highlights of recent fin. reporting standards and their implications on future breed of accountants

8/7/2019 Highlights of recent fin. reporting standards and their implications on future breed of accountants

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HIGHLIGHTS OF RECENT FINANCIAL REPORTING

STANDARDS AND THEIR IMPLICATIONS ON

FUTURE BREED OF ACCOUNTANTS

UNIVERSITY MALAYSIA SABAH MAREF SEMINAR

23 June 2010

DR NORDIN MOHD ZAIN

Executive Director

Deloitte Malaysia


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Theme

Change

Tracking the rapids

Recent standards

Features of new breed of accountants


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Change: Global trends on Financial Reporting Adoption

Europe

2005

Australia

2005

Canada

2009/2011

South Africa

2005

United States(2014)

Current or committed to using IFRS

Brazil

2010

China

2007

India

2011

Chile

2009

Japan(2010/2015?)

Malaysia,Spore,

Indonesia(2012)


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Malaysias position

Pursuant to August 2008 announcement

that:

1 January 2010 FRS 139 effective date

Co-terminuous with Basel 2 implementation

1 January 2012 Full blown IFRS in Malaysia Global trends

4Deloitte @ 2009


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MASB IASB

6 8 IFRS 1 2 3 4 5 6 7 8

27 29 IAS 1 2 7 8 10 11 12 16 17 18 19 20 21 23 24

33 (4) 37 26 27 28 29 31 32 33 34 36 37 38 39 40 41

6 (11) 17 IFRIC 1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

6Deloitte @ 2009

GAAP gap POSITION @ 31 December 2009


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GAAP gap POSITION @ 1 January 2010 - narrowing

MASB IASB

8 9 IFRS 1 2 3 4 5 6 7 8 9

28 29 IAS 1 2 7 8 10 11 12 16 17 18 19 20 21 23 24

36 (2) 38 26 27 28 29 31 32 33 34 36 37 38 39 40 41

16 (1) 17 IFRIC 1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

7Deloitte @ 2009


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Learning point

Change has taken place globally & locally

Inevitable

So much to do


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I F R S

37 Years and Forging Ahead

1973 - International

Accounting Standards

Committee (Committee)

Historical cost regime

Accounting regime

2001 - International

Accounting Standards

Board (Board)

Fair value regime

Financial reporting regime

I A S


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Notable Changes

Accounting standards have become a law of the country

FRS

PERS

Mandatory for companies to comply with accountingstandards issued by MASB

Applies to:

Public Listed Companies

Financial Institutions under Bank Negara Malaysia

Companies registered with Companies Commission of Malaysia (Sdn Bhdand Berhad)

Not required but encouraged use by:

Government agencies

Cooperatives


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Emergence of a family of standards on Fair Value

IAS 39 Financial Instruments Standards

Change from Historical Cost to Fair Value

Disclosure of market value in the notes to financial

statements

And many more

Notable Changes


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FRS 139 family


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FRS 139 - a Standard never so popular

Complex

Changing

If you have read it and understood . . .

FRS 139 (IAS 39) IFRS 9

14


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Focus for 2010

IFRIC 15

Propertydev

FRS 3

Businesscombination
http://ifric15%20real%20estate.pdf/http://ifric15%20real%20estate.pdf/http://ifric15%20real%20estate.pdf/http://ifric15%20real%20estate.pdf/


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Whats in store for 2012

FRS 3

Businesscombination

FRS 141Agriculture

IFRIC 4Leases

Incometaxes

FRS 7 Fin.

instrumentdisclosure

FRS 139financial

instruments

Financialstatement

presentation

(Phase 1)

FRS 4Insurance(Phase 2)


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Deadlines

-6 -5 -4 -3 -2 -10

1 2 3 4 5 67

8 9 10 1112

13 14 15 n n24

17

2011Half 2

FRS 3

IFRIC 15

2010

FRS 139

FRS 7

FRS 4

Interpretations

Qtr 1

First Qtr

result on

FRS 139

compliant

Opening IFRS

compliant

Balance Sheet

2012

Full suite IFRS

Full suite IAS

Amendments

Deloitte @ 2009


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Learning points

Many more new things to come; exciting

Train to be comfortable with pro-forma financial statements speak to CFOs to understand areas of compliance & potential risk areas of

non-compliance simulate impact understand areas with most impact

stress test results organizational impact & investors reactions

Ensure accuracy of FRS 139 financial statements Verification necessary before result is released to the regulators, public

