13
• Membership Update 14
• Continuing Professional Development Programme 14
• Cessation of Membership and Exclusion from 15
Student Register
TECHWATCH
• IASB Update 16
• IFAC Update 19
GLOBAL INSIGHT
• News from Down Under 23
• World News 24
LIFESTYLE
• Beverage Trends 27
CONTENTS
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
2 The Malaysian Accountant
Should companies outsource or not outsource their finance and accounting processes? That is the
question asked and discussed at length in the leading feature of this issue. Often, finance and
accounting is one of the first processes that companies outsource and this practice continues
unrestrainedly among many organisations today.
As the market evolves, so does the need for companies to explore fresh ideas and seek new answers that
will help streamline the finance and accounting processes. Today, outsourcing has expanded to new areas
of finance and accounting, new industries, and new sizes of companies than in the past.Finance and
accounting offshore outsourcing is also becoming a growing trend which involves the relocation of business
processes to Asia where costs of doing business is relatively cheaper.
Among most CFOs who would want to outsource the finance and accounting processes, efficiency is
regarded as the most important of all and is given high priorities. Companies are constantly evaluating the
strength of their outsources and how certain measures applied in the processes and technology can be
enhanced to maintain a certain level of efficiency.
The most commonly outsourced services within accounting are payroll accounting, accounts payable, and
accounts receivable. Companies are now looking to move from relatively basic transactional processes,
such as accounts payable to more strategic functions, like budgets, forecasts and internal audits. Thus,
more and more companies are now outsourcing internal auditing, which is a high-level function.
There are many advantages and drawbacks to outsourcing but how one overcomes them is important. For
a more detailed explanation, read the article inside.
The budgeting system in Malaysia has seen numerous changes since the country gained its independence.
It began with the traditional budgeting system, which was then replaced by the Programme and
Performance Budgeting System. At present, the system that is in use is the Modified Budgeting System
(MBS), which was implemented in 1990.
However, the government realised that there is a need to improve the current budgeting system because
the MBS contains several weaknesses. And with Malaysia aiming to become a high-income, developed
nation by 2020, various effective measures have to be implemented. One of the ways is through the
implementation of Outcome Based Budgeting (OBB) under the New Economic Model.
This new budgeting system will soon replace the existing budgeting system, MBS and will be test-bedded
in selected ministries in 2014. Supposedly, the OBB has been successfully implemented in countries like
Canada, New Zealand and Singapore. Read the article inside to find out more about the OBB and how it will
benefit the country.
These days, as social lifestyle sees changes, the days of unhealthy drinks have become numbered. The
current generation trend of drinking healthy juices, designer coffees and flavoured premium teas seems
more appealing and is rampantly gaining popularity amongst the masses.
PERSPECTIVE
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 3FEATURE
Finance and accounting (F&A) is one of the first processes
that companies outsourced and the practice continues to
boom. As the market matures, companies contracting for
outcomes are exploring fresh ideas and seeking new answers to
streamline F&A processes. They are expanding outsourcing to
new areas of finance and accounting, new industries, and new
sizes of companies than in the past.
Driving efficiency is a high priority for Chief Financial Officers
who want to outsource F&A processes. There is a wider trend in
outsourcing as a whole. Cost reductions are the table stakes and
companies want to know what else their outsourcers can do to
make their processes and technology run more efficiently. The
most commonly outsourced services within accounting are payroll
accounting, accounts payable, and accounts receivable.
Companies are looking to move from relatively basic transactional
processes, such as accounts payable to more strategic functions,
like budgets, forecasts and internal audits. More and more
companies are outsourcing internal auditing, which is a high-level
function.
Simplifying and standardising F&A processes is a key
characteristic of well-run companies and by instilling good F&A
processes, these companies can achieve a variety of good
outcomes—such as more information, more service and more
cash. Also by simplifying their F&A processes, companies have
Finance and accounting offshore outsourcing is a growing trendinvolving a relocation of business processes to Asia where costs of doingbusiness are relatively cheaper. The drivers of outsourcing emanate from
organisational initiatives, improvement focus, financial and costobjectives or growth objectives.
By Eddie Lee
To Outsource or Not to Outsource
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
4 The Malaysian AccountantFEATURE
found they can reduce the cycle it takes to close books and they
can develop better benchmark and baseline financial processes to
help them meet regulatory requirements.
Expanding the scope of outsourcing can multiply such
benefits. One simple example is accounts payable and
receivables. If a company outsources only one function, it limits its
benefits. If it outsources both, a company improves value beyond
the transactional component because the outsourcer can see
when cash comes in and goes out. That can help the company
take best advantage of the cash on-hand and optimise internal
processes.
As companies look to leverage the power of their data, they
are turning to outsourcers with greater expertise and technology
resources than they have in-house. An outsourcer is going to have
access to state-of-the-art technology and experts who use those
software packages every day. More and more companies are
looking for end-to-end F&A capabilities from outsourcers.
Consider how outsourcing can help a company get a better handle
on its pay-to-procure process. Powerful analytics can help a
company better understand their spending through the entire
supply chain in order to control budgets and standardise
procedures company-wide.
This approach allows companies to identify cost savings
through supplier consolidation and duplicate payment analysis.
Automating the process can improve policy compliance and
reduce order errors by ensuring employees around the world can
order what they need when they need it while enforcing business
rules and limits that prevent employees from making costly
mistakes. While CFOs of large companies are focused on
outsourcing to improve far-flung global operations, smaller
companies, which have typically eschewed outsourcing of F&A,
are beginning to embrace it as well. Outsourcers have expanded
their offerings to the small- and mid-size company segments and
developed solutions targeted toward specific vertical industries.
A recent report from a professional body found that
companies using F&A outsourcing believe that they will reduce
costs but lose control. However, as they realise those cost
advantages, they see that quality is rising because benchmarks
are being applied to their performances. In the end, the report
concludes, companies can see control is improving too. Many
companies realise they manage an outsourced provider more
stringently than their in-house resources are managed. Outsourcing
outcomes are more likely to use clear metrics, such as savings and
service-level achievement. Thus, allowing a company to have
continuous improvement in their accounting and finance operation
while the company itself can focus on its core competencies.
If a corporation is thinking outsourcing might be a way to help
its business cut costs, focus on what it does best and benefit from
dedicated experts taking care of its non-core functions, it could be
right. If the company thinks that IT and data entry are the only
outsourcing options, think again. Outsourcing opportunities have
expanded greatly over the past few decades. In the past two
decades, companies’ perception of what functions as ‘core’ has
changed significantly. As fewer functions are perceived as core, the
more opportunities for outsourcing grow. For example, 10 years
ago, HR was core but now HR outsourcing is common. More
services are going the way of human resources.
Growing companies face a challenge. To stay focused on
building its business, it needs solid financial management with a
dependable accounting function—a resource it may not have in-
house. That’s where outsourcers come in. Outsourcers provide
start-ups and other businesses with outsourced accounting and
finance solutions on a fixed-fee basis and no matter what its size
outsourcers can tailor its services to fit the company needs at every
stage of the company’s life cycle.
Getting valuable advice on financial management is
important for the smooth running of a company business.
Whatever the size and scale of its business, accurate financial
reporting is highly essential. Accounting tasks can be tedious and
may take a lot of its time especially for now when many businesses
are adopting complex business models, legal structures and
expanding their operations across borders. A company needs to
be sure that its accounting and financial reports are accurate,
complete and compliant with practices and local legislation.
It's important to work with an accounting practice that has
many years of experience in the field. Moreover, it's more important
when it hires an accounting practice which has specific experience
in the area the accounting services. It can also benefit immensely
when it works with a professional accounting firm that has served
leading local and local corporations.
The combination of knowledge, experience and
professional expertise which is offered by outsourced accounting
services providers is unmatched and meets the needs of every size
of business. No matter the size of its business, it stands better
chances of benefiting from the experience and collective wisdom,
which the trusted accounting consultants offer. The advisory
services which they offer can help direct its business towards the
right direction, which will help it achieve its short term and long term
goals. The experts are able to deliver high quality and value added
advisory services.
Also, when it needs taxation services, accounting
consultants will be better placed to serve it better. They are able to
assist with planning, preparation and tax minimisation.
The service providers are known for their accuracy and
reliability. They also ensure that a company gets its accounting
report within the shortest time possible. Rest assured that they will
stick to the mandatory accounting rules and practices. Moreover,
if there are legislative changes, which can affect its business, the
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 5FEATURE
consultants will provide it with valuable advice regarding the same.
A company can work with these accounting consultants, help its
business realise its long-term goals and offer a tailored approach,
which can be used to deliver high quality services.
By working with corporate accounting services, a company
can have peace of mind when doing its financial reporting. While
the outsourcers concentrate in making sure that a company beats
datelines, it will have enough time to concentrate in running its
business and take it to the next level. From maintaining accurate
financial records, taxation services and anything between, it can
count on outsourced accounting services providers to get the
work done.
There are many advantages as well as many drawbacks of
outsourcing to a foreign supplier. It could be as far as having an in-
house accountant or sending financial records to a different
accounting provider. From an accounting standpoint, one must
question whether the advantages of outsourcing outweigh the
drawbacks.
The advantages of outsourcing to a foreign supplier can be
summarised as financial savings, time savings, expert services and
contractual obligation. With regards to financial savings, a
company needs not to hire a full-time employee thus cutting the
amount of money they would be spending on payroll with its
attendant expenses such as Employee Provident Fund benefits,
insurance, taxes, hospitalisation and medical, over-time payments
etc.
Thus, by eliminating the need for another full-time employee
it will allow a company to downsize in terms of work space,
furniture, computer, etc. Along with the financial savings, the
company would also be saving a lot of time. Outsourcing would cut
back on valuable time that would be spent on bookkeeping, which
which is often taken away from activities and business directly
related to the company's mission and needs. This allows a
company to focus their resources and the true needs of the
company.
Outsourcing also allows for expertise service. When hiring
outside of the company, it is often that a third-party service
provider is being hired. The third-party service provider
specialises specifically in the work they do. From the
companies perspective the need to hire someone and train
them to get the job done right is no longer a worry. This allows
for better record keeping allowing a company to get ahead
of competition.
