Crowe Horwath AF 1018
Member Crowe Horwath International
On 19 November 2011, the Malaysian Accounting
Standards Board (“MASB”) issued a new MASB approved accounting framework, namely the
‘Malaysian Financial Reporting Standards’ framework (MFRS framework). This framework will bring accounting standards in Malaysia to be fully compliant with International Financial
Reporting Standards (IFRS).
The MFRS framework is applicable to all
Malaysian entities other than private entities effective from annual periods beginning on or after 1 January 2012. However, the 'transitioning entities' (those involved in agriculture and real estate construction) are allowed to defer the adoption of the MFRS framework by another two
(2) years i.e. defer until annual periods beginning on or after 1 January 2014.
This article is to assist you in the application of the
MFRS framework for the December 2012 financial report.
(a) Statement on Risk Management and
Internal Control (Formerly Known As
‘Statement on Internal Control’).
The industryled task force on ‘Statement on
Internal Control’ has revised its previous guidance issued in 2000 and developed a more vibrant and broader guideline that reflects the current regulatory landscape and corporate governance. The new guidance is titled ‘Statement on Risk Management and
Internal Control – Guidelines for Directors of
Listed Issuers’.
This guidance, with the support of Bursa
Malaysia, is designed primarily to help directors of listed companies in preparing disclosures on risk management and internal controls in company annual reports and to ensure they conform with the listing requirements. The guidance is effective for financial years ending on or after 31
December 2012.
The new guidance, among others, requires the listed companies to include the following disclosures in the Statement on Risk
Management and Internal Control:-
 That a review on the adequacy and effectiveness of the risk management and internal control system has been undertaken
 Commentary on the adequacy and effectiveness of the risk management and internal control system
 Assurance from the Chief Executive
Officer (CEO) and Chief Financial Officer
(CFO) to the board of directors (Board) on whether the company’s risk management and internal control system is operating adequately and effectively, in all material aspects, based on the risk management and internal control system of the company
 The Board is responsible for establishing a sound framework to manage risk
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(b) Presentation of Three (3) Statements of Financial Position
Crowe Horwath AF 1018
Member Crowe Horwath International
As required under MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards (MFRS 1), an entity’s first MFRS financial statements comprise at least:-





) Current year of
) 2012 and comparative
) year of 2011

The third (3 rd
) statement of financial position
(marked with *) represents the balance sheet at the beginning of the comparative period
(known as ‘the transition date’ under MFRS
1). If the company has changed its financial year end in the last year, the transition date will change accordingly.
The MASB is of the view that the first-time adopter of the MFRS framework shall provide additional comparative information that is presented in accordance with the previous Generally Accepted Accounting
Policies [GAAP which refers to Financial
Reporting Standards (FRSs) or Private Entity
Reporting Standards (PERSs)] to help the financial user to understand the transition effects of the MFRS framework under the requirements of MFRS 1 (see item (c) below).
Therefore, the presentation of the 3 rd statement of financial position is compulsory even though such a statement is identical to the 2011 statement of financial position that had been audited under the FRS framework.
(c) Various Implementation Choices of MFRS
1 – MFRS Transition Reconciliation
Under MFRS 1, a number of implementation choices exist in preparing the first set of
MFRS financial statements. For example:-
(i) Entities using the cost model can uplift the carrying amount of its assets (under the FRS framework) to its fair value at the date of transition and use the fair value as the ‘deemed cost’ from that date without having to change to the revaluation model under the MFRS framework
(ii) Entities that have previously accounted for their investments at fair value may apply the ‘deemed cost’ provision using the following measures as deemed cost at the date of transition:-
(aa) Fair value at the date of transition; or
(bb) Carrying amount under the FRS framework at the date of transition
(i.e. ‘available-for-sale financial assets’ such as investments in subsidiaries)
Subsequent to the change of accounting policy, the entity will no longer need to carry out an annual fair value exercise for their investments under the MFRS framework. Any fair value reserve at the date of transition will be transferred to retained profits upon the adoption of
MFRS 1.
Due to various exemptions under MFRS 1, in preparing the 3 rd
statement of financial position, an entity may have adjusted amounts reported previously in the financial statements prepared under the previous
GAAP.
MFRS 1 requires extensive disclosure to be made in the first MFRS financial statements to explain how the transition to the MFRS framework has affected the reported financial position, financial performance and cash flows.
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(d) Additional Paragraph in the Auditors’
Report on the MFRS Transition
On 30 November 2012, the Malaysian
Institute of Accountants issued the
Recommended Practice Guide 11 (RPG 11) to provide guidance on the auditors’ report on the first set of financial statements prepared in accordance with the MFRS framework.
According to RPG 11, the auditors are required to make a disclosure paragraph in their reports to state that all comparative figures in the first MFRS financial statements are not audited; even though the figures are exactly the same as the previously audited financial statements under the previous
GAAP.
Unless the auditors have carried out an audit on those comparative figures, the auditors shall maintain such a paragraph in their auditors’ report of the first MFRS financial statements.
(e) Application of New Accounting Standards
These are numerous new accounting standards that are effective for annual periods beginning on or after 1 January
2012. Those that have significant impact on the 2012 financial statements include but are not limited to the followings:
(i) MFRS 124 Related Party Disclosure
(identical to FRS 124 (Revised)) simplifies the definition of a related party. The application of this new standard may result in the identification of new related parties that were not identified as related parties under the previous GAAP. Specifically, associates
Crowe Horwath AF 1018
Member Crowe Horwath International of the holding company are treated as related parties of an entity under this new standard whilst such entities were not treated as related parties under the previous GAAP .
(ii) MFRS 112 Income Taxes introduces a new principle (identical to the amendments to FRS 112: Recovery of
Underlying Assets ) which clarifies that in measuring the deferred tax for changes in fair value of an investment property, there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale and not through use, i.e. the deferred tax shall be measured using the real property gain tax (RPGT) rate.
In view that the current RPGT rate is
15% flat for properties disposed of within two (2) years of purchase, 10% flat for properties disposed off after two
(2) but within five (5) years of purchase, and nil for properties disposed of after five (5) years of purchase, there will be no deferred tax on the fair value changes on investment properties that were purchased more than five (5) years ago.
It is evident from the above that the only constant in the financial reporting field is change. In this respect, 2012 is no different and we will be seeing a number of changes in the 2012 financial reports.
Written by:
James Chan
Audit Partner
2 April 2013
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