Balance Sheet remediation may be useful

Lesson: Engage with professionals, practitioners

Communicate with them early

18


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Pressure Points And Beyond

-6 -5 -4 -3 -2 -124

1 23

4 5 6 7 8 9 10 11 12 13 14 15 n n 24

19

2012 2013 2014

Full suite IFRSFull suite IAS

Amendments

Exp Draft

IASB

Standard

IASBSimultaneous

adoption

MASB

CAPACITY BUILDING UNIV PLAYS A BIG ROLE

First QTR

result onFull suite of

IFRS +

comparative

2011


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Learning point

Change is rapid; may be too rapid for some

Skills building Nothing beats this

20


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Recent changes

1 July 2010 - Presentation of financial statements

(see article)

1 July 2010 - IFRIC 15

(see annexure)

Agriculture

(see article)

IFRS 9

(see annexure)

Insurance Phase 2


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Features of new breed of accountants

New things to learn

Technically sound

Quick Judgemental

Soft touch

Communication


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Implications on academics

Keeping up with changes

Research areas are abound

Literature can be a challenge

Quantum leap forward through frequent

engagements with practice


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Conclusion

Change necessitate changes to the professionals in

the accounting profession

Inevitable change but opportunities are abound

Track these changes to be ahead

Success for those who differentiates

Skill building is a must

Accountants are the new breed of financial reporters

of tomorrow


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Deloitte @ 2009 25


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Annexure

IFRIC 15 Agreement for theConstruction of Real Estate


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Industry So Unique .

Sell OFF-plan

Then construct

Meanwhile, purchasers imagine

Happy if completed. or . Sad & angry if not

vs

Register interest, 10% down

Wait for construction to complete

Or, purchase completed house

Happy


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So Unique . with so many rules

LAWS OF MALAYSIA FOR HOUSING DEVELOPMENT

Principle Act 663 Building and Common Property (Maintenance and Management) Act 2007 12/04/2007 Principle Act 118Housing

Development (Control and Licensing) Act 1966 29/08/1969 Amendment Act A402 Housing Developers (Control and Licensing)(Amendment) Act 1977 10/06/1977 Amendment Act

A 703 Housing Developers (Control and Licensing) (Amendment) Act 1988 01/12/1988 Amendment Act A1142 Housing Developers

(Control and Licensing) (Amendment) Act 2002 01/12/2002 Amendment Act A1289 Housing Developers (Control and Licensing)

(Amendment) Act 2007 12/04/2007 Subsidiary PU (A) 58/1989Housing Development (Control and Licensing) Regulations 1989

01/04/1989 Amendment PU(A) 446/1998 HOUSING DEVELOPERS (CONTROL AND LICENSING) (AMENDMENT) REGULATIONS 1998

04/12/1998 Amendment PU(A) 473/2002 HOUSING DEVELOPERS (CONTROL AND LICENSING) (AMENDMENT) REGULATIONS 2002

01/12/2002 Amendment PU(A) 42/2003 HOUSING DEVELOPERS (CONTROL AND LICENSING) (AMENDMENT) REGULATIONS 2002-

CORRIGENDUM 07/02/2003 Amendment PU(A) 226/2003 HOUSING DEVELOPERS (CONTROL AND LICENSING) (AMENDMENT)

REGULATIONS 2003 01/12/2002 Amendment PU(A) 395/2007 HOUSING DEVELOPERS (CONTROL AND LICENSING) (AMENDMENT)



REGULATIONS 2008 17/06/2008 Subsidiary PU (A) 231/1991 Housing Developers (Housing Development Account) Regulations 1991

26/08/1991 Amendment PU(A) 474/2002 HOUSING DEVELOPERS (HOUSING DEVELOPMENT ACCOUNT) (AMENDMENT) REGULATIONS2002 01/12/2002 Order PU(A) 293/2007 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) ORDER 2007

06/09/2007 Order PU(A) 294/2007 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) (NO 2) ORDER 2007 06/09/2007

Order PU(A) 295/2007 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) (NO 3) ORDER 2007 06/09/2007 Order

PU(A) 296/2007 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) (NO 4) ORDER 2007 06/09/2007 Order PU(A)

297/2007 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) (NO 5) ORDER 2007 06/09/2007 Order PU(A)



017/2008 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) ORDER 2008 21/01/2008 Order PU(A)





063/2009 HOUSING DEVELOPMENT (CONTROL AND LICENSING) (EXEMPTION) ORDER 2009 16/02/2009 Subsidiary PU (A) 476/2002Housing Development (Tribunal for Homebuyer Claims) Regulations 2002 01/12/2002 Subsidiary PU (A) 475/2002 Housing