Finally, the advantage of outsourcing is a contractual
obligation between a company and the source. Often times
dealing with in-house staff becomes a bit of hassle regarding
negotiations, management and human resources. When
outsourcing, a contract or agreement is set up to meet the
needs of both the company and provider, allowing both
parties to understand their responsibilities to one another.
While there are many advantages of outsourcing, there are
also a few drawbacks such as distance and time, language
barriers, loss of control and security risks. Distance and time being
a drawback is not to be confused with the advantage previously
mentioned i.e., time savings. Distance becomes an issue because
a company does not physically have someone in the office to
answer any questions that may crop up, leaving it with having to
communicate electronically which can become a problem if it is a
time sensitive matter.
Another issue regarding time is time zones. If a company is
outsourcing to a foreign country it must be aware and account for
the differences in time that the supplier may be providing, again
becoming an issue for a time sensitive matter.
Language barriers become an issue when trying to explain
and clearly communicate the needs of the company. Sometimes
the local language is not directly translatable between different
languages, which could create a problem of miscommunication.
The loss of control comes to play in terms of training and processes
from day-to-day. This becomes an issue if a company wants things
to be done a specific way according to its needs.
The final and most important drawback of outsourcing is the
security risk. When outsourcing, a company is giving up the right to
inside knowledge and allowing others to now know the operations
and financial information of the company.
After looking at the advantages and drawbacks associated
with outsourcing to a foreign supplier, it seems that the answer lies
within the company. A company must look at what their mission
and needs are and weigh them against the advantages and
drawbacks. If a company understands the advantages and takes
into consideration the drawbacks, they could create an action plan
to handle such drawbacks. This would allow the company to fully
take advantage of outsourcing.
However, if a company does not consider the drawbacks
they could find themselves struggling to keep up with the needs of
the company.
201
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UDIA
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UDIA
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w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 7FEATURE
INTRODUCTION
For the past fifty years since our country achieved its
independence, a variety of budgeting systems have been utilised
in Malaysia. It began with the Traditional Budgeting System, which
was then replaced by the Programme and Performance Budgeting
System. At present, the system that is in use is the Modified
Budgeting System (MBS).
The current MBS was implemented by the government in
1990. However, the government realised that there is a need to
improve the current budgeting system because the MBS
contained several weaknesses. Among them are (1) it focuses
more on compliance rather than performance, (2) it lacks
systematic monitoring system and poor information system, (3)
results in overlapping programme and thus increase in redundancy
and (4) dichotomous budgeting.
It is the government’s aim to see Malaysia become a high-
income, developed nation by the year 2020. To achieve this
objective, various effective measures and management planning
have to be implemented in the development of the country. Apart
from that, public expenditure also needs to be improved to
generate a sustainable economic growth. One of the ways to
realise the agenda is through the implementation of Outcome
Based Budgeting (OBB) in Malaysia under the New Economic
Model.
The idea of implementing the Outcome Based Budgeting
(OBB) was initially proposed by the Prime Minister, Datuk Seri Najib
Tun Razak in the 2010 Budget. Datuk Seri Najib mentioned it again
in the 2014 Budget presentation. “With the aim to improve budget
management, OBB was introduced to ensure that allocation is
based on outcomes; improve the efficiency of implementation;
reduce redundancy as well as systematically evaluate
performance of all government programmes and projects” - Datuk
Seri Najib Tun Razak, 2010 Budget Speech
This new budgeting system will be implemented during the
10th Malaysian Plan period (2011-2015) to replace the existing
budgeting system, MBS. According to the Second Finance
Minister Datuk Seri Ahmad Husni Hanadzlah, the OBB will be test-
bedded in selected ministries in 2014 (Bernama, 2013). The
selected three ministries are the Ministry of Health, the Ministry of
International Trade and Industry as well as the Ministry of Finance.
OBB has successfully been implemented in countries like Canada,
New Zealand and Singapore.
By Dr Morni Hayati bt Jaafar Sidik and Amalina Ismail
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
8 The Malaysian Accountant
WHAT IS OBB?
Outcome or Performance based budgets use statements of
missions, goals and objectives to explain why money/monies are
spent. It is a way to allocate resources to achieve specific
objectives based on programme goals and measured results
(Ministry of Finance).
OBB is different from the traditional approaches because it
focuses on outcome rather than input. - i.e.: input is a certain
amount of money spent and the outcome is the result of the
expenditure.
This would enable policy makers to determine the activities
that are cost-effective in reaching their final outcome. Thus,
government expenditure will be focused on value for money as well
as programmes and projects with high multiplier effect.
According to the Ministry of Finance, OBB is an integrated
process incorporating 4 main development components. The
components are:
• Planning for Outcome – developing the strategic result
framework for the Ministry
• Budgeting for Outcome – preparing the resource requirements
to drive the ministry results
• Monitoring & Evaluation – managing information for
monitoring, evaluation and decision support system
• Results Reporting – performance reporting and policy
formulation
Therefore, by integrating these components, OBB seeks to
enhance the management system of public sector to be more
effective and efficient.
OBB will also be expected to improve in several other areas.
Firstly, there will be no more dichotomous budgets. This is because
a single view of the budget incorporating both the Development
Budgets and Operating Budgets under a Programme will be
implemented in OBB. Secondly, it will establish vertical and
horizontal linkages between National Priorities and Ministry
Activities, which will improve the accountability framework that will
drive performance across a more structured strategic framework.
The framework is as shown by the following figures 1 and 2 below.
Figure 1
Source: http://myresults.treasury.gov.my
FEATURE
Strategic Plan Annual Plan
Supporting Technology
Supporting Process
Supporting Organisation and Governance
Performance Monitoring Forecast
Strategic NationalPriorities
Consistent Key M
etrics
Set Targets
GrassrootPriorities
10 Malaysia Plan
StrategicPrograms
Operational B
udget
Developm
ent Budget
Execute
Personnel
Section
Department
Ministry
Sub Sector
Sector
Key Results Area
Reporting / M
onitor
Analyze
Personnel
Section
Department
Ministry
Sub Sector
Sector
Key Results Area
Com
munications
Personnel
Section
Department
Ministry
Sub Sector
Sector
Key Results Area
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 9FEATURE
Thirdly, it can eliminate wastages by addressing cross-cutting
issues through identification of overlapping programs or activities
and shared outcomes among the government agencies. In other
words, OBB will enhance cultural change by fostering cross-
operation and coordination between the government agencies to
achieve the intended results.
Despite the generally positive improvements, the OBB
approach may have a number of challenges in its implementation.
Among the challenges are: (1) Understanding and identifying the
outcome is not an easy task, (2) There will be major changes in the
way the government officers would need to manage and run the
programme. For example, redefining the roles and functions of
budget review officers and (3) It is difficult to measure and analyse
the outcome.
CONCLUSION
In summary, the main reason why government should introduce
OBB is to ensure that the budget allocation and management will
be further improved. This is because OBB would be able to
integrate the whole planning, budgeting monitoring and evaluation
process. Thus, it helps give a clearer picture on the need for
intervention and the corrective actions that need to be taken by the
Malaysian government. This will also lead to more efficient and
effective financial management among the public sector As a
result, the government of Malaysia would be able to assist the
public service in achieving higher standards of good governance
while improving its accountability and transparency.
However, there are also several challenges that need to be
addressed. As noted by Errol Oh (The Star 2013) “The big
challenge lies in the fact that the expected benefits of migrating to
OBB won’t flow overnight. As with many facets of government, it
takes commitment and a long-term view to keep driving a
programme like this despite whatever changes in leadership and
policies.”
Dr Morni Hayati bt Jaafar Sidik is from the Universiti Kuala Lumpur
Business School and Amalina Ismail is a lecturer at UTAR
Integrated national plansto achieve long term
objectives
National level
Programmes neededto achieve
Integrated national plans
Activities*required to complete
programmes
Resources requiredto complete activities and
the cost of resources
Programme level Ministry / Agency level
Resource 1 budget
Activity 1 budget
Ministry 1 budget
Programme 1 budget
National budget
Programme 2 budget
Programme 3 budget
Programme N budget
Ministry 2 budget
Ministry 3 budget
Ministry N budget
Activity 2 budget
Activity 3 budget
Activity N budget
Activity 1 budget
Activity 2 budget
Activity 3 budget
Activity N budget
Resource 2 budget
Resource 3 budget
Resource N budget
Resource 1 budget
Resource 2 budget
Resource 3 budget
Resource N budget
Figure 2: Linking National Budget to Resource Budgets
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
10 The Malaysian Accountant
Interpreting financial statements can be difficult at the best oftimes. It can be an even greater challenge when an entity has a
complex business model or undertakes complex and diverse
transactions. IFRS provides disclosures and comparability in
recognition and measurement with the aim of helping investors
better understand entities’ financial statements. Entities may also
choose to provide supplementary information for especially
complex transactions or exposures. Nevertheless, in some areas
of reporting, even the best of intentions can leave investors
struggling.
One of these is risk management—particularly, dynamic risk
management. Many entities are exposed to market price
movements that affect their profitability. For example, a bank’s net
interest income is often the most significant contributor to
profitability. However, net interest income is exposed to changes in
interest rates. How well a bank manages this risk affects its
profitability. Managing these risks on a continuous and dynamic
basis is one of the key elements of financial risk management.
Dynamic management of interest rate risk is therefore a critical
component of a bank’s ongoing risk management activities.
Understanding that financial reporting needs to provide
more clarity about these types of activities, the IASB has just
published the Discussion Paper Accounting for Dynamic Risk
Management: a Portfolio Revaluation Approach to Macro Hedging
(the ‘DP’). The DP explores the accounting aspects of dynamic risk
management and discusses preliminary views on a new
accounting approach that may improve financial reporting in this
area. The particular focus of the DP is the management of interest
rate risk by banks; however, it also applies to other dynamic risk
management activities in other industries (for example, commodity
price risk).
Developing a new approach does not mean that current
accounting practices are necessarily failing investors. IFRS already
includes a general hedge accounting model, which provides for the
fair value and cash flow hedge accounting with which most
investors will be familiar. The model has recently been improved
through the new financial instruments Standard IFRS 9 Financial
Instruments (IFRS 9). However, even the general hedge accounting
approach has limitations in which risk management practices are
more complex and the risks being hedged are more dynamic.
