1.Prepared by MASB Staff.1 It does not represent the official position of the Board.

2. Agenda Quick recap on the key principles of MFRS 10Consolidated Financial Statements Focus: principal vs. agent relationship Assessment of a typical REIT structure Amendment to MFRS 10 Investment Entities Discussion on implementation issuesPrepared by MASB Staff.2 It does not represent the official position of the Board. 3. The pack of 5 effective from 1 January 2013Investor JointSignificant ControlControlinfluence AssociateSubsidiary Joint arrangements MFRS 10 MFRS 11MFRS 128MFRS 127 MFRS 12 Prepared by MASB Staff.3It does not represent the official position of the Board. 4. Prepared by MASB Staff.4 It does not represent the official position of the Board. 5. MFRS 10 Consolidated Financial StatementsMASBs article on IFRSs 13 published in MIAs Accountants Today (Oct & Dec 11)5Prepared by MASB Staff. 5 It does not represent the official position of the Board. 6. MFRS 10 Consolidated Financial Statements A single control model that applies to all types of entities What has changed? Revised definition of CONTROL focuses on the need to have both power and variable returns Supersedes: MFRS / FRS127 Consolidated and Separate Financial Statements IC Int.112 Consolidation SPEs 6Prepared by MASB Staff. 6It does not represent the official position of the Board. 7. MFRS 10 Consolidated Financial StatementsComparison with previous standardDefinition of Control Definition of Control- FRS / MFRS 127- MFRS 10Control is the power to governAn investor controls an investee when thethe financial and operating investor is exposed, or has rights, topolicies of an entity so as tovariable returns from its involvement with theobtain benefits from its activities investee and has the ability to affect thosereturns through its power over the investee. The diagram below depicts the new control model:POWER LINKRETURNSPrepared by MASB Staff. 7It does not represent the official position of the Board. 8. MFRS 10 Consolidated Financial Statements PowerExisting rights that give current ability to direct relevant activities Definition REITs: What the relevant activities are ? Selecting, acquiring and disposing of REITs assetsActivities of Property asset management e.g. selection of lease tenants,the investeemanaging rental yield and occupancy ratethatsignificantly Property enhancement activitiesaffect the Reinvestment vs. distribution of returnsinvesteesreturn Capital management activities e.g. determining fundingstructure & secure of fundingPrepared by MASB Staff.8 It does not represent the official position of the Board. 9. MFRS 10 Consolidated Financial Statements Power relevant activitiesIf two or more investors have rightsthat give them unilateral ability todirect different relevant activities,the investor which directs theactivities that most significantlyaffect the returns of the investeehas power over the investee.Prepared by MASB Staff.9 It does not represent the official position of the Board. 10. MFRS 10 Consolidated Financial Statements Power substantive vs. protective rights Protective rights = rights designed to protect interest of partyholding those rights without giving that party power over theentity to which those rights relate. Protective right control Examples Lenders right to restrict borrower from undertaking activities thatsignificantly change the credit risk Approval right on CAPEX greater than required in ordinarycourse of business Approval right on issuance of equity or debt instruments Prepared by MASB Staff.10 It does not represent the official position of the Board. 11. MFRS 10 Consolidated Financial StatementsPOWER LINK RETURNSMFRS 10 introduces the concept of delegated power theprincipal vs agent relationship decision makers (e.g. fund managers) need to assess if they are the principal or agent The new principle in MFRS 10 may lead to different consolidation conclusion (when MFRS 127 was applied prior to 1 Jan 2013) NEW analysis is needed Prepared by MASB Staff.11 It does not represent the official position of the Board. 12. MFRS 10 Consolidated Financial StatementsPrincipal-agent relationship A decision maker is not Decision making an agent simply becausepowerothers benefit from the decision it makes Own Benefits of An obligation to act in the benefitsothersbest interest of those who have delegated the powerPrincipalAgent does not prevent the control decision maker from being a principal Prepared by MASB Staff. 12It does not represent the official position of the Board. 13. MFRS 10 Consolidated Financial StatementsPrincipal-agent relationship Scope of decision-making authority Power involvement in design & autopilot situations assessing whether scope of power is narrow or broad Rights held by other parties (e.g. existence of removalrights) Remuneration of the decision-makerReturns Exposure to variability of returns through remunerationand other interestPrepared by MASB Staff. 13 It does not represent the official position of the Board. 