Development (Compounding of Offences) Regulations 2002 01/12/2002 Supplement PU (B) 307/2004 DELEGATION OF POWERS UNDER

SUBSECTION 9(1) OF THE HOUSING DEVELOPMENT (CONTROL AND LICENSING) ACT 1966 05/08/2004 Principle Act 318 Strata Titles Act

1985 01/06/1985 Amendment Act A573 STRATA TITLES (AMENDMENT) ACT 1990 23/02/1990 Amendment Act A951 STRATA TITLES

(AMENDMENT) ACT 1996 02/08/1196 Amendment Act A1290 STRATA TITLES (AMENDMENT) ACT 2007 12/04/2007 Subsidiary PU (A)

164/1988Strata Titles (Federal Territory of Kuala Lumpur) Rules 1988 23/04/1988 Subsidiary PU (A) 5/2003 Strata Titles (Federal

Territory of Putrajaya) Rules 2003 09/01/2003 Subsidiary PU (A) 503/2002 FEDERAL TERRITORY OF PUTRAJAYA (MODIFICATION OF

STRATA TITLES ACT 1985) ORDER 2002 27/12/2002 Principle Act 133 Street, Drainage and Building Act 1974
http://www.hba.org.my/laws/building/bcpAct2007.htmhttp://www.hba.org.my/laws/list/hda.htmhttp://www.hba.org.my/laws/list/hda.htmhttp://www.hba.org.my/laws/list/hda.htmhttp://www.hba.org.my/laws/list/housing_reg.htmhttp://www.hba.org.my/laws/list/housing_reg.htmhttp://www.hba.org.my/laws/list/accounts_reg.htmhttp://www.hba.org.my/laws/list/tribunal_reg.htmhttp://www.hba.org.my/laws/list/compounds_reg.htmhttp://www.hba.org.my/laws/list/compounds_reg.htmhttp://www.hba.org.my/laws/list/sta.htmhttp://www.hba.org.my/laws/list/sta.htmhttp://www.hba.org.my/laws/list/sta.htmhttp://www.hba.org.my/laws/list/st_rules_ftkl.htmhttp://www.hba.org.my/laws/list/st_rules_ftkl.htmhttp://www.hba.org.my/laws/list/st_rules_ftputrajaya.htmhttp://www.hba.org.my/laws/list/st_rules_ftputrajaya.htmhttp://www.hba.org.my/laws/street/part1.htmhttp://www.hba.org.my/laws/street/part1.htmhttp://www.hba.org.my/laws/list/st_rules_ftputrajaya.htmhttp://www.hba.org.my/laws/list/st_rules_ftputrajaya.htmhttp://www.hba.org.my/laws/list/st_rules_ftputrajaya.htmhttp://www.hba.org.my/laws/list/st_rules_ftputrajaya.htmhttp://www.hba.org.my/laws/list/st_rules_ftkl.htmhttp://www.hba.org.my/laws/list/sta.htmhttp://www.hba.org.my/laws/list/sta.htmhttp://www.hba.org.my/laws/list/compounds_reg.htmhttp://www.hba.org.my/laws/list/compounds_reg.htmhttp://www.hba.org.my/laws/list/tribunal_reg.htmhttp://www.hba.org.my/laws/list/accounts_reg.htmhttp://www.hba.org.my/laws/list/housing_reg.htmhttp://www.hba.org.my/laws/list/hda.htmhttp://www.hba.org.my/laws/list/hda.htmhttp://www.hba.org.my/laws/building/bcpAct2007.htm


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Supported by unique accounting standards

MAS 7 issued by MICPA/MIA

MASB adopted MAS 7 in 1998

Revised in 2004 as FRS 201

Percentage of completion

Completed method allowed

alternative

Matching

Lots of guidance


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Uniqueness given way to convergence

IASB issued draft IFRIC 15 in March 2007

Deliberation

IASB issued IFRIC 15 in July 2008

Deliberation

MASB issued IFRIC 15 on 1 Jan 2010, effective 1 July 2010Supersedes FRS 2012004


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IFRIC 15 in essence

IAS 18 (Revenue) and IAS 11 (Construction Contract)

as bases

Is it a sale or an obligation to construct?

Rights and obligations

Compels players to take a look at the agreement

New concept called continuous transfer


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IFRIC 15 in simple terms

IAS 18 revenue

risk & reward

rights & obligation

IAS 11construction

IFRIC 15

Agreement


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NO

NO

IFRIC 15Quick reminder

NO

Revenue when criteria

met

Agreement for construction of real estate

YESIFRIC 15 construction

contract?