Why a new approach?
Many of you may recall the reason we have a general hedge
accounting model, which is largely a result of the mixed
measurement approach applied in financial reporting. For example,
IFRS requires that all derivatives should be measured at fair value.
Given the nature of these instruments (for example, little or no initial
cost with significant leverage and exposure), the IASB (and many
stakeholders) consider fair value as the most appropriate
By Steve Cooper, a member of the IASB, discusses an accounting approach for dynamic risk management
Dynamic risk management -accounting in an age of complexity
FEATURE
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 11
measurement basis; particularly considering that cost-based
measurement may poorly reflect the leverage inherent in most
derivatives and the significant changes in value that can occur.
However, IFRS does not require fair value measurement for
many of the assets and liabilities that create risk exposures that
may be hedged by those derivatives. For example, banks’ loans
and deposits are generally measured at amortised cost. The
accounting focuses on the net interest income generated over the
life of the instruments rather than changes in value. Most
commentators also believe that this approach better reflects the
banking business model and provides the best depiction of
performance for these instruments. However, the fair value
measurement of derivatives and the cost-based measurement of
bank loans and deposits do not sit well together when the objective
of holding those derivatives is to manage the interest rate risks
(fluctuations in net interest income) of that business activity. This is
when hedge accounting becomes necessary to provide investors
with clear, transparent information about the related activity.
The general hedge accounting model of IFRS 9 can be
applied to dynamic risk management and, in many cases, is
adequate to enable the economics of the activity to be faithfully
reflected in financial statements. However, applying the general
hedge accounting model to risks managed dynamically can
present challenges and complexity for preparers, and can result in
financial statements that are difficult for investors to understand.
There are also certain dynamic risk management activities that are
difficult to reflect properly in financial statements and that may
consequently result in volatility that is not reflective of the underlying
situation. It is for these reasons that the IASB wishes to consider an
alternative accounting approach.
The Portfolio Revaluation Approach
In the DP we refer to the potential new method of accounting for
dynamic risk management as the Portfolio Revaluation Approach
(PRA). The aim of the PRA is to provide an alternative to the present
general hedge accounting model that will be easier for preparers to
apply and that will better represent and be more consistent with risk
management activities, resulting in better information for investors.
Mechanics of the PRA
The PRA involves identifying a portfolio of exposures that is subject
to dynamic risk management, and remeasuring these for the risk
being managed. For a bank this could be a portfolio of loans and
deposits. This is not a full fair value approach, as only one
component of changes in value would be recognised in the
revaluation adjustment. For example, for dynamic interest rate risk
management only changes in value of the loan or deposit due to the
hedged benchmark interest rate risk component would be
included in the revaluation. Other components of the change in fair
value including credit risk, expected credit losses and other
components of the credit spread such as liquidity are not included
in the adjustment.1 This revaluation adjustment is then reported in
profit or loss together with the full fair value changes of the
derivatives that the bank is using to manage that risk.
There are two key advantages of this approach over the
general hedge accounting model.
The PRA can be more easily appliedto open portfolios
The general hedge accounting model essentially relies on a one-to-
one designation of the hedged item (the loan or deposit) with the
hedging instrument (the derivative). Therefore, while the general
model works well for closed portfolios it has significant limitations
when applied to open and dynamically managed portfolios.
Problems in the general hedge accounting model arise when
derivative positions are adjusted in response to changing risk
exposures (for example, new bank loans being added to portfolio,
early loan repayment of existing loans or changes in the levels of
deposit). All such changes affect the extent of the ‘natural hedge’.
Under the general hedge accounting model these changes may
cause an entity to ‘dedesignate’ the original hedge relationship and
re-establish it in a different form. Not only is this operationally
burdensome for the bank, but the resulting accounting
adjustments can result in volatility in profit or loss, making the
hedge appear to be ineffective when in reality it is not.
The PRA would enable entities tobetter reflect their dynamic riskmanagement practices in theirfinancial statements
Some dynamic risk management activities that are designed to
manage or stabilise the net interest income of banks are difficult to
accommodate in the IFRS 9 general hedge accounting model. A
good example relates to the effects of so-called core demand
1 Note however that credit losses are separately captured through the amortised cost impairment allowance.
FEATURE
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
12 The Malaysian Accountant
deposits. Some bank deposits (for example, bank current
accounts) can create a stable source of funding at a low or even
zero interest rate. If these effective fixed interest rate liabilities fund
variable interest rate assets, the bank may wish to hedge (stabilise)
the resulting volatile net interest income through an appropriate
derivative position. Normally, fixed interest rate funding can be
designated in a fair value hedge in the general hedge accounting
model, but this is not possible with core demand deposits,
because most of the deposits are repayable on demand, which
means that there is no fair value change that can be recognised.
Banks can adopt different approaches under the IFRS 9
general hedge accounting model to mitigate the profit or loss
effects of this problem, such as applying a cash flow hedge to the
variable interest rate asset or by finding a completely unrelated
financial instrument to offset against the derivative as a ‘proxy fair
value hedge’. However, neither of these ‘work-arounds’ are
satisfactory. The former creates volatility in other comprehensive
income (OCI) that is not reflective of the risk management
approach. The latter is operationally complex and becomes
extremely difficult for investors to understand since the hedge
accounting is only indirectly related to the risk being managed.
The PRA would provide an alternative and more transparent
solution. Using this approach, banks would be able to apply a so-
called behaviouralised approach to the core demand deposits
such that a revaluation gain or loss could be offset against the
derivatives being used to manage that risk, thus better reflecting
dynamic risk management in the financial statements.
The PRA is designed to result in a recognition and
measurement approach that better reflects the economics of risk
management, to provide for a presentation that shows how
dynamic risk management has impacted net interest income for
the current period and to separate this impact from the
ineffectiveness of risk management and the financial effect of risks
that are unhedged.
We need your feedback
This article provides a simplified explanation of the IASB’s
preliminary model. There are many aspects of the potential
approach that I have not mentioned here, including the scope of
items that could be included in the PRA, whether OCI might be
used and how internal derivatives are accommodated. These
issues are covered in the DP and will be explored in more detail in
the coming months. What is certain is that we will receive a variety
of feedback and that not everyone will agree that a model for
dynamic risk management is even necessary. The IASB has
already considered some alternatives such as a different
measurement basis for derivatives or applying a full fair value model
to all financial instruments. Both these approaches have significant
disadvantages and are not favoured by the IASB. Nevertheless, we
are keen to hear views on all potential approaches, even those we
have not considered thus far.
We would particularly welcome views from investors on the
preliminary views in the DP, including whether the approach would
provide you with better information. Details about how
to respond are available on the IASB website.
Alternatively, you can email me directly about the
specific items in the DP or to simply provide your views
on what is helpful or unhelpful about current accounting
and disclosures related to dynamic risk management
activities for banks and other entities. I look forward to
hearing from you.
Steve Cooper is a member of the IASB. The views
expressed in this article are those of the author and do
not necessarily reflect the views of the IASB or the IFRS
Foundation. The IASB/IFRS Foundation encourages its
members and staff to express their individual views.
This article has been developed by the author as an
individual. It is has not been subjected to any due
process of the IASB/IFRS Foundation. Official positions
of the IASB/IFRS Foundation are determined only after
extensive due process.
-60
-40
-20
0
20
40
60
Reva
luat
ion
pro!
t or l
oss
Derivatives at fair value
Including revaluationof portfolio
Residual volatility
revaluation of !nancial assetsfor interest rate risk
revaluation of !nancial liabilities for interest rate risk
derivatives at fair value
FEATURE
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 13
The National Annual Corporate Report Awards (NACRA) is
an event that is jointly organised by the Malaysian Institute
of Accountants (MIA), Bursa Malaysia Berhad and the
Institute with the aim of recognising excellence in corporate
reporting. The main objective of the event is to promote greater
accountability and more effective communication of financial and
corporate information by organisations, to their stakeholders.
NACRA 2014 was launched at Bursa Malaysia’s Conference
Hall on May 14, 2014. Chairman of the Organising Committee, Ms
Loh Lay Choon addressed the audience with an opening speech
on the key elements of NACRA and its prime objectives. During her
speech, she touched on integrated reporting and mentioned that
participation in a competition like NACRA which promotes high
standards of corporate reporting would make the transition much
easier for organisations when integrated reporting eventually
becomes mandated in the future.
The Chairman of the Adjudication Committee, Mr Stephen
Oong also gave a speech to provide more insights into the awards
and encouraged participation from organisations. This was
followed by the launch ceremony of NACRA 2014 which was
officiated by Ms Selvarany Rasiah, Chief Regulatory Officer of
Bursa Malaysia Berhad, Ms Loh and Mr Oong.
The event then continued with a briefing by a team of
adjudicators who provided tips and insights on the various criteria
an adjudicator looks at when reviewing an annual report. This was
followed by a sharing session by past winners on their experience
and journey in producing award-winning annual reports. Last
year’s Platinum and Gold Overall Excellence Award Winners
Telekom Berhad and Malayan Banking Berhad respectively gave
very useful and helpful pointers to the audience. The event ended
with a fruitful Q&A session, with questions being answered by Ms
Loh and Mr Oong.
