Impact of IFRS on Malaysian Firms

The assignment delves into the effects of International Financial Reporting Standards (IFRS) implementation on Malaysian companies. It examines both the positive aspects, such as improved transparency and comparability of financial reporting, and the potential challenges faced by firms during the convergence process. Specific examples from annual reports of Malaysian companies like MISC Berhad and Pensonic Holding Berhad are used to illustrate the practical implications of IFRS adoption.

Use of fair value accounting post IFRS harmonisation in Malaysia and a minimum of three
other emerging economies in the Asia-Pacific countries
Chand (2005) stated that the need for harmonisation of accounting standards has arrived
due to developing single set of high-quality accounting standards that can be used by business
corporations around the world. The harmonisation of accounting standards will help in achieving
congruence between the financial reporting systems of different business entities that making it
easy for the end-users to analyse and interpret the financial information disclosed by any
business entity. The IASB (International Accounting Standards Board) has directed the business
corporations around the world to prepare their financial reports as per the IFRS (International
Financial Reporting Standards). However, the adoption of IFRS in different countries is largely
influenced by the country-specific contextual issues that are restricting the harmonisation of
IFRS. As such, it can be said that the harmonisation of IFRS is possible with the combined
efforts of regulators, standard-setters, financiers, business community and the accounting
professionals. The various countries in the Asia-Pacific region have successfully adopted IFRS
for enhancing the global competitiveness of their business corporations (Chand, 2005).
As per the Albu, Albu, and Alexander (2014), the implementation of the IFRS standards
by the Asia-Pacific countries has presented various challenges in front of the accounting
professionals regarding the use of fair value accounting. As such, the use of fair value accounting
in Malaysia has reported many challenges due to country-specific issues. The IFRS 13 standard
has directed business entities to use fair value accounting as it provides realistic information
about the current market price of assets and liabilities. The fair value accounting is regarded to
be better method as compared to historical cost approach that records the historical price of
assets and liabilities. The accounting-standard setting bodies in Malaysia are emphasising on the

use of fair value accounting with the increasing need for protecting the interests of the end-users.
There are various other emerging Asia-Pacific economies that are adopting the use of fair value
accounting approach besides Malaysia such as Australia, New Zealand and Singapore with the
only exception of Bangladesh (Albu, Albu, and Alexander, 2014).
According to He, Wong and Young (2012), the historical cost accounting method reflects
the initial price of assets and liabilities at the time of their purchase and does not provide any
information relation to the current market valuation. As such, it lacks reliability and therefore fair
value accounting method is largely preferred by the business corporations in the Asia-Pacific
countries to match the needs and expectations of the end-users of realising reliable information to
be used in making investment decisions. The use of fair value measurement techniques by the
business entities in Malaysia has facilitated the easy comparison and evaluation of assets and
liabilities through the general purpose financial statements. It has helped in developing a
systematic approach for valuing the financial instruments of a business entity that provides
reliable and comparable information about its financial performance. Also, the fair value of
assets and liabilities also help in estimating the predicting their future values that can help the
investors and creditors to make informed decisions (He, Wong and Young, 2012).
Qu et al. (2012) stated that the regulatory Authority of Malaysia and the Malaysian
Accounting Standards Board has mandated the public listed companies under the securities
commission Malaysia for the use of fair value accounting but still it remains optional for private
companies. Thus, it can be said that fair value accounting is still not adopted completely in the
business corporations of Malaysia. This is due to some criticism regarding the use of fair value
approach during the preparation of the general purpose financial statements. The major criticism
as argued by many accounting professionals regarding the use of this approach is that it