Agreement is a

construction contract

IAS 11

% completion

YES

Agreement only forservices?

% completionAgreement is forservices IAS 18

YESAgreement is for sale of

goods IAS 18

Criteria for goods met

on continuous basis?% completion

YES

YES

YES


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Disclosure requirements

IAS 11 IAS 18 IFRIC 15

(a) How entity determines which agreements meet all the criteria in IAS 18.14

continuously as construction progresses.

(b) The amount of revenue arising from such agreements in the period.

(c) The methods used to determine the stage of completion of agreements inprogress.

For agreements in progress:

(a) The aggregate amount of costs incurred and recognized profits (less

recognized losses) to date; and

(b) The amount of advances received.

IFRIC 15 continuous transfer


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Implications

Quarterly submission

State of readiness

Readiness to change

Must change

Must bear with the change


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Summary

IFRIC 15 driven by convergence decision

Has impact on industry so unique to Malaysia

and to some others

Since accounting is law in Malaysia, decision to

adopt makes IFRIC 15 mandatory for companies

sooner rather than later

Implications can be significant on industry,

income taxes, systems and bottom line


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Annexure

The Beginning of the End for IAS 39


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The Beginning of The End for IAS 39

IFRS 9 Financial Instruments is the first phase of a

complete rewrite of IAS 39

Second phase covering amortised cost and

impairment

Third phase, hedge accounting

38


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39

Debt instruments meeting both a business model test and a cash flowcharacteristics test are measured at amortised cost

Investments in equity instruments can be designated as fair value through

other comprehensive income with only dividends being recognised in profit

or loss

All other instruments (including all derivatives) are measured at fair value

with changes recognised in the profit or loss

The concept of embedded derivatives does not apply to financial assets

within the scope of the standard and the entire instruments must beclassified and measured in accordance with the above guidelines

Unquoted equity instruments can no longer be measured at cost less

impairment (must be at fair value).

IFRS 9 Changes


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40

In determinining amortised cost or fair value, an entity must use

two criteria:-

a business model test

a cash flow characteristics test

If the financial asset satisfies the two criteria:-

the financial asset must be measured at amortised cost


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41

Business Model Test

to assess whether its business objective is to collect the

contractual cash flows of the assets

rather than realise their fair value change from sale

this determination is made at business unit level not an

individual financial instrument level

therefore is not based on managements intent for individual

instruments


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Other financial hosts with

embedded derivatives

Bifurcation from underlying

instrument in many cases,

separately accounted for at

fair value with gains/losses in

profit or loss

No bifurcation, entire instrument

classified and measured. Will

often result in entire instrument

being measured at fair value

through profit or loss

Listed debt securities Measured at fair value (unless

included in the held-to-maturity

category)

Measured at amortised cost if

business model and cash flow

characteristics tests are satisfied

otherwise measured at fair value


Held-to-maturity investments Measured at amortised cost with

a tainting test

Must meet business model and

cash flow characteristics tests

to be measured at amortised cost,

otherwise generally fair value


Key changes under IFRS 9


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Summary

Attempts to make IAS 39 simpler

Phase 1 looks friendly

Subsequent phases undergoing debate More to come

h h l


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Further technical resources

Deloitte International Accounting Manual Deloitte IFRS model financial statements

Deloitte IFRS Compliance Checklists

IAS Plus website (www.iasplus.com)

IFRS Knowledge Resource Centre

Global Technical Library (techlibrary.deloitteaudit.com)

iGAAP 2009

IFRS Specialists

IFRIC 15 Agreements for the construction of real estate

iGAAP 2009 chapter 23 Revenue


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2010 Deloitte Touche Tohmatsu

Contact

Dr. Nordin Zain

Executive Director / Client

Service Leader

Tel: +603 7723 6556

[email protected]

Dr Nordin was formerly the Executive Director with the MalaysianAccounting Standards Board for 9 years where he was responsiblefor developing conventional and Islamic accounting standards for

Malaysia. He joined Deloitte in February 2009 and is responsiblefor IFRS implementation and Islamic finance. He is a member ofthe Malaysian Institute of Accountants, a Board member of AAOIFIand sits on the Asia Pacific Financial Reporting Advisory Group inMelbourne. He was formerly a corporate banker, an internalauditor, a lecturer and a consultant to the United Nations.

Please request for permission from the author if you wish toreproduce the materials herein.

highlights of recent fin. reporting standards and their implications on future breed of accountants

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