NACRA participation is open to listed and non-listed
organisations till June 30, 2014. Eligible annual reports are those
with years ended 2013. Enquiries on NACRA can be sent to
INSTITUTE NEWS
NACRA Launch Event 2014
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
14 The Malaysian AccountantINSTITUTE NEWS
No Name1. Choo Sheau Fang (Ms)2. Nur Nadia binti Mohd Azahar (Cik)
No Name1. Shantamala Navaratnam (re-admitted on April 22, 2014)2. Nyam Tee Hoan (re-admitted on May 5, 2014)
MEMBERSHIP UPDATEADMISSION TO MEMBERSHIP AS CERTIFIED PUBLIC ACCOUNTANT (CPA) ON MAY 17, 2014
No Name1. Leong Cheok Hoo (effective April 1, 2014 under Chua & Chu, Kota Bahru)2. Lim Guik Moi (Ms) (effective October 24, 2013 under KPMG, Kota Kinabalu)3. Ooi Kok Seng (effective April 1, 2001 under KPMG, Penang)
COMMENCEMENT OF PRACTICE
No Name1. Basharuddin bin Saad 2. Ching Neng Shyan 3. Chong Yoke Foong (Ms)4. Foo Yin Fah 5. Fong Swee Hock
6. Dato’ Khoo Peng Lai 7. Lai Kin Lam, David 8. Lee Hock Khoon 9. Ng Sho See, Victor 10. Phua Chiu Soon (Ms)
RESIGNATION OF MEMBERSHIP
RE-ADMISSION TO MEMBERSHIP AS CPA
It is an integral part of the Institute to conduct CPD Programmes to enhance the skills and knowledge of members.Our training covers a wide range of areas, including auditing, financial reporting, tax and more. The following CPDProgrammes have been planned:
Continuing Professional Development Programmes(June 2014)
Date Programme Title Speaker(s) Type Category
June 16 Preparing for GST in Malaysia Chow Chee Yen Workshop TAX
June 23 & 24 Updates of the IFRS-Compliant MFRSs 2014 Tan Liong Tong Seminar MFRS
June 24 & 25 Advanced Practical Guide to Auditing Yung Chuen Seng Workshop AUDIT
For more information, please contact the Education and Training Department: Mr. Victor LiewTel No: 03-2698 9622 (extn: 205) or email: [email protected]
CPD On-Line RecordEffective January 1, 2007, it is mandatory for all members to complete at least 120 hours of
relevant Continuing Professional Development (CPD) activity in each rolling three-year
period, of which 60 hours should be verifiable. Members are required to submit an annual
declaration as to comply with the CPD requirements prescribed in the CPD Statement.
An on-line CPD Record functionality has been added to the MICPA website, which
facilitates members to update their CPD records online in the format provided. Please visit
www.micpa.com.my, login as a Member, click on Membership Update on the left-hand menu
and go to Section F to update your CPD records.
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 15
CESSATION OF MEMBERSHIPThe following members have been excluded from theregister of members for non-payment of annualsubscription/practising certificate fee:
NAME MEMBERSHIP NO.
1 Allen Nicomedes Lopez 36652 Azlan Bin Zakariah 42833 Cheam Yoke Hei 27864 Cheh Chee Mun 14945 Cheong Chee Hong 44136 Chong Lai Fong 26207 Chong Siew Ling 29178 Chung King Keong 43819 Kee Chei Hen 245910 Lau Choo Seng 232811 Lee Wai Mun 371312 Lee Yoke Wah 223513 Lim Chin How 408614 Lim Chong Yik 397415 Lim Siew Tin 106116 Loh Gim Hock 219517 Loo Pak Hong 91018 Loo Yoke Yee 410019 Ng Chi Meei 334620 Ng Swee Fong 241321 Ng Wai Luen 321722 Ong Khay Eng 67223 Ramachandran J 79124 Sam Bah Cheau 395825 Siti Faizah Binti Jamaluddin 459626 Tey Seng Hock 381527 Than Poh Howa 219228 Thong Cooi Seong 416329 Wong Kim Meng 262730 Wong Kum Seng 156531 Yong Kwei Chuan 441232 Yuen Shu Mun, Daniel 202
CESSATION OF CFiA MEMBERSHIPThe following CFiA members have been excluded fromthe register of members for non-payment of annualsubscription:
NAME MEMBERSHIP NO.
1 Juyati Binti Mohd Amin F0132 Sofiah Binti Md Auzair F006
EXCLUSION FROM STUDENTS REGISTERThe following students have been excluded from theregister of students for non-payment of annual fees:
NAME REGISTRATION NO.
1 Abbul Abbas Arrabe B Mohamad 1/73552 Abdul Ghani Bin Ismail 2/934S3 Azhan Bin Azmi 1/73614 Chak Pei Pei 2/849S5 Chan Ying Ming 2/850S6 Faizah Binti Hassan 2/9297 Faten Amira Binti Rahmat 2/954AS8 Fifi Nor Ashikin Binti Azmi 2/955AS9 Lee Hooi Kun 2/53610 Luqman Al-Hakim B Hamdan 2/973AS11 Maisarah Binti Haji Mustapa 2/928S12 Nabila Binti Mohd Shuib 2/958AS13 Nadrah Binti Samsuri 1/7587A14 Noor Haslina Binti Ab Rani 2/959AS15 Nor Bashirah Binti Mohd Fauzi 2/992AS16 Nur Diyana Binti Ahmad 1/7402A17 Nur Sakinah Binti Hassan 2/964AS18 Nurfatihah Binti Idris 2/940S19 Nurjannatul Wahidah Binti Azmi 2/963AS20 Nurul Hidayatullah Binti Kamsiran 2/969AS21 Nurul Ivana Binti Shafie 2/970AS22 Siti Izuani Binti Poni 2/971AS23 Siti Ruzilah Bt Jaafar 2/847S24 Syed Khusairi Bin Tuan Azam 2/944S25 Tang Soo Lee 2/75926 Vivek Aravind Menon 1/7629A27 Wee Yoke Wah 2/817S
INSTITUTE NEWS
MICPAPractising Certificate
The Malaysian Institute of Certified Public Accountants
No.15 Jalan Medan Tuanku, 50300 Kuala Lumpur.
Tel: 03-2698 9622 Fax: 03-2698 9403 E-mail: [email protected]
The Membership Affairs Committee of the Institute in considering applications for practising certificates, has frequently come across cases
where a member has commenced public practice before he is issued with a practising certificate by the Institute.
The Committee would like to remind members that in accordance with bye-law 56 of the Institute’s bye-laws, a member shall be
entitled to engage in public practice in Malaysia only if he holds a practising certificate issued by the Institute.
If members need clarification on the above, kindly contact the Institute’s Membership Services Department.
IFRS Foundation publishes 2013 Annual Report
The IFRS Foundation has published its Annual Report for the year
ended 31 December 2013.
Subtitled “Charting progress towards global accounting
standards”, the Annual Report provides an overview of the IFRS
Foundation’s activities, highlighting the progress made towards
establishing International Financial Reporting Standards (IFRS) as
the single set of high quality, globally accepted accounting
standards.
The report summarises the use of IFRS around the world,
drawing on recently published jurisdictional profiles that show how
IFRS is now required for use by more than 100 jurisdictions,
representing 81 per cent of the 130 jurisdictions profiled. The
report includes audited financial statements and a comprehensive
breakdown of the financial support received by the IFRS
Foundation during 2013.
IFRS Taxonomy Updated for IFRS 14 Regulatory Deferral
Accounts
The IFRS Foundation recently published Interim Release 1 to the
IFRS Taxonomy 2014 for the IFRS 14 Regulatory Deferral Account,
which was issued by the IASB on 30 January 2014. The IFRS
Taxonomy 2014 is the XBRL representation of the IFRSs, including
International Accounting Standards (IASs), Interpretations, and
the IFRS for SME's, as issued by the IASB.
XBRL taxonomies are available for most of the major national
financial reporting standards around the world, and the IFRS
Taxonomy is intended for use by entities reporting in IFRS. By
providing the IFRS Taxonomy, the IFRS Foundation seeks to
address the demand for an electronic standard to transmit IFRS
financial information.
IFRS Taxonomy Interim Releases support consistent
adoption and implementation of IFRS, by providing taxonomy
items for electronic reporting using the latest Standards published
by the IASB.
IFRS Foundation Appoints Members of the SME
Implementation Group
The IFRS Foundation recently announced the appointment and
reappointment of members of the Small and Medium-sized
Entities Implementation Group (SMEIG), effective 1 July 2014.
The SMEIG is an advisory body to the IASB. Its mission is to
support the international adoption of the IFRS for Small and
Medium-sized Entities (IFRS for SMEs) and to monitor its
implementation. One of the key responsibilities of the SMEIG is to
provide recommendations to the IASB throughout the
comprehensive review of the IFRS for SMEs.
The SMEIG was appointed in September 2010 by the
Trustees of the IFRS Foundation following a public call for
nominations. On 30 June 2014 the second term of the existing 22
SMEIG members will come to an end. The Trustees have approved
an expansion of the membership of the SMEIG at that date from 22
to a maximum of 30.
The Trustees previously agreed that 11 existing SMEIG
members would be reappointed for a third term to provide
continuity. 15 new members have also been appointed. The
appointments were made based both on the qualifications of the
individual applicants and the need to achieve a professional and
geographical balance in the membership of the SMEIG. The IFRS
Foundation has kept four vacancies in case suitable candidates
are identified at a later date.
The 11 reappointed members will serve a final term of two
years ending 30 June 2016. The 15 new members will serve a term
of three years ending 30 June 2017.
Membership of the SMEIG is personal; this means that
members participate and vote in accordance with their own
independent views, not as representatives voting according to the
views of the firm, organisation or constituency with which they are
associated. The full Terms of Reference and Operating Procedures
for the SMEIG were updated in February 2014.
IASB Publishes Amendments to IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets
The IASB recently published amendments to IAS 16 Property,
Plant and Equipment and IAS 38 Intangible Assets.
IAS 16 and IAS 38 both establish the principle for the basis of
depreciation and amortisation as being the expected pattern of
consumption of the future economic benefits of an asset.
The IASB has clarified that the use of revenue-based
methods to calculate the depreciation of an asset is not
appropriate because revenue generated by an activity that
includes the use of an asset generally reflects factors other than the
consumption of the economic benefits embodied in the asset.
The IASB also clarified that revenue is generally presumed to
be an inappropriate basis for measuring the consumption of the
economic benefits embodied in an intangible asset. This
presumption, however, can be rebutted in certain limited
circumstances.
IASB Update (www.iasb.org)
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
16 The Malaysian AccountantTECHWATCH
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 17
The issue originated from a submission to the IFRS
Interpretations Committee (the ‘Interpretations Committee’). As a
result, the Interpretations Committee recommended that the IASB
should amend IAS 16 and IAS 38.
