LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA
MALAYSIAN ACCOUNTING STANDARDS BOARD
2 (Two) New Proposed Standards for Greater Transparency
The Malaysian Accounting Standard Board (MASB) has released ED 56 Financial
Instruments: Disclosures (ED 56) and ED 57 Operating Segments (ED 57) seeking greater
transparency in ways companies manage their resources as well as their exposure to risks
arising from their involvement in financial instruments.
ED 56 and ED 57 are virtually identical with IFRS 7 Financial Instruments: Disclosures (IFRS
7) and IFRS 8 Operating Segments (IFRS 8) respectively.
IFRS 7 and IFRS 8 were issued by the International Accounting Standard Board (IASB) in
August 2005 and November 2006 respectively. IFRS 7 replaced IAS 30 Disclosures in the
Financial Statements of Banks and Similar Financial Institutions and some requirements in
IAS 32 Financial Instruments: Disclosure and Presentation. IFRS 8 replaced IAS 14
Segment Reporting (IAS 14).
MASB executive director Dr Nordin Mohd Zain says with the proposed disclosures, investors
and other users of financial statements will be able to make informed judgement about the
risks and returns in an entity.
Financial instruments disclosures standard applies not only to financial institutions but also
other entities that hold financial instruments. The degree of disclosures depends on how
broadly the entity uses financial instruments. Amongst others, the Standard proposes
disclosure of sensitivity analysis for each type of market risks to which the entity is exposed
and disclosures of how an entity manages risks arising from financial instruments. With
these disclosures, users are informed about the extent of financial risks involved in the
entity’s undertakings.
Simultaneously with the issuance of ED 56, there is a proposed limited amendment to FRS
101 Presentation of Financial Statements dealing with capital disclosures. The capital
disclosure is important as it helps users to assess an entity’s policies and processes for
managing capital. Users will be able to assess the entity’s risk profile as well as entity’s
ability to withstand unexpected adverse events and ability to pay dividends.
Another proposed Standard issued by MASB is on operating segments which requires
management to report how it has used its resources to manage the entity. The Standard
enables users of financial statements to see an entity through the eyes of management by
requiring disclosure of information in the format and structure used by management. At
present the Standard requires companies to disclose information based on products and
services, and on geographical areas. The Standard, when finalised, is expected to reduce
cost of reporting segment information as it uses information that is readily available and
generated for management’s use.
Dr. Nordin urges Professional Accounting Bodies, Regulators, Users and interested parties
to review the proposed Standards and send their comments to the MASB before September,
28, 2007.
The proposed Standards are available on the MASB website at http://www.masb.org.my.
The public are encouraged to provide their comments electronically through ED Online on
our website.
Copies of the exposure drafts are available free of charge at:
Suites 5.01-5.03, 5th Floor
No. 338, Jalan Tuanku Abdul Rahman
50100 Kuala Lumpur
Tel: 03-2715 9199, Fax: 03-2715 9212
E-mail: masb@masb.org.my
Website: http://www.masb.org.my
Notes
Background of IFRS 7
IFRS 7 introduces new requirements to improve the information on financial instruments that
is given in entities’ financial statements. It replaces IAS 30 Disclosures in the Financial
Statements of Banks and Similar Financial Institutions and some of the requirements in IAS
32 Financial Instruments: Disclosure and Presentation. Simultaneous to the issuance of
IFRS 7, IAS 1 Presentation of Financial Statements is amended to introduce requirements
for disclosures about an entity’s capital.
IFRS 7 requires disclosures about the significance of financial instruments for an entity’s
financial position and performance. These disclosures incorporate many of the requirements
previously in IAS 32 (whose title has been shortened to reflect the change). The IFRS also
requires information about the extent to which the entity is exposed to risks arising from
financial instruments, and a description of management’s objectives, policies and processes
for managing those risks. Together, these disclosures provide an overview of the entity’s use
of financial instruments and the exposures to risks they create.
In developing the proposals in IFRS 7, the IASB worked with an expert advisory group, the
Financial Activities Advisory Committee. The Committee’s members have experience and
expertise in banks, finance companies and insurance companies and include auditors,
preparers and regulators. Their role was to provide input from the perspective of preparers
and auditors of financial statements of entities that have large exposures to financial
instruments and to assist the IASB in developing an IFRS and Implementation Guidance for
risk disclosures arising from financial instruments and for other related disclosures.
Background of IFRS 8
IFRS 8 arises from the IASB’s comparison of International Accounting Standard (IAS) 14
Segment Reporting with the US standard SFAS 131 Disclosures about Segments of an
Enterprise and Related Information. IFRS 8 replaces IAS 14 and aligns segment reporting
with the requirements of SFAS 131.
The IFRS requires an entity to adopt the ‘management approach’ to reporting on the
financial performance of its operating segments. Generally, the information to be reported
would be what management uses internally for evaluating segment performance and
deciding how to allocate resources to operating segments. Such information may be different
from what is used to prepare the income statement and balance sheet. The IFRS therefore
requires explanations of the basis on which the segment information is prepared and
reconciliations to the amounts recognised in the income statement and balance sheet.
The IASB believes that adopting the management approach will improve financial reporting.
First, it allows users of financial statements to review the operations through the eyes of
management. Secondly, because the information is already used internally by management,
there are few costs for preparers and the information is available on a timely basis. This
means that interim reporting of segment information can be extended beyond the current
requirements.
As part of its deliberations leading to IFRS 8, the IASB considered comments by a coalition
of over 300 non-governmental organisations (NGOs) known as the Publish What You Pay
campaign, which asked for the scope of the IFRS to be extended to require additional
disclosure on a country-by-country basis. Because the IFRS was developed as a short-term
convergence project, the IASB decided that country-by-country disclosure should not be
addressed in the IFRS. Instead, the matter will be raised with international bodies that are
engaged with similar issues.