introduces high volatility in the financial statements. This is because the valuation provided by
this approach is not adequate sometimes and thus it is said that volatility is the price of investor
confidence (Qu et al., 2012).
Fair Value Measurement implemented by the 2 Malaysian Companies and 2 Australian
Companies
In order to analyze the use of fair value accounting in the 2 Australian companies and 2
Malaysian companies, there is need to select such companies from the list available from the
respective countries stock market. The 2 Australian companies selected for this purpose are
Wesfarmers and Woolworths and 2 Malaysian companies selected are BERHAD and MISC
BERHAD.
There is need to understand the adoption of IFRS by the Malaysian Accounting Board
before comparing the accounting of two countries. Before the adoption of IFRS, Malaysian
Accounting Board follows the US GAAP to perform their accounting reporting work. After the
implementation of IFRS by the IAB for all the countries and made them mandatory for all,
Malaysian Accounting Board has decided to take IFRS and made their own country Malaysian
GAAP which will be applicable on the listed companies under the Malaysian stock exchange.
The standards referred to in the Malaysian GAAP are known as Malaysia Financial Reporting
Standards. In Australia, AASB takes care of the adoption of the accounting standard and their
implementation in their financial reporting guidelines. After the introduction of IFRS, AASB has
decided to make changes in their AASB (Accounting standard) so that there will similarity
between them. The use of fair value of measurement as described under IFRS 13 has helped a lot
in valuing the assets and liabilities in the books of accounts (AASB13, 2015). This has enhanced

the capability of users of the annual report to interpret the financial information and to measure
the profitability of the company. There is almost similarity between the Australian GAAP and
Malaysian GAAP regarding the disclosures made for the fair value measurement as both the
countries has adopted the standards defined in IFRS. After looking at the financial reports of
both the companies of Malaysian companies (Pensonic Holding BERHAD and MISC BERHAD)
it has been found that MFRS 13 is used for measuring the fair market value of assets and
liabilities. MFRS 13 (Accounting of Financial Instruments) has been upgraded in year 2011
keeping in view the IFRS 13 standards regarding the same (MASB, 2017). MFRS 139 allows the
mixed measurement of the three main categories and they are measurement of comprehensive
income, realized profit or loss and amortized cost (MISC BERHAD, 2016). In relation to
measurement of the financial instruments, the higher of cost or last known market price in case
the active market quotes are not known to the company. In addition to this there are many
assumptions that are needed to make by the company before presenting the financial report
(Pensonic Holding BERHAD, 2016). This includes use techniques of valuation that is related to
use of inputs from market and other estimates. The fair value accounting used by both the
Malaysian companies is given under notes to accounts with detailed description of each
measurement (MISC BERHAD, 2016 and Pensonic Holding BERHAD, 2016).
On the other hand, Australian GAAP (AASB 13) defines the concept of fair value
measurement. Mostly all the points have been copied from the IFRS 13 with some small
differences to adjust with requirement of Australian companies. In order to better present the
difference, the following table will help a lot (Wesfarmers, 2016 and Woolworths Group, 2016).
Difference between Fair Value Measurement by the Australian Companies and Malaysian

Companies
Component of
Income
Statement of
balance sheet
AASB 13 implication upon and as
implemented by the Australian
Companies
MFRS 13 implication upon
and as implemented by the
Malaysian Companies
Preparation of
Consolidated
Financial
Statements
Australian companies have presented their
financial items at historical cost basis other
than the financial instruments that are
available for sale (Wesfarmers, 2016 and
Woolworths Group, 2016).
Malaysian Companies have
also presented their financial
items at historical cost basis
but their no description about
the financial instruments
(MISC BERHAD, 2016 and
Pensonic Holding BERHAD,
2016).
Items related to
business
combination
Australian Companies use the fair market
value concept to measure the value of
company to be acquired but there are no
defined guidelines regarding the same,
such as if business combination has been
carried out in installment than there will no
concept of revaluation of assets or
financial instruments.
Malaysian companies have
followed the set of clearly
defined assumptions regarding
the cost of acquisition and
their measurement in books of
accounts.
Goodwill and
other intangible
assets
There is separate accounting standard that
deals with the accounting of intangible
assets. Goodwill is measured after the
Here, goodwill is measured in
same way as Australian
companies do but there is

business combination at cost (initially) and
after that it is treated with any impairment
loss (Wesfarmers, 2016 and Woolworths
Group, 2016).
difference of presentation
under notes to accounts.
Depreciable
Assets
Assets that are presented under the non-
current assets section are measured after
deducting the depreciation for the year
from their book value. There is also a
concept of charging depreciation according
to their remaining useful life in some cases
(Wesfarmers, 2016 and Woolworths
Group, 2016).
Malaysian Companies follows
same concept as Australian
companies do, but
depreciation is charged at
predefined rate without giving
effect of useful life of year
(MISC BERHAD, 2016 and
Pensonic Holding BERHAD,
2016).
Financial Assets These assets are measured according to the
risk management system and are divided
on the basis of years of maturity
(Wesfarmers, 2016 and Woolworths
Group, 2016).
Separate accounting standard
(MFRS 139) is used to
measure these assets (MISC
BERHAD, 2016 and Pensonic
Holding BERHAD, 2016).
Here are some of pictures from the Annual reports that provide use of fair value measurement
concept by the Australian companies
Measurement of Financial Assets

Goodwill and Other Intangible assets

Property, Plant and Equipment
Here are some of pictures from the Annual reports that provide use of fair value measurement
concept by the Malaysian companies
Business Combination

Depreciation rate of fixed assets

Goodwill and other intangible assets
Financial Assets

Use of fair value accounting since IFRS harmonisation in Malaysia in improving the
quality of information disclosure
The publicly-traded firms are adopting the use of fair value accounting (FVA) approach
since IFRS harmonisation for improving the quality o their financial reports. The FVA is being
widely recognised as a method of providing more accurate, comprehensive and timely
information relative to the asset price by incorporating the effect of market movements during
their valuation. The increasing complexity and volatility in the markets is causing the need for
investors to determine the actual worth of an asset. The use of fair value accounting method is
advocated by the accountants who seek implementing more precision in the assets and liabilities
valuation. As such, it has improved the quality of financial disclosure by depicting the value of
assets and liabilities as per the economical conditions. The business entities operating in
Malaysia are subject to their different accounting frameworks, that are, old Financial Reporting
Standards (FRS), private equity reporting standards (PERS) and Malaysia Financial Reporting

standards (MFSR). The MFRS has only achieved congruence with the IFRS standards and is
presently implemented only by the publicity-listed companies in Malaysia (Dignah et al., 2016).
As such, it can be said that integration of IFRS by Malaysia has increased the reliability
of accounting through the use of fair value accounting approach. The FVA approach has
improved the quality of disclosure by decreasing the trading risk and thereby enhancing the
trading volume. The increased transparency in the business operations through the use of fair
value accounting approach has resulted in improving its shareholder base and also promoting
foreign direct investment. Besides, this it has helped to large extent to the Malaysia government
for economic planning through improving the interpretation of the financial accounting by the
regulators, businesses and professionals (Alaryan et al., 2014). It has facilitated in developing a
positive business environment and improved the global competitiveness of the Malaysian
business entities. Also, the FVA approach as improved the direct investment by achieving the
trust and confidence of foreign investors and thereby leading to business expansion. The
expansion of business firms has helped in improving the job opportunities in Malaysia and
thereby promoting the economic growth and development of the country (Hassan Percy and
Stewart, 2006).
However, the use of fair value accounting in the publicly traded companies is regarded to
be difficulties it requires gaining large number of assumptions and disclosing the information
relating how they are derived. Also, there exists a possibility of underlining the overall worth of
a business entity at the expenditure of assessing the performance of the management. The
approach continuously assesses the influence of market fluctuations on the assets and liabilities

thereby resulting in incorporating high volatility in the financial reports (Hanefah and Singh,
2012). The use of fair value approach through regarded to a better technique for predicting the
realistic value of assets at a time for investors but they allow want historical value of assets for
measuring the cash flows. Also, historical method helps the management in accurately
determining whether it has achieved its stated operational goals and objectives. Thus, the
improvement in quality of financial disclosure by the use of fair value accounting is still a topic
of debate. The accounting-standard setting bodies is recommend to adopt the use of both the fair
value and historical cost accounting method for achieving the stakeholder trust and confidence.
Also, the regulators need to emphasize on the use of fair value accounting in private companies
for promoting transparency in their business operations as well (Sidik, and Rahim, 2012).

References
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