IFRS Interpretations Committee 2014 appointments
The Trustees of the IFRS Foundation announced recently
appointments and reappointments to the IFRS Interpretations
Committee (the ‘Interpretations Committee’).
The IFRS Interpretations Committee is the interpretative
body of the IFRS Foundation. Its mandate is to review widespread
accounting issues that have arisen within the context of current
International Financial Reporting Standards (IFRS). The work of the
Interpretations Committee is aimed at reaching consensus on the
appropriate accounting treatment and providing authoritative
guidance on those issues.
The Interpretations Committee comprises 14 voting
members drawn from a variety of countries and professional
backgrounds. The newly appointed members are:
• Carl Douglas, Corporate Controller, CCR Group (Brazil);
• Mikael Hagström, Head of Corporate Financial Reporting,
Volvo Group (Sweden);
• Bruce Mackenzie, Managing Partner, W Consulting
International (South Africa); and
• Bonnie Van Etten, Head of Fiat and Chrysler Group Global
Technical Accounting and Accounting Research, Chrysler
Group LLC (United States).
The new members have each been appointed to serve three-year
terms, renewable once. All appointments will commence on July 1,
2014.
The Trustees are also pleased to announce the
reappointment of Charlotte Pissaridou as a member of the
Interpretations Committee for a further three-year term.
Commenting on the appointments, Robert Glauber, Chair of
the Trustees’ Nominating Committee said, “I would like to welcome
Carl, Mikael, Bruce and Bonnie to the IFRS Interpretations
Committee. Each brings with them extensive experience in their
respective fields that will be of great benefit to the Interpretations
Committee in its work. Furthermore, I am delighted that Charlotte
has agreed to serve a second term. I would also like to thank our
departing members Luca Cencioni, Jean Paré, Joanna Perry and
Scott Taub for their service on the Interpretations Committee.”
IASB Agrees Charter of Mutual Co-operation with
Accounting Standard-Setting Community
The IASB recently published an updated Charter establishing key
principles of co-operation between the IASB and national
standard-setters and other accounting standard-setting bodies,
represented by the International Forum of Accounting Standard
Setters (IFASS).
The principles established by the Charter are designed to
enhance the efficiency and effectiveness of international
accounting standard setting. The Charter;
• Re-emphasises the importance of the global accounting
standard-setting community to the work of the IASB and builds
on the premise that it is essential that all parties should work
together in a spirit of openness and close co-operation in order
to meet shared goals.
• Describes a shared understanding of the commitments and
expectations of the IASB and national standard-setters and
other accounting standard-setting bodies, presented as a
statement of co-operation.
• Focuses on practical aspects whereby staff and members of
the IASB and other accounting standard-setters can work co-
operatively, describing the actions and procedural matters that
deserve the most care.
The agreement of this Charter is consistent with the creation in
2013 of the IASB’s Accounting Standards Advisory Group, which
serves as a formal platform for technical dialogue between the
IASB and representatives of the accounting standard-setting
community.
Hans Hoogervorst, Chairman of the IASB commented, “This
Charter highlights the importance of our partnership with national
standard-setters and other accounting standard-setting bodies as
an essential part of a multilateral model for global standard setting.
Input from the wider standard-setting community is central to our
standard-setting and implementation activities, and is increasingly
helpful to the IASB as we expand our research-based agenda,
drawing on the expertise of our global stakeholders. I look forward
to much successful collaboration in the future.”
IASB Publishes Amendments to IFRS 11 Joint
Arrangements
The IASB recently published amendments to IFRS 11 Joint
Arrangements. IFRS 11 addresses the accounting for interests in
joint ventures and joint operations. The amendments published
add new guidance on how to account for the acquisition of an
interest in a joint operation that constitutes a business. The
amendments specify the appropriate accounting treatment for
such acquisitions.
The issue originated from a submission to the IFRS
Interpretations Committee. As a result the Interpretations
Committee recommended that the IASB should amend IFRS 11.
TECHWATCH
M a y - J u n e 2 0 1 4 w w w . m i c p a . c o m . m y
18 The Malaysian Accountant
IASB Launches the IFRS Research Centre
The IASB recently announced the launch of its web-based IFRS
Research Centre. The IFRS Research Centre aims to facilitate
communication between the IASB and the broader research
community. Its main objectives are to increase awareness of the
issues that the IASB will be considering in the coming two to three
years, to encourage research professionals to undertake targeted
research projects and to contribute to the IASB moving to more
evidence-based standard-setting.
To achieve these objectives, the IFRS Research Centre will
highlight ways for academics to participate in the standard-setting
process and enable those engaged in research to stay informed
about the IASB’s research activities.
Commenting on the announcement, Hans Hoogervorst,
Chairman of the IASB said, “We recognise the importance of high
quality research to help the IASB develop financial reporting
Standards and assess the outcomes of those Standards. The
research community has a particularly important role to play by
undertaking analysis and research that is independent.”
IASB Publishes Discussion Paper on Accounting for Macro
Hedging
The IASB recently published for public comment a Discussion
Paper exploring an approach to better reflect entities’ dynamic risk
management activities in their financial statements, otherwise
known as macro hedging.
Many financial institutions and other entities manage risks,
such as interest rate risk, dynamically on a portfolio basis rather
than on an individual contract basis. Dynamic risk management is
a continuous process because the risks that such entities face
evolve over time, as does their approach to managing those risks.
However, the existing accounting requirements of IAS 39 Financial
Instruments are generally considered to be difficult to apply when
accounting for such transactions.
As part of its comprehensive response to the global financial
crisis, the IASB is replacing IAS 39 with an entirely new financial
instruments accounting Standard, known as IFRS 9 Financial
Instruments. That project is in the final stages of completion.
However, the IASB decided to treat as a separate project the
macro-hedging component of these reforms in order to elicit views
from a broader range of constituents. The Discussion Paper
published represents the first stage in this project, by seeking
public comment on a possible approach to accounting for an
entity’s dynamic risk management activities, the portfolio
revaluation approach (PRA). Under the PRA:
• Exposures that are risk-managed dynamically would be re-
valued for changes in the managed risk through profit or loss.
• Fair value changes arising from risk management instruments
that are used to manage this risk (derivatives) would also be
recognised in profit or loss.
• The success of an entity’s dynamic risk management is
captured by the net effect of the above measurements in profit
or loss.
• Fair valuation of the risk exposures that are dynamically
managed is not required.
• The PRA also addresses the needs of users by providing a
more comprehensive set of disclosures concerning an entity’s
dynamic risk management activities.
Commenting on the publication of the Discussion Paper, Hans
Hoogervorst, Chairman of the IASB said, "Current requirements
make it difficult to faithfully represent dynamic risk management in
entities’ financial statements and can increase operational
complexity. This Discussion Paper sets out preliminary views on an
accounting approach that better reflects the economics of
dynamic risk management as compared to the current accounting
requirements. Users of financial statements will also benefit from
presentation that shows how dynamic risk management has
affected an entity’s profit or loss."
The Discussion Paper: Accounting for Dynamic Risk
Management: a Portfolio Revaluation Approach to Macro Hedging
is available for comment until October 17, 2014. In addition to
seeking input in the form of comment letters, the IASB will
undertake an outreach programme designed to obtain feedback
on the areas covered in the Discussion Paper.
IASB Publishes Proposals as Part of Disclosure Initiative
The IASB recently published for public comment an Exposure Draft
outlining proposed amendments to IAS 1 Presentation of Financial
Statements. The proposal results from one of several short-term
projects under the IASB’s Disclosure Initiative.
Many respondents to the IASB’s Agenda Consultation 2011
asked the IASB to review the disclosure requirements in existing
IFRS, to explore ways to improve disclosures. Consequently, in
2013 the IASB started the Disclosure Initiative, a package of
several projects aimed at improving the disclosure of financial
information.
The Exposure Draft proposes narrow-focus clarifying
amendments to IAS 1 to address some of the concerns expressed
about existing presentation and disclosure requirements and to
ensure entities are able to use judgement when preparing their
financial statements.
The proposed amendments:
• Clarify the materiality requirements in IAS 1, including an
TECHWATCH
w w w . m i c p a . c o m . m y M a y - J u n e 2 0 1 4
The Malaysian Accountant 19
emphasis on the potentially detrimental effect of overwhelming
useful information with immaterial information.
• Clarify that specific line items in the statement(s) of profit or loss
and other comprehensive income and the statement of
financial position can be disaggregated.
• Add requirements for how an entity should present subtotals in
the statement(s) of profit or loss and other comprehensive
income and the statement of financial position.
• Clarify that entities have flexibility as to the order in which they
present the notes, but also emphasise that understandability
and comparability should be considered by an entity when
deciding that order.
• Remove potentially unhelpful guidance in IAS 1 for identifying a
significant accounting policy.
Hans Hoogervorst, Chairman of the IASB commented, “The
Disclosure Initiative is focused on ensuring that financial reports are
instruments of communication and not simply compliance
documents. These proposals form a small part of our efforts to
encourage preparers, auditors and regulators away from a ticking-
the-box mentality towards disclosures. These proposals are
designed to help change behaviour, by emphasising the
importance of understandability, comparability and clarity in
presenting financial reports. We look forward to hearing the views
of stakeholders on this important project.”
Joint IFRS Foundation and SAICA IFRS Conference—
South Africa
The Joint IFRS Foundation and SAICA IFRS Conference will be
held at the Sandton Convention Centre in Johannesburg, South
Africa on August 13 and 14, 2014. The conference brings together
leaders in financial reporting from the private and public sector,
regulatory bodies, the IASB, as well as accounting professionals
and others with an interest in IFRS.
The conference offers a unique opportunity to be updated by
members of the IASB on its active projects as well as to listen to the
needs of the South African business fraternity. Presenters include
Ian Mackintosh (IASB Vice-Chairman), IASB members—Stephen
Cooper, Patrick Finnegan, Darrel Scott, Wei-Guo Zhang—and
other IFRS experts.
TECHWATCH
IAASB Notes Progress Toward a Single, Robust Language
for Audit
As the global economy becomes increasingly interconnected, the
International Auditing and Assurance Standards Board (IAASB) is
pleased to note that the number of jurisdictions using, or
committed to using, the clarified International Standards on
Auditing (ISAs) has passed 100—marking an important
achievement in global convergence.
The ISAs were thoroughly redrafted and revised during the
IAASB’s Clarity Project, which finished in early 2009. Since then,
the IAASB has monitored the uptake of the clarified ISAs. With the
recent addition of several African countries – a development noted
by IAASB Chairman Prof. Schilder during his recent speech in
Cameroon in May – there is significant use of the clarified ISAs
across six continents.
“We have seen a steady increase in the use of the Clarified
ISAs over the years, with the ISAs also now translated into many
languages. This demonstrates the importance the global
community attaches to a set of global auditing standards that can
be used for high-quality audits in both the private and public
sectors,” noted Prof. Schilder.
Ethics Board Proposes Enhancements to Certain Non-
Assurance Services Provisions in Ethics Code
The International Ethics Standards Board for Accountants (IESBA,
the Ethics Board) recently released for public comment the
Exposure Draft (ED), Proposed Changes to Certain Provisions of
the Code Addressing Non-Assurance Services for Audit Clients.
The proposed changes aim to enhance the independence
provisions in the Code of Ethics for Professional Accountants (the
Code) by:
• Providing additional guidance and clarification regarding what
constitutes management responsibility, including enhanced
guidance regarding how the auditor can better satisfy itself that
client management will make all judgments and decisions that
are the responsibility of management, when the auditor
provides non-assurance services to an audit client;
• Providing better guidance and clarification on the concept of
“routine or mechanical” services relating to the preparation of
accounting records and financial statements for non-public
interest entity audit clients; and
• Removing the provision that permits an audit firm to provide
certain bookkeeping and taxation services to public interest
entity audit clients in emergency situations. “Independence is
the bedrock of all audits. It is not only about independence in
mind.
IFAC Update (www.ifac.org)
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20 The Malaysian Accountant
It is also about independence in appearance, ensuring continued
public trust in the work of the audit profession,” said interim IESBA
Chair Wui San Kwok. “The proposed changes further support this.
Better guidance and clarification promote global consistency of
application of the Code’s provisions. And we eliminated a rule-
exception—intended to be used only in rare situations—that could
have been perceived to provide opportunities for misuse,
misinterpretation, or abuse.”
The Ethics Board is also proposing enhancements to the
corresponding non-assurance services provisions in Section
291—Other Assurance Engagements with respect to assurance
clients.
“In developing the proposals, the board took into account
the results of a benchmarking survey of G-20 countries and a
number of other jurisdictions with respect to certain types of non-
assurance services,” noted IESBA Technical Director Ken Siong.
“The proposals are also responsive to recommendations from a
working group established by the board that looked into the unique
and challenging issues professional accountants in small- and
medium-sized entities and practices face when complying with the
Code, and to feedback from the regulatory community.”
How to CommentThe Ethics Board invites all those with an
interest in international ethics standards for the accountancy
profession to respond to the Exposure Draft. To access the
Exposure Draft and submit a comment, please visit the Ethics
Board’s website at www.ethicsboard.org. Comments are
requested by August 18, 2014. The Ethics Board encourages
national and regional professional accountancy organisations to
share the ED with and encourage participation from their members
and employees.
IAASB Proposes Enhancements to Auditing Standards
Focused on Financial Statement Disclosures
The International Auditing and Assurance Standards Board
(IAASB) recently released for public comment proposed changes
to the International Standards on Auditing (ISAs) to clarify
expectations of auditors when auditing financial statement
disclosures.
The proposals include new guidance on considerations
relevant to disclosures—from when the auditor plans the audit and
assesses the risks of material misstatement, to when the auditor
evaluates misstatements and forms an opinion on the financial
statements.
“Addressing financial reporting disclosures has always been
an integral part of an audit of financial statements in accordance
with the ISAs. Over the past decade, however, financial reporting
disclosure requirements and practices have evolved, and
disclosures now provide more decision-useful information that is
often more narrative and subjective in nature,” notes IAASB
Chairman Prof. Arnold Schilder.
“This gives rise to challenges from an auditing point of view,
and the proposals enhance certain areas in the ISAs to support the
proper application of the standards’ requirements,” he added.
The IAASB’s work has been informed by the feedback to its
January 2011 Discussion Paper, The Evolving Nature of Financial
Reporting: Disclosure and Its Audit Implications. The board has
also benefited from liaison and outreach with stakeholders,
including accounting standard setters, which are also actively
exploring initiatives relating to disclosures. The IAASB
acknowledges that many of the issues around disclosures cannot
be solved by the IAASB alone, and that collaboration and
cooperation between many interested stakeholders is necessary
to further enhance the public’s confidence in financial statement
disclosures.
“Public confidence in financial reporting can be damaged
when there are poor quality disclosures, including excessive or
immaterial disclosures that may obscure understanding of
important matters. This can result, for example, when disclosures
are prepared and audited relatively late in the financial reporting
process,” notes IAASB Technical Director James Gunn.
“One of the key areas addressed in the board’s proposals,
therefore, is additional guidance to help establish an appropriate
focus by the auditor on disclosures and encourage earlier auditor
attention on them during the audit process, including disclosures
where the information is not derived from the accounting system,”
he said.
How to Comment The IAASB invites all stakeholders to
comment on the IAASB Exposure Draft of proposed changes to
the ISAs to address disclosures in an audit. To access the Exposure
Draft or submit a comment, visit the IAASB’s website at
www.iaasb.org. Comments are requested by September 11,
2014.
IFAC Encouraged by Some Recent Developments in
Government Accounting; But G-20 Needs to Maintain
Focus
There are positive signs the sovereign debt crisis is easing. The
Greek and Portuguese governments have re-entered the bond
markets and Portugal is poised to become the second Eurozone
country, after Ireland, to exit its bailout arrangements.
Therefore, it is timely to reflect on what has been done since
the bailout programs were introduced and since lenders to the
Greek government wrote off significant losses on their debt
holdings. Austerity measures have been implemented and
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The Malaysian Accountant 21TECHWATCH
government cash reserves built up, but much still needs to be done
to raise the general standard of government reporting,
transparency, and accountability.
We must not forget too quickly the lessons of poor
government reporting—that in some cases was misleading.
At the heart of the issue remains a concern: private sector
companies raising funds from investors on the capital markets are
required to provide audited, accrual-based, financial statements,
yet too many governments—even ones with bonds on the capital
markets—don’t follow the same practices. In fact, many do not
even use accrual accounting.
It has now been over a year since the G-20 Finance Ministers
and Central Banks Governors' Meeting in Moscow declared a
“goal of strengthening the public sector balance sheet” and of
“looking at transparency and comparability of public sector
reporting, and monitoring the impact of financial sector
vulnerabilities on public debt.”
An integral part of promoting such transparency and
comparability is accrual-based financial reporting in accordance
with high quality, globally accepted standards, such as the
International Public Sector Accounting Standards (IPSASs).
As one response to the G-20, the International Monetary
Fund (IMF) and World Bank—along with the Organisation for
Economic Co-operation and Development (OECD)—have
progressed a review of the governance of the International Public
Sector Accounting Standards Board (IPSASB). Additionally, the
European Commission, through Eurostat, initiated work to
consider how public sector financial reporting can be improved
within the European Union. It noted that IPSASs “represent an
indisputable reference for potential development of European
standards.”
“IFAC is encouraged by several initiatives that are currently
underway; in particular, strengthening the current governance
arrangements of the IPSASB will further enhance the credibility of
IPSASs and their influence on public sector financial reporting,”
said Fayezul Choudhury, Chief Executive Officer of IFAC.
He added, “However, there is much more that needs to be
done, and we believe that the G-20 has a key role to play in ensuring
that momentum is maintained and governments recognise the
benefits of enhancing financial management and reporting—to
ultimately improve transparency and accountability.”
IFAC strongly recommends that, throughout 2014 and into
the coming years, the G-20—in particular, finance ministers and
central bank governors—continue to focus on this critical matter.
To promote greater adoption of IPSASs, IFAC believes that these
standards should be added to the Financial Stability Board’s list of
standards that are designated as deserving of priority
implementation.
Furthermore, as part of its key strategic focus IFAC will
continue to promote the need for enhanced public sector reporting
and financial management through its recently launched
Accountability Now! Initiative, which aims to promote awareness
of the issue, facilitate guidance on implementation of IPSASs, and
encourage the development of needed technical capacity.
IAASB Re-Proposes Standard Addressing Information in
Annual Reports; Further Clarifies Auditor Effort and
Reporting Responsibilities
The International Auditing and Assurance Standards Board
(IAASB) recently released for re-exposure an enhanced
International Standard on Auditing (ISA) 720 (Revised), The
Auditor’s Responsibilities Relating to Other Information. The
proposed standard clarifies and strengthens the scope and focus
of auditor efforts on information included in entities’ annual reports,
other than the audited financial statements, and introduces new
auditor reporting responsibilities.
“There have been significant developments in recent years in
corporate reporting, in particular in relation to the information
included in entities’ annual reports. The importance ascribed by
users to this other information, and the weight they place on it, have
notably increased since ISA 720 was originally issued,”
commented Prof. Arnold Schilder, IAASB Chairman. “Auditors
have certain responsibilities relating to this other information as
part of an audit of an entity’s financial statements, and the IAASB is
intending to appropriately strengthen them—and users need to
know what those responsibilities are.”
Under the proposed ISA, the auditor would now be required
to perform limited procedures to evaluate the consistency of the
other information with the audited financial statements. In addition,
while reading the other information, the auditor would be
responsible to consider whether there is a material inconsistency
between the other information and the auditor’s knowledge
obtained during the course of the audit, and to remain alert for other
indications that the other information appears to be materially
misstated. The terms ‘other information’ and ‘annual report’ are
defined and explained in the standard in order to make the scope
of the standard as clear as possible, while also enabling its
appropriate application in light of differing corporate reporting
regimes and practices in a wide variety of jurisdictions and
circumstances.