14. MFRS 10 Consolidated Financial Statements Scope of power narrow or broad? Activities that are permitted according to the decision-making agreements / law Discretion that the decision maker has when making decisions If a decision maker is significantly involved in the design of the investee, (including determining the scope of decision- making authority), that involvement may indicate that the decision maker has the opportunity and incentive to obtain rights that result in the decision maker having the ability to direct the relevant activities Prepared by MASB Staff. 14It does not represent the official position of the Board. 15. MFRS 10 Consolidated Financial Statements Rights held by others Definitive factor When a single party holds substantive removal rights and can remove the decision maker without cause, this, in isolation, is sufficient to conclude that the decision maker is an agent.Prepared by MASB Staff.15It does not represent the official position of the Board. 16. MFRS 10 Consolidated Financial StatementsRemunerationVariability & Magnitude More likelyan agentMore likelya principalPrepared by MASB Staff.16It does not represent the official position of the Board. 17. MFRS 10 Consolidated Financial Statements Remuneration Definitive factor A decision maker cannot be an agent unless: The remuneration is commensurate with the services provided The remuneration agreement includes only terms, conditions or amount that are customarily present in arrangements of similar services and level of skills negotiated on an arms length basis Prepared by MASB Staff.17 It does not represent the official position of the Board. 18. MFRS 10 Consolidated Financial StatementsExposure to variability of returns from other interestsGreater magnitude &variability associated Whether exposure to with, economicvariability of return isMoreinterests,different from other likely (remuneration + otherinvestors a principal interests in aggregate)Prepared by MASB Staff. 18 It does not represent the official position of the Board. 19. MFRS 10 Consolidated Financial StatementsExample 1MFRS 10 criteria Assessment of fact patternScope of power Establishes, markets & manages fund Fund manager is subject to narrowly defined parameters set out in the investment mandate & regulations Within the defined parameter, fund manager has discretion about which asset to investRights by others Investors have no substantive rights that would affect the decision making power of the fund managerRemuneration Market based fees of 1% of NAVExposure to10% investment in the fundvariability of returnsAlthough operating within the parameters, the fund manager has decision-making rights that give it the current ability to direct relevant activities. However, the total returns do not create exposure that is of such significance that it indicates the fund manager is a principal. Prepared by MASB Staff. 19It does not represent the official position of the Board. 20. MFRS 10 Consolidated Financial StatementsExample 2MFRS 10 criteria Assessment of fact patternScope of power Establishes, markets & manages fundExtensive Fund manager is subject to narrowly defined parameters decisionset out in the investment mandate & regulations making power Within the defined parameter, fund manager has discretion about which asset to investRights by others Investors can remove fund manager by a simple majority vote, but only for breach of contract.Remuneration Market based fees of 1% of NAV + 20% if specific profit level is achievedExposure to2% investment in the fundvariability of returnsThe remuneration, on its own, does not create significant exposure to variability ofreturns for the fund manager to be a principal. The removal right is considered to be a protective right. The exposure indicates that the fund manager is an agent.Prepared by MASB Staff. 20 It does not represent the official position of the Board. 21. MFRS 10 Consolidated Financial StatementsExample 3MFRS 10 criteria Assessment of fact patternScope of power Establishes, markets & manages fund Fund manager is subject to narrowly defined parametersExtensive set out in the investment mandate & regulations decision making power Within the defined parameter, fund manager has discretion about which asset to investRights by others Investors can remove fund manager by a simple majority vote, but only for breach of contract.Remuneration Market based fees of 1% of NAV + 20% if specific profit level is achievedExposure to20% investment in the fundvariability of returnsThe 20% investment together with the remuneration may create significant exposure for the fund manager indicates that the fund manager is a principal.Prepared by MASB Staff. 21 It does not represent the official position of the Board. 22. MFRS 10 Consolidated Financial Statements Examples numerical analysis Example 1Example 2Example 3 RM000RM000 RM000RM000 RM000 RM000Income before managers fees 100.00 100.00100.00- fixed fees (1%)-1.00 1.00 1%-1.00 1.00 1% -1.001.00 1%Income after managers fixed fees 99.0099.00 99.00- performance fees (20%) 0.000.00 0% -19.8019.8020% -19.80 19.80 20%Net income99.0079.20 79.20Sharing of profit (10% / 2% / 20%) 9.909.90 10% 1.581.58 2%15.84 15.84 16%total returns 10.90 11%22.3822%36.64 37% Prepared by MASB Staff.22 It does not represent the official position of the Board. 