Financial Reporting Environment Statutory and Regulatory Framework. Learning Objectives

Transcription

1 Financial Reporting Environment Statutory and Regulatory Framework Learning Objectives To describe the statutory and regulatory requirements for financial accounting and reporting 1

2 Financial Reporting Environment Statutory and Regulatory Framework In preparing and presenting financial statements, companies in Malaysia are to comply with the following: Companies Act 1965 Financial Reporting Act 1997 Accounting Standards Income Tax Act 1967 The Securities Commission Guidelines 1995 KLSE Listing Requirement Bank Negara Malaysia Guidelines The company s income statements and balance sheet are considered to present a true and fair view when it comply with AAS (Approved Accounting Standard), Companies Act 1965, relevant regulations and requirement of other statutes. 2

3 COMPANIES ACT 1965 Is the principle legislation governing the formation and operation of companies in Malaysia. It provides formal rules on accounting and requirement for true and fair view reporting. The provision under the act also protects the right and interest of shareholders in particular and investors in general, provides facilities for the incorporation of companies, its constitution, its relation with members and creditors, management and winding up. The Company Commission of Malaysia enforces and administers the Companies Act. 3

4 COMPANIES ACT 1965 The Act requires that every company must keep proper accounting and other records to sufficiently explain transactions and financial position of the company and to enable true and fair profit and loss accounts and balance sheets and related documents to be prepared from time to time (s176;s160;s326;9thsch;aas). For the proper accounting records, the accounts must be recorded and kept: In such manner as to enable them to be conveniently and properly audited; Entered in the accounting records within 60 days of the completion of transactions to which they relate; Retained for 7 years after the completion of the related transactions or operations; at the registered office, or at such other place as the directors think fit (s167). Accounts be prepared in English or national language(s360) 4

5 COMPANIES ACT 1965 Accounts and reports are prepared in accordance with AAS issued by MASB so as to give a true and fair view of their companies affairs Every company is required to comply with the disclosure requirements of the Ninth Schedule. Annual reports must be presented at the AGM of the company. The 1 st AGM of shareholders should be held not later than 18 months after the date of incorporation of the company and subsequently at least once every calendar year, and at intervals not more than 15 months from the last general meeting (s169). 5

6 COMPANIES ACT 1965 Laying of accounts (s169); audited, approved and adopted by BOD: Profit and Loss account Balance Sheet Directors report Statements of Directors Statutory declaration made by directors Auditors report Consolidated Profit and Loss account and Balance Sheet where applicable 6

7 Financial Reporting Act 1997 Two bodies were formed to be responsible for the setting of accounting standards in Malaysia, i.e. FRF and MASB. Section 27 Compliance with approved accounting standards for accounts to be prepared and lodged under any law administered by Securities Commission, the Central Bank and the Company Commission of Malaysia (formerly known as the Registrar on Company). Compliance with FRS are legislated under s26d. Section 2 of FRA (amendment to s166a of CA) for the compliance with AAS. Basically FRA provides the enforcement authority to the standards issued by MASB. 7

8 Accounting Standard Before new financial reporting regime: Adoption of IAS Malaysian approved accounting standards to be complied with IAS (adopted/adapted to suit local practice). Technical committee of MIA and MACPA responsible to set Malaysian Accounting Standards (MAS) early 1980s Under the new financial reporting regime: Enactment of Financial Reporting Act 1997 as a trustee body functions of standard setting was taken over by MASB. 8

9 Income Tax Act 1967 Mainly concerned with ascertaining of chargeable income and tax payable under the act. As taxation is a business expense that needs to be reflected in the income statement, compliance with Income Tax Act 1967 is legally enforceable. 9

10 Securities Commission (SCA 1993) Mission to promote and maintain efficient, secure and transparent securities and futures market, and facilitating the orderly development of an innovative and competitive capital market ( A self-funding statutory body with investigative and enforcement powers, empowered to regulate all matters relating to securities industry in Malaysia including issuing, offering or listing of securities in the local capital market. Among regulatory functions: To regulate issue of securities and designation of future contracts. To regulate all matters relating to unit trust schemes To regulate take over and mergers of company. 10

11 Securities Commission Guideline Issues guideline in relation to accounting and reporting to regulate the local listed and unlisted public companies, which include the following chapters: Corporate disclosure policy (c9pb) contains rules requiring companies to maintain high standards of disclosure. A listed company is also required to make immediate release, information which are expected to have a material impact on investors investment decisions. Post-listing obligations (c8pa) requiring public listed company to submit annual reporting, interim and periodic financial reporting as well as the related party transaction reporting. Accounting standard and valuation/revaluation of assets (c7pb) requiring public company to comply with the statutory and regulatory framework of accounting (AAS, Companies Act and SC s revaluation rules. 11

12 KLSE (SA 1983) A self-regulatory body membership confined to individuals and corporations. Main objective to provide and maintain market place for trading of shares in the company. Does not have a legal power to enforce compliance. Errant companies are either reprimanded, suspended and de-listed from the exchange. Clause 335 of listing manual company annual audited accounts are to be prepared in accordance with AAS and pronouncements and ninth schedule of Companies Act

13 KLSE Listing Requirement Listing requirement to regulate the PLC: Submission of reports: Accounts prepared in accordance with AAS and Ninth Schedule. Auditors and directors report are to be submitted to the exchange 4 months from the year ended. The printed annual report shall be issued to shareholders within a period not exceeding 6 months from the year end. For interim reporting comply with Quarterly Reporting requirement, i.e. submission for public release the balance sheet, income statement and explanatory notes, as soon as figures available for 2 months after the end of each quarter. Additional disclosure disclosures on material contracts involving directors interest, statement on details of substantial shareholdings, details on properties held. 13

14 KLSE Listing Requirement Disclosure Information on Corporate Governance (chap.15 of KLSE RLR,2001): Significant changes made to new listing requirements to promote greater transparency and accountability via enhancement of disclosure, due diligence and corporate governance. Purpose is to ensure a transparent and informed market as well as promoting responsible conduct among market participants. 14

15 Bank Negara Malaysia Issued guidelines on financial reporting practices for banking and financial institutions (BAFIA 1989), including: Guidelines on the suspension of interest on NPL (BNM/GP3) e.g. the classification of interest accrued on NPL as credit to interest-in-suspense account. 15

16 Bank Negara Malaysia Guidelines on the specimen financial statements for the banking industry (BNM/GP8), namely: Classification of assets and liabilities. Liquidity of assets and liabilities. Maturity analysis of assets and liabilities. Concentration of assets and liabilities. Additional disclosure: Types of credit facilities granted. Maturity structure of credit facilities. Provision for bad and doubtful debt. Interest in suspense. Principle types of revenue and expenses. Credit risk and concentration. 16