“Feedback on the IAASB’s first proposals in 2012 indicated
broad support for the IAASB’s intention of strengthening the
auditor’s responsibilities relating to other information, including
new reporting responsibilities. However, commentators across
different stakeholder groups believed that the proposals needed to
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22 The Malaysian Accountant
be clearer in a number of areas to prevent potentially divergent
practices, both among auditors and between jurisdictions—an
outcome that would run contrary to the benefits sought by the
IAASB,” noted James Gunn, IAASB Technical Director.
How to Comment The IAASB invites all stakeholders to
comment on the IAASB Exposure Draft of Proposed ISA 720. To
access the Exposure Draft or submit a comment, visit the IAASB’s
website at www.iaasb.org/publications-resources. Comments
are requested by July 18, 2014.
DFID Approves £4.935M Funding for IFAC PAO
Development Activities
The UK Department for International Development (DFID) and the
IFAC recently announced an agreement to develop professional
accountancy organisations (PAOs) in emerging economies. The
new initiative was announced at a roundtable event in London,
hosted by Justine Greening, UK Secretary of State for International
Development, and attended by Warren Allen, IFAC President.
Under the agreement, DFID will provide £4.935m funding to
IFAC over seven years. The funding will be used to strengthen
PAOs in at least 10 DFID focal countries in four regions: Asia, the
Caribbean, the Middle East and North Africa, and Sub-Saharan
Africa. IFAC will facilitate, coordinate, and supervise capacity
building programmes and technical support, including peer-to-
peer support by more established PAOs, including those in the UK.
These programmes will build the developing country PAOs’
managerial, financial, and technical capacity so that they can drive
improvements in professional and ethical standards.
“IFAC has a long history of working to build capacity and
strengthen PAOs as part of our public interest mission, and we are
delighted about this significant next step in that journey,” said
Fayez Choudhury, CEO of IFAC. “Well-functioning PAOs ensure a
sustainable supply of professional accountants that support high-
quality accounting practices and financial information in both the
public and private sectors. They support enhanced confidence in
business and transparency in use of public funds, giving rise to
increased foreign investment and donor funding and improved
government accountability and transparency—and therefore are
essential to economic growth and stability.”
Ms. Greening said, “The UK’s financial sector is second to
none and its skills and experience can boost development across
the world. By helping developing countries to manage their own
resources better and attract investment we can create the jobs and
growth needed to lift people out of poverty.”
IFAC and DFID are signatories of MOSAIC: Memorandum of
Understanding to Strengthen Accountancy and Improve
Collaboration, which sets out the basis for improving cooperation
and collaboration between IFAC, international donors, and the
international development community to increase the capacity of
PAOs and improve the quality of financial management systems in
emerging economies.
European Audit Legislation Creates Potential for
Regulatory Divergence
The European Parliament vote on statutory audit legislation marks
the latest stage of the European audit reform process and
concludes nearly four years of discussion and debate.
As the IFAC has stated many times, we believe a primary
objective of audit regulatory reform should be to further enhance
audit quality, and ultimately the quality of financial reporting. In a
highly interconnected global economy, we see regulatory
convergence across jurisdictions as a critical part of meeting this
objective.
As a result, we welcome aspects of the European reforms
that adopt a globally consistent approach. However, other aspects
of the legislation—perhaps ones introduced in order to ensure its
successful passage—promote regulatory divergence and
fragmentation.
“We strongly support Europe’s step toward adopting
International Standards on Auditing. These high-quality
international auditing standards are globally accepted, and are
currently being used or adopted in over 90 jurisdictions around the
world, including many countries in Europe,” said Fayez
Choudhury, chief executive officer of IFAC.
“However, we are concerned that other parts of the
legislation provide individual member states with options that will
create a patchwork of regulation across the union. Not only will
Europe be out of step with other major jurisdictions, such as the US
and Canada, but member states will potentially be out of step with
each other. Just a few years ago, the oft-cited mantra was ‘global
problems require global solutions.’ The stakes are high and the rest
of the world will certainly be focused on what happens in Europe.
Failure to decide a consistent approach to audit regulation within
Europe does not auger well for the chances of agreement among
the global community.”
In January, IFAC highlighted the impact of the failure of
achieving global regulatory convergence: stifled business
confidence, economic stability, and ambitions for a sustainable
recovery. In areas including auditor independence—in particular,
mandatory audit firm rotation and the provision of non-audit
services—the European legislation is unclear and ambiguous, and
permits differences between its member states. In addition, it
differs from legislation in the many other jurisdictions—and yet will
impose regulatory requirements upon these jurisdictions.
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The Malaysian Accountant 23GLOBAL INSIGHT
Australia is the most recent country in the region to have
introduced the Goods and Services Tax, which occurred
in 2000. We turned to Singapore for lessons learned from
when that country introduced GST in the 1990s. It is now
Malaysia’s turn to work through implementing GST and working
out how to face any possible issues associated with introducing
such a tax. Given the growing trade and other links between our
two countries, there is much interest in Malaysia’s preparation for
the planned April 2015 introduction of GST. Recognising that,
while tax regimes are rarely identical, our experience with GST
implementation may nevertheless provide some helpful insights.
The introduction of the GST will include a steep learning
curve for accountants, advisors to companies, as well as the
auditors who will need to familiarise themselves with the
requirements in order to be able to effectively audit this. The
implementation of GST is not just a tax matter; it affects every
aspect of a business. Accounting systems may also need to be
updated to accommodate the changes.
And there will of course be some areas of uncertainty. Some
of these, which arose in our experience ranged from the basic to
the potentially more complex ones. An example of the latter
included working through the issues of how to deal with GST in the
cash flow statement? Also, the question of accounting for
acquisitions of property, plant and equipment came, and whether
or not to include the GST component in end of financial year.
Auditors in Australia were encouraged to include a reference
to the GST in their engagement letters with their clients. They and
other professional advisors will also need to make sure they have a
comprehensive understanding of the new regime in order to be
able to audit their clients’ systems and be able to provide
meaningful input and insight.
Australian businesses that have Malaysian subsidiaries or
operations will find it necessary to review the impact that the GST
in Malaysia will have. If the Malaysian experience is similar to the
Australian one, expect to see the GST affect most business
functions, systems and processes.
The widespread impact of the GST will mean that preparing
your business or your clients for the implementation will be critical.
If you identify the scope of change that will be required it will go a
long way to help the implementation and also adherence to
compliance requirements. While there were hiccups along the way,
by and large the Australian experience has been successful and
Australia’s experience in GST implementation could be instructive.
NEWSfrom Down UnderBy Andrew Stringer, Director-Asia, Institute of Chartered Accountants Australia
A Measured Approach for the GST
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24 The Malaysian Accountant
United States
GASB Issues Exposure Draft on Fair Value Measurement
and Application
The Governmental Accounting Standards Board (GASB) recently
issued for public comment a proposed Statement addressing
accounting and financial reporting issues related to fair value
measurements.
The Exposure Draft, Fair Value Measurement and
Application, describes how fair value should be defined and
measured, what assets and liabilities should be measured at fair
value, and what information about fair value should be disclosed in
the notes to the financial statements.
“The proposed changes to the GASB’s fair value standards
are intended to increase clarity, consistency, and comparability in
governments’ fair value measurements and their related
disclosures,” said GASB Chairman David A. Vaudt. “The Board
believes that fair value measurements enhance the relevance of
reported financial information, particularly when accompanied by
robust disclosures.”
The GASB is proposing that fair value be defined as the price
that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. The Exposure Draft also proposes that
investments would generally be measured at fair value.
Investments would be defined as a security or other asset that a
government holds primarily for the purpose of income or profit and
the present service capacity of which is based solely on its ability to
generate cash or to be sold to generate cash.
Certain investments would continue to be excluded from
measurement at fair value, such as investments in money market
instruments with remaining maturities at time of purchase of one
year or less.
Under current accounting standards, state and local
governments are required to disclose how they arrived at their
measures of fair value if they are not based on quoted market
prices. In the Exposure Draft, the GASB is proposing to expand
those disclosures to include the inputs a government uses to
measure fair value and the judgments made to arrive at those
inputs.
The Exposure Draft is available on the GASB website,
www.gasb.org. Stakeholders are encouraged to review the
proposals and provide comments by August 15, 2014.
Source: www.gasb.org
PCAOB Issues Supplement Request for Comment on
Proposal for Reorganisation of Auditing Standards
The Public Company Accounting Oversight Board (PCAOB) has
issued a supplemental request for comment on its proposal for the
reorganisation of PCAOB auditing standards. The Board also
released on its website an online demonstration version that
presents the existing auditing standards as they would look if
reorganised according to the proposed framework.
"The proposed reorganisation is intended to make PCAOB
auditing standards more accessible and easier to navigate," said
PCAOB Chairman James R. Doty. "This supplemental request and
demonstration version provide further opportunity for the public to
consider and comment on the proposed reorganisation."
The supplemental request details the proposed line-by-line
amendments to PCAOB auditing standards and rules that are
needed to implement the proposed reorganisation. In addition, the
supplemental request includes certain minor changes to the
original proposal issued in March 2013.
The online demonstration version includes mapping tools to
help users understand the difference between the existing
organisational structure of the standards and the proposed new
organisational structure. It also features an e-mail link that allows
individuals to comment on any aspect of the reorganisation while
reviewing the demonstration version.
The framework the Board proposed in March would
reorganise the existing interim and PCAOB-issued auditing
W RLD News
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The Malaysian Accountant 25GLOBAL INSIGHT
standards into a topical structure with a single integrated
numbering system. Among the proposed changes, all PCAOB
auditing standards would be grouped into the following categories:
general auditing standards, audit procedures, auditor reporting,
matters relating to filings under federal securities laws, and other
matters associated with audits.
"The implementing amendments do not reflect any
substantive changes to PCAOB standards nor do they impose
new requirements on auditors," said Martin F. Baumann, Chief
Auditor and Director of Professional Standards. "Helping auditors
better navigate PCAOB standards could, in turn, facilitate better
compliance with the standards."
The Board has reopened the comment period for 60 days to
seek further comment on the matters discussed in the March 2013
proposing release, as well as the implementing amendments in the
supplemental request for comment.
