June/August 2007 www.micpa.com.my KDNPP 3809/3/2008

The Malaysian Accountant JUNE/AUGUST 2007

EDITORIAL BOARD Datuk Robert Yong Kuen Loke (Chairman) Loh Lay Choon Dato’ Hj Maidin Syed Ali Ng Kim Tuck Dato’ Nordin Baharuddin See Huey Beng Sam Soh Siong Hoon Tan Chin Hock Chia Kum Cheng (Co-opted) Esther Tan Choon Hwa (Co-opted) INSTITUTE NEWS page 24 FEATURE page 5 LIFESTYLE page 59 PRINCIPAL OFFICE BEARERS President PERSPECTIVE Dato’ Nordin Baharuddin Vice President FEATURES Dato’ Ahmad Johan Mohammad Raslan Intellectual Property Rights. The Right to Protect & Profit From It 3 PRINCIPAL OFFICERS Internet Piracy - Copyright Infringement and Adequacy of Malaysian Law 5 Executive Director Basis of Recognition of Income for Property Developers 10 Foo Yoke Pin ([email protected]) Wither the External Audit in Corporate Governance? 15 Technical Manager Towards Selecting and Maintaining an Effective Internal Audit Function? 18 Melissa Yeoh ([email protected]) Training Manager PEOPLE Joseph Leong ([email protected]) Dato' Nordin Baharuddin Public Affairs At The Helm Dato’ Johan Raslan } 19 & Communications Manager Vicky Rajaretnam ([email protected]) INSTITUTE NEWS Assistant Operations Manager Suzana Mohd Hulaimi ([email protected]) 49th MICPA Annual Dinner 24 Examination Officer Recipient of Anugerah Presiden 2007: Lee How Lai ([email protected]) YM Raja Datuk Arshad Raja Tun Uda 26 Membership Services Officer 49th MICPA Annual General Meeting 29 Adzlyn binti Aladzimy Extraordinary General Meeting 32 ([email protected]) Membership Update 34

Single Copy: RM7.50 November 2007 Examination 36 Subscription: 6 issues May 2007 Examination Results 37 RM43.50 per annum 11th MICPA Accountancy Week 39 (including P&P within Malaysia only) ACCA-MICPA Mutual Recognition Agreement 42 The Malaysian Accountant is published by: The Malaysian Institute of PROFESSIONAL NEWS Certified Public Accountants (3246-U) MASB Update 43 15, Jalan Medan Tuanku IASB Update 46 50300 Kuala Lumpur, Malaysia IFAC Update 50 Tel: 03-2698 9622 Fax: 03-2698 9403 E-mail: [email protected] Website: www.micpa.com.my CASE LAW HIGHLIGHTS Sanjung Selamat Sdn Bhd v C L Chin & Associates 53

Note: The views expressed in this journal are not necessarily those of the Institute or the Editorial Board. GLOBAL INSIGHT All right reserved; no part of this publication may be transmitted in any form or by any means, electronic, News from Down Under 54 mechanical, photocopying, recording or otherwise, without prior pernission of the Institute or the Editorial World News 56 Board.

Concept & Design LIFESTYLE Digibook Sdn Bhd Leaving a Legacy for the Future 59 Reign Associates Sdn Bhd

Printer Thumbprints Utd Sdn Bhd PERSPECTIVE

t was a night of fellowship and camaraderie among fellow members of the accounting fraternity at the MICPA’s 49th Annual Dinner on June 22, 2007. Close ties were forged not Ionly with the business community but also with the government sector. Deputy Minister of Finance I, YB Dato’ Dr Ng Yen Yen was the Institute’s distinguished guest of honour at the dinner. It was also a night for acknowledging individuals who made contributions in one way or another to the Institute. This year’s Anugerah Presiden was presented to YM Raja Datuk Arshad Raja Tun Uda, in recognition of his exceptional contributions to society, the accountancy profession and the Institute. The Institute also held its Annual General Meeting (AGM) and its Extraordinary General Meeting (EGM) on June 23, 2007 and at the Council Meeting held following the AGM, former Vice-President, YBhg Dato’ Nordin Baharuddin was elected the 28th President of the Institute replacing YBhg Dato’ Abdul Halim Mohyiddin. The Vice-President’s post went to YBhg Dato’ Ahmad Johan Mohammad Raslan. Age differences aside, both men expressed similar views where the Institute is concerned. The interviews are featured in the People section. With the accountancy profession becoming increasingly competitive, MICPA realises that there is an urgent need to build the CPA Malaysia as a global brand, equivalent to the Chartered Accountants and Certified Public Accountants designations of the more established accounting bodies in the world. To this end, on August 13, 2007, The Malaysian Institute of Certified Public Accountants (MICPA) and the Association of Chartered Certified Accountants (ACCA) signed a global Mutual Recognition Agreement (MRA). The agreement was reached on the basis of equivalence of qualifications and sound educational review of each others’ syllabus. The MICPA, recognising the increasingly global nature of the accountancy profession is also looking for ways and means to participate and contribute to the international accounting organisations. But it is also important that the involvement is focused on areas that are relevant to local needs. MICPA is also flexing its marketing muscle by organising exciting events to raise the profile of the Institute and attract new entrants to the CPA Malaysia programme. Enhancing and promoting the CPA Malaysia qualification is priority for the MICPA. With regards to the CFiA qualification, MICPA hopes to assist graduates to achieve a professional qualification that meets the relevant international requirement and at the same time ensure membership growth. The call for an improvement in the communication process between the Institute and members has yielded results as more and more members are now aware of the developments at the Institute as well as in the business environment. The week long 11th Accountancy Week held in August was a resounding success as accounting students throughout the country met, interacted and fostered closer ties. Aside from promoting accountancy as a profession, this year’s event, appropriately themed AAA- Accountants Are Assets, also commemorated the International Federation of Accountants (IFAC) 30th Anniversary celebration. The lifestyle section touches on the environment. Our busy and hectic lives leave little time for us to remember the importance of preserving our surroundings. