National Business Zakat Symposium 2013
Istana Hotel
Kuala Lumpur
8 October 2013
MASB Technical Release i-1:
Accounting for Zakat on Business
Mas Sukmawati Abu Bakar
Associate Director, Islamic Research
Malaysian Accounting Standards Board (MASB)
About MASB
Two bodies established under Financial Reporting Act 1997
Malaysian Accounting Standards Board
whose functions shall be the determination and issuance of accounting
standards for the preparation of financial statements, which are required to
be prepared or lodged under any law administered by the Securities
Commission, the Central Bank or the Registrar of Companies - Section 7
Financial Reporting Foundation
The functions of the Foundation are
The Foundation shall be responsible
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(a) to oversee the carrying out of the functions of the Board under section 7; and
(b) to perform any other function as the Minister may prescribe by order
published in the Gazette - Section 4(1)
(a) to provide its views to the Board on any matter which the Board seeks to
undertake or implement in relation to the Board’s functions under section 7;
(b) to review the performance of the Board; and
(c) for all financing arrangements for the operations of the Board, including
approving the budget of the Board - Section 4(2)
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MASB composition
Members appointed by Minister of Finance
Advisors appointed by Minister of Finance
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MASB Chairman
Accountant-General
Six others who possess knowledge and experience
in the matters of financial accounting and reporting,
and in one or more of the fields of accountancy, law,
business and finance
Bank Negara Malaysia
Securities Commission
Registrar of Companies
Assisted by Working Groups and Secretariat
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MASB approved accounting standards
Malaysian Financial Reporting Standards (MFRS)
Identical to International Financial Reporting Standards (IFRS)
Applies to all entities other than private entities
Temporary exception: Entities subject to MFRS 141 Agriculture and/or IC
Interpretation 15 Agreements for the Construction of Real Estate
Financial Reporting Standards (FRS)
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An entity subject to the application of MFRS 141 Agriculture and / or IC
Interpretation 15 Agreements for the Construction of Real Estate may in the
alternative apply Financial Reporting Standards (FRSs) as its financial
reporting framework for annual periods beginning before 1 January 2014
An entity that consolidates or equity accounts or proportionately
consolidates another entity that has chosen to apply FRSs as its financial
reporting framework may itself choose to apply FRSs as its financial
reporting framework for annual periods beginning before 1 January 2014
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MASB approved accounting standards (cont.)
Private Entity Reporting Standards (PERS)
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A private entity is a private company incorporated under
the Companies Act 1965, that
is not itself required to prepare or lodge any financial
statements under any law administered by the Securities
Commission or the Bank Negara Malaysia; and
is not a subsidiary or associate of, or jointly controlled by,
an entity which is required to prepare or lodge any
financial statements under any law administered by the
Securities Commission or the Bank Negara Malaysia.
Based on pre-2005 MASB standards
Discussions on whether framework needs to change
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MASB project on Islamic financial reporting
MASB Working Group 36: Islamic Financial Reporting
From 1997 to 2013
MASB Standing Committee on Islamic Financial Reporting
Replaces WG36
Standing Committee assists the Board in
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Preparing documents relating to Islamic financial reporting for issuance
by the Board.
Forwarding Islamic financial reporting issues along with their suggested
solution(s) either directly to the IASB, or indirectly through the AsianOceanian Standard-setters Group (“AOSSG”) or any other body.
Preparing submissions on implementation issues to the Financial
Reporting Standards Implementation Committee (“FRSIC”) of the
Malaysian Institute of Accountants (“MIA”).
Preparing documents on Islamic finance accounting issues and
recommendations for the Shariah Advisory Council of Bank Negara
Malaysia or Securities Commission Malaysia, when necessary.
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MASB Islamic technical pronouncements
MASB i-1/FRS i-1 Presentation of Financial Statements of
Islamic Financial Institutions (2001)
Withdrawn in 2009
Most guidance already in MFRS 101 and MFRS 108
Unique guidance transferred to TR i-3
SOP i-1Financial reporting from an Islamic perspective
(2009)
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Shariah compliant transactions and events shall be accounted
for in accordance with MASB approved accounting standards,
unless there is a Shariah prohibition.
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MASB Islamic technical pronouncements (cont.)
Technical Releases – complements Standards
TR i-1 Accounting for zakat on business (2006)
TR i-2 Ijarah (2006)
TR i-3 Presentation of financial statements of Islamic financial
institutions (2009)
TR i-4 Shariah compliant sale contracts (2010)
From 2011, MASB no longer issues pronouncements to
provide additional guidance on Islamic financial
transactions
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Avoid impression that MASB issues local interpretations
Address issues directly to IASB
Discuss Islamic financial reporting through other avenues
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Other MASB work on Islamic finance
MASB Discussion Papers
DP i-1 Takaful (2011)
DP i-2 Sukuk (2011)
DP i-3 Profit-sharing contracts (2011)
Feedback Statement to DP i-1, DP i-2 and DP i-3 (2012)
Asian-Oceanian Standard Setters Group
Research Paper
Surveys
Comment letters to IASB
IASB Advisory Group on Shariah Compliant Transactions
MASB Projects-in-progress
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Waqf
Islamic derivatives & hedging
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TR i-1 Accounting for Zakat on Business
Developed by MASB WG36
A technical release is not an
MASB approved accounting
standard
Issues discussed
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Recognition: Is zakat an item of
expense or a distribution of
equity?
Measurement: How is the
amount of zakat payable
calculated?
Presentation:Where should it
be presented in the financial
statements?
Disclosure:What should be
disclosed about business zakat?
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TR i-1 contents
Introduction
Para 1: Objective. To prescribe accounting treatment and
presentation of zakat on business.
Para 2: Scope. Accounting for and presentation of zakat on business
in the financial statements of entities that pay zakat
Discussed in slides on
Para 3-5: Recognition
Recognition,
Para 6-14: Assessment of Zakat
Measurement,
Para 15: Presentation
Presentation and
Para 16-17: Disclosure
Disclosure
Para 18: Transitional provision. Prospective application.
Para 19: Effective date. Annual periods beginning on or after 1 July
2006.
Appendix A: Explanations of terms used
Basis for conclusions
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Recognition
Is business zakat an obligation of the company (legal
entity) or the shareholders (natural persons)?
Determines whether zakat is an expense of the entity or a
distribution of shareholders’ equity
In Malaysia, a legal entity may be an entity subject to zakat
Requirement:
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Paragraph 4 - The amount of zakat assessed shall be recognised
as an expense in the period in which it is incurred.
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Measurement
Federal Constitution
Ninth Schedule, State List gives States legislative power on …Zakat,
Fitrah and Baitulmal or similar Islamic religious revenue…
Article 76(1) - Parliament may make laws with respect to any matter
enumerated in the State List, but only as follows, that is to say:
(a) for the purpose of implementing any treaty, agreement or convention
between the Federation and any other country, or any decision of an
international organization of which the Federation is a member; or
(b) for the purpose of promoting uniformity of the laws of two or more
States; or
(c) if so requested by the Legislative Assembly of any State.
MASB is not Parliament – limited to functions in Article 7,
Financial Reporting Act
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Measurement (cont.)
Board conclusion
BC16 - … Thus, the Board decided that TR i-1 shall deal only
with financial reporting issues related to zakat on business.
Requirements:
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Paragraph 13 – The method used for the determination of
zakat base shall be applied consistently from one period to
another.
Paragraph 14 - An entity shall measure zakat assets and
liabilities on the same measurement basis as used in the
preparation of the financial statements.
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Presentation
Requirement:
Paragraph 15 - The amount of zakat assessed for the current
period shall be presented as a line item on the face of the
income statement.
BC9 - When an entity pays zakat on business, the amount of
zakat is recognised as an expense and included as a deduction
from net income in the income statement of the entity.
Above or below “the line”?
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In practice, entities draw a parallel between zakat and tax
expense.
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Example presentation on income statement
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Disclosure
Requirement:
Paragraph 16 - An entity shall disclose in the notes
accompanying the financial statements the following:
Paragraph 17 - Components of zakat may include:
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(a) method used in the determination of zakat base
(b) its responsibility towards payment of zakat on business; and
(c) major components of zakat
(a) current zakat expense
(b) zakat payment
(c) zakat liability
(d) any adjustments recognised in the period for zakat of prior
periods
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Example disclosures of significant accounting policies
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Example disclosures on zakat liability
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Other: Report of the Shariah Supervisory Council
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Why not AAOIFI FAS No. 9 Zakah?
Contents of AAOIFI FAS 9
Para 1: Scope – Islamic bank
Para 2-8: Determination of zakat base
Non-banks also pay zakat
May contradict Federal/State law
As either expense or as deduction from
distributable profit
Statement of Sources and Uses of
Funds in the Zakah and Charity Fund
Para 13-20: Disclosures
Para 21: Effective date
Appendices A, B: Computation for
bank assets & liabilities
Appendices C, D, E, F, G: Background
material
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Net assets method
Net invested funds method
Para 9-12: Treatment of zakah in the
financial statement
Malaysian considerations
Treatment differs from MASB
standards and/or Malaysian practice
Working capital model
Growth model
In Malaysia, entity is deemed zakat
payer; therefore expense
In Malaysia, corporates are not usually
zakat agent / collector / distributor
May be disclosed, if appropriate
Need to address zakat of non-bank
assets & liabilities as well
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Thank you. Questions?
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