Comments may be submitted by postal mail or e-mail, and
should be sent to the Office of the Secretary, PCAOB, 1666
K Street NW, Washington, DC 20006, or to
All comments should refer to Rulemaking Docket Matter No.
040 in the subject or reference line and should be received by the
PCAOB no later than 5 p.m. EDT on July 8, 2014. All comments will
be made public.
Source: www.accountingfoundation.org
New Zealand
NZASB Issue PBE Explanatory Guide on Materiality
The New Zealand Accounting Standards Board (NZASB) has
issued Explanatory Guide A7 (EG A7) Materiality for Public Benefit
Entities. The Explanatory Guide is written for Tier 1 and Tier 2 Public
Benefit Entities (PBEs). However, the content may also be useful for
Tier 3 and Tier 4 PBEs.
The objective of this Explanatory Guide is to help PBEs in the
public sector and the not-for-profit sector apply the concept of
materiality to the presentation and disclosure of both financial and
non-financial information in general purpose financial reports. The
Explanatory Guide is focused on those reports providing
information that users need for accountability and decision-
making purposes.
Source: www.accountingeducation.com
Australia
Tax Reform a Casualty on Governments Long Term Growth
Agenda
The Institute of Chartered Accountants Australia (ICAA) has
welcomed the government’s investments in infrastructure and
research in the Federal Budget but warns that piecemeal tax
changes could slow growth.
Institute Chief Executive Officer Lee White said that he
acknowledges the government’s commitment to infrastructure
investments through incentive-based funding models with the
states and territories.
“We can’t cut our way to prosperity, this is where targeted
investment and support is needed. With modest growth forecasts,
we welcome the government’s nation-building spending
commitments.”
Responding to the Treasurer’s confirmation of a ‘temporary
Budget repair levy’ Mr White said that long-term fiscal problems
could not be solved by short-term solutions.
“The debt levy could negatively impact consumer spending,
hurt unincorporated small businesses and puts Australia’s top
marginal tax rate amongst the highest in the world.
“The amount raised by the debt levy is projected to be only
$3.1bn over four years and even this may prove to be optimistic.
“While the government appears to have its house in order on
the spending front, this Budget shows we need to look at both
sides of the ledger to balance the books in the long run.”
The Institute is disappointed that there isn’t a clearer
roadmap for the tax reform process.
“We have been calling for broader tax reform which would
need to look at the GST rate and base. We also need to build a
community consensus on the need for meaningful tax reform and
that dialogue needs to be prioritised now.
“The only significant tax reform on the horizon is the
committed 1.5% cut in the company tax rate but while the
government is giving with one hand, it is taking with the other by
imposing a 1.5% tax increase on our largest companies to fund the
Paid Parental Leave scheme,” Mr White said.
Source: www.accountingeducation.com
Business Case for Integrated Reporting Strengthens
While there has been progress in some areas of corporate
reporting, organisations now have the difficult task of balancing
demands for more meaningful information while also making
reports meaningful for a broader range of stakeholders.
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26 The Malaysian Accountant
ICAA’s Chief Executive Officer Lee White said that Integrated
Reporting enables investors and key stakeholders to understand
how an organisation is really performing.
"Integrated Reporting allows stakeholders to understand
the strategy and performance of a company and how they are really
performing,” he said. “Integrated Reporting looks beyond the
traditional scope of financial reporting and numbers and actually
looks at getting the complete picture."
The guide Integrated Reporting – a guide for Audit
Committees in Australia and New Zealand, examines the
important role of audit committees in the oversight of reporting.
“As the role of audit committees expands beyond examining
financial information, Integrated Reporting is at the forefront. This
guide will go a long way to inform the director community about
their role in Integrated Reporting.
“If information that goes beyond financial reporting is not
relayed, stakeholders won’t get a sense of the value and output
created by a company as part of their business strategy,” Mr White
said.
The International Integrated Reporting Council (IIRC) last
year released its International Framework to establish globally
accepted guiding principles and content elements that govern the
overall content of an integrated report.
IIRC Board Member Jessica Fries commented: “Holistic
information provided by businesses is crucial in enhancing the
transparency and trust between businesses and investors. The
Framework is helping business communicate the material factors
that will enable investors to make better informed assessments of
the ability of a company to create and sustain value.”
John Stanhope, co-chair of the Business Reporting Leaders
Forum said: “Integrated Reporting gives us an opportunity to
reduce volume and complexity of reporting and provide more
useful information to stakeholders.”
Source: www.accountingeducation.com
United Kingdom
FRC Outline its Work to Give Justifiable Confidence in the
Quality of Audit
The Financial Reporting Council (FRC) has set out its work to give
justifiable confidence in the quality of audit. This expands on the
outline of projects and activity announced in the FRC’s current
three-year strategic programme.
Audit is a key pillar of public confidence in the UK’s corporate
governance and reporting. Since the financial crisis, the FRC has
introduced a number of measures designed to enhance audit
quality and increase the value of auditor reporting to investors to
underpin UK corporate activity. These measures include
retendering, enhanced and extended auditor reporting, and
directly informing audit committees of the results of the FRC’s audit
quality inspections.
In the near to medium term, the FRC will focus on the
expansion of its audit inspection work in line with
recommendations from the Competition Commission, the
implementation of the new EU Directive on statutory audit and
enhancing the quality of bank audits, including through its thematic
review of audits in this sector. It will also develop best practice
guidance for audit committees on assessing audit quality; assess
whether the ethical standards for audit remain fit for purpose; and
review audit firm governance including whether the declining
proportion of audit in the total business of the major audit firms
poses unacceptable risk to audit quality and capacity.
Over the longer term, the FRC will assess whether any
change to the scope of audit is necessary to meet investor
expectations. The programme has been developed, in part, in
response to a survey commissioned by the FRC, which
benchmarked the views of key audit stakeholders undertaken in
2013.
Stephen Haddrill, FRC Chief Executive said, “Audit is
fundamental to good governance and reporting. The quality of
audit in the UK is generally good but not always so and not always
perceived as such. The many measures that have been and will
shortly be introduced are designed to enhance audit quality and
strengthen investor confidence.”
Benchmarking Stakeholder Confidence in Audit
The stakeholder survey carried out last year and now published
provides a new benchmark of confidence in audit and will be
repeated in future to test the effectiveness of the FRC’s programme
in meeting legitimate expectations. The survey shows:
Confidence in the value of audit is correlated with the extent
of day-to-day experience of audit – auditors and companies are
generally confident in the value of audit. However, the largest
proportion of stakeholders, and in particular many investors, call
for more change including more transparency in auditor reporting
and a more open and competitive appointment process to help
improve their confidence in the independence of auditors and the
transparency of their audit conclusions. Some of the concerns
about independence and objectivity arise from the current
concentration of the market in the hands of a few firms.
Source: www.accountingeducation.com
GLOBAL INSIGHT
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The Malaysian Accountant 27LIFESTYLE
For a long time, coffee was the favoured beverage amongsturbanites and though many people still jumpstart their day with thatcrucial cup of coffee, in the last couple of years, tea and healthy
juices are equally gaining popularity.By Kavalyn Kreer
Beverage Trends
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28 The Malaysian Accountant
Many may not know this but after water, tea is the second
most consumed beverage in the world. The tea industry
is transforming and in the last couple of years, a couple
of tea boutique cafes have sprouted around the city. According to
tea specialists and aficionados, premium tea has become the next
big beverage. Likewise, juice bars have become increasingly
popular and practically every shopping mall in the urban areas can
boast of not just one but a couple of juice bars to meet the high
demand.
People in the cities, particularly members of the younger
generation, have become very savvy about their beverage choices
and they know what they want. Even the health-conscious prefer
drinks that are low in alcohol, gluten-free and food-friendly. Smart
business individuals have seen the trends and have introduced
flavoured teas and healthy juices to their menus.
Even coffee drinking trends have changed across the world,
with more fashionable flavours being introduced in coffee cafes.
While some hard-core coffee-lovers still prefer their local coffee,
the more exposed younger generation is looking for something
more interesting in their everyday beverage. With the appreciation
of specialty coffee picking up here as well, lots of speciality coffee
cafes are sprouting up around the city.
One of the recent craze that has hit our shores is the bubble
tea that has led to a flurry of stores opening in the Klang Valley.
Bubble tea kiosks have mushroomed all over the city and over the
past two years or so, a variety of bubble tea brands have caught
the imaginations of consumers and this has spawned a modern tea
culture amongst Malaysians.
The bubble tea crazes first started in Taiwan and later
expanded to Japan, China and Macau. Soon after that, the craze
hit the Southeast Asian nations especially Singapore and Malaysia.
Innovative entrepreneurs brought the bubble tea business into
Malaysia and have made great success of it by catering to all
segments of the market including the health-conscious. They even
go, as far as to state that the bubble tea craze is not a fad or trend
that will diminish in popularity in years to come. The craze itself,
they say, will probably die, but this lifestyle concept will continue to
remain because bubble tea is destined to become an everyday
beverage.
While the bubble tea is not here to replace coffee, it has its
market segment. The drinks are supposedly 100% healthy and in
this day and age, healthy drinks are the fad. It certainly seems like
a tea culture is being inculcated into the Malaysian society.
Another popular market segment in beverages are the juice
bars that have been set-up all over the country especially in the
major cities. Just like coffee and tea outlets, the juice bars are not a
fad but a sustainable business which experts predict will still be
around in 10 to 20 years. Due to health awareness, juice bars are
gaining more popularity amongst Malaysians, regardless of
financial standing. And due to the economics of scale, the popular
juice bars can afford to lower their prices, some even below the
RM10 mark.
Even coffee outlets are beginning to realise the potential of
juice bars and one well-known coffee giant has gone beyond
coffee and tea to open several juice bars around the United States.
Suffice to say, it won’t be long before this new franchise makes its
way to the Asian shores and eventually to Malaysia.
It certainly looks like the days of unhealthy drinks are
numbered. Whilst there is still a market for soft drinks, healthy
concoctions seem to take precedence along with the still popular
coffee and tea. These are trends that are here to stay. And in the
long run, they are a healthier one with lots of benefits.
This article was written by Kavalyn Kreer, who writes lifestyle
articles for publication on the web and print.
LIFESTYLE