23. Prepared by MASB Staff.23 It does not represent the official position of the Board. 24. MFRS 10 Consolidated Financial Statements Typical REIT structureSponsorPrepared by MASB Staff.24It does not represent the official position of the Board. 25. MFRS 10 Consolidated Financial StatementsAssessmentWho direct the activitiesthat most significantlyaffect returns?UnitholdersTrusteeSponsor & the managerPrepared by MASB Staff.25It does not represent the official position of the Board. 26. MFRS 10 Consolidated Financial StatementsManager power Establishes the REIT Makes invitation to subscribe units of REIT Appoints Investment Committee for the fund, CEO, property manager Appoints designated person responsible for fund management function Prepares annual budgets for the REIT Operates the fund & exercises its responsibilities according to the deed & prospectus Ensures funds property is correctly valued Distributes income to unit holders(source: Guidelines on Real Estate Investment Trusts issued by the Securities Commission ) Prepared by MASB Staff.26 It does not represent the official position of the Board. 27. MFRS 10 Consolidated Financial Statements Manager power To develop a business plan for the REITs property with a view tomaximising income of REIT To recommend to the Trustee to purchase, transfer, acquire, hire, let,lease, license, exchange, dispose of, convey, surrender or otherwisedeal with any authorised investment To remove the Trustee for failing to act as Trustee pursuant to relevantlaws and requirements or is in breach of its obligations under the Deed To appoint a replacement Trustee(source: Deed of REIT)Is this considered as broad decision making power?Prepared by MASB Staff. 27 It does not represent the official position of the Board. 28. MFRS 10 Consolidated Financial Statements Management Co barrier Should not exercise the voting rights for the units it holds in any unitholders meeting, regardless of the party whom requested for andcalled the meeting and the matters that are laid before unit holders (source: Guidelines on Real Estate Investment Trusts issued by the Securities Commission )Is this sufficient to conclude that management co is an agent? Prepared by MASB Staff.28 It does not represent the official position of the Board. 29. MFRS 10 Consolidated Financial StatementsManager power What about other factors for consideration? Removal of Management Co? What is the magnitude of remuneration? Does Management Co has any other interests? Rights of other investors?Judgmental area conclusion depends on facts andcircumstancesPrepared by MASB Staff. 29 It does not represent the official position of the Board. 30. MFRS 10 Consolidated Financial StatementsTrustee power Actively monitor the operation & management of the REIT byManagement Co to safeguard interests of unit holders Responsible for custody and control of the REITs property Approve property manager appointed by the Management Co Appoint auditor Appoint valuer Whistle blowing to regulators any irregularity, breach of deed,securities law or matters regarded by the trustee as not being in theinterests of unit holders (source: Guidelines on Real Estate Investment Trusts issued by the Securities Commission ) Prepared by MASB Staff.30 It does not represent the official position of the Board. 31. MFRS 10 Consolidated Financial StatementsTrustee power Provide financing on managers recommendation for acquisition ofassets by REIT Approve annual budgets Approve insurance companies for the insurance of REITs property Remove the Manager for failing to act as a Manager pursuant toCapital Market and Services Act or is in breach of its obligations underthe Deed Appoint a replacement manager (source: Deed of REIT)Are these protective or substantive rights?Prepared by MASB Staff. 31 It does not represent the official position of the Board. 32. MFRS 10 Consolidated Financial Statements Unit holders power Approval by unit holders Modification to the deed Disposal of real estate asset of >50% of the REITs total asset value Borrowings of REIT >50% of REITs total asset value Issuance of new units Termination / winding up of REIT Removal and replacement of Manager/Trustee for breach of itsobligations under the Deed(source: Guidelines on Real Estate Investment Trusts issued by the Securities Commission )Are these protective or substantive rights? Prepared by MASB Staff.32 It does not represent the official position of the Board. 33. Prepared by MASB Staff.33 It does not represent the official position of the Board. 34. Amendment to IFRS 10 Investment EntitiesException to consolidation Investment entities (parent) to measure its subsidiaries at fairvalue through profit or loss (FVTPL) in accordance with IFRS9 Financial Instruments / IAS 39 Financial Instruments:Recognition and Measurement, in both consolidated andseparate financial statements Effective date = 1 January 2014 Prepared by MASB Staff. 34It does not represent the official position of the Board. 35. Amendment to IFRS 10 Investment Entities Definition of Investment Entities Obtains funds from investor(s) for the purpose of providing investor(s) investment management services Commits to its investor(s) its business purpose of investing funds solely for returns from capital appreciation, investment income or both Measures and evaluates the performance of substantially all its investments on a fair value basisAll 3 criteria must be met Prepared by MASB Staff.35 It does not represent the official position of the Board. 36. Amendment to IFRS 10 Investment Entities Assessment of definition Business purpose Jointly develop, produce or market products with investee does not meet the criteria Investment related services (albeit substantial) provided to investors / 3rd parties are permitted* Participating in investment related activities (e.g. providing financial support to investee, management services to investee) are permitted, if these activities are to maximise investment returns**Subsidiary provides investment related services oractivities shall be consolidated Prepared by MASB Staff.36 It does not represent the official position of the Board. 37. Amendment to IFRS 10 Investment EntitiesAssessment of definition Exit strategy Investment entities do not hold investments indefinitely Holding debt instrument to maturity would not be disqualified Documentation of exit strategies (sales, private placement, IPO, distribution)Prepared by MASB Staff.37It does not represent the official position of the Board. 38. Amendment to IFRS 10 Investment Entities Assessment of definition Fair value measurement To demonstrate fair value (FV) is the primary measure FV info must be used internally by key management personnel & provided to investors Investment entities would elect: to apply IAS 40 FV model to account for investment property exemption from applying equity method on investment in associates or joint ventures Measure financial assets at FVPrepared by MASB Staff.38It does not represent the official position of the Board. 39. Amendment to IFRS 10 Investment Entities Typical characteristics >1 investment >1 investor Unrelated investors Ownership interest in form of equity or similar interestAbsence of any typical characteristic does notnecessarily disqualify as an Investment Entity, but indicate more judgment required. Also with more disclosures. Prepared by MASB Staff. 39It does not represent the official position of the Board. 40. Amendment to IFRS 10 Investment EntitiesTypical characteristics BC 234 of IFRS 10 The Board thinks that it is very unlikely that an entity that displays none of the typical characteristics of an investment entity would meet the definition of one. However, it may be possible in rare circumstances. For example, a pension fund that has a single investor and does not issue equity ownership interests could qualify as an investment entity even if it only holds a single investment temporarily (e.g. at commencement or wind-down of the entity). Prepared by MASB Staff.40 It does not represent the official position of the Board. 41. Amendment to IFRS 10 Investment Entities Parent of investment entities (IE) Parent Parent accounts for all(meet IE criteria)investments (including IE) atFVTPL Investment IE accounts for allEntityinvestments at FVTPLJointSubsidiaryAssociateVenture Prepared by MASB Staff. 41It does not represent the official position of the Board. 42. Amendment to IFRS 10 Investment Entities Parent of investment entities (IE) Parent Parent consolidate subsidiaries inNot an IE accordance with IFRS 10 Investment IE accounts for allEntityinvestments at FVTPL JointSubsidiary AssociateVenture Prepared by MASB Staff. 42It does not represent the official position of the Board. 43. Amendment to IFRS 10 Investment EntitiesIFRS 12 disclosures Significant judgment & assumption in determining how an entity meets the definition of Investment Entity Info on each unconsolidated subsidiary: Name Country of incorporation or residence Proportion of ownership interest held Restriction of subsidiary to transfer fund Financial support from the Investment Entity Terms of contractual arrangement with a structured entityPrepared by MASB Staff. 43 It does not represent the official position of the Board. 44. Disclaimer:The views and opinions in this presentation are those of the presenter. Official positions of the MASB on accounting matters aredetermined only after extensive deliberations and due process. The materials presented during this presentation are intended toconvey the general information only and they should not be taken as the official MASB view. Neither the MASB nor any memberof the MASB Secretariat accepts responsibility or legal liability arising from or connected to the accuracy, completeness orreliability of the materials and information contained in this presentation. Participants are hereby advised that entity specificmatters concerning the accounting applications and treatment relating to this presentation should be addressed by the preparerswith their respective auditors and/or their independent accounting advisors . Prepared by MASB Staff. 44It does not represent the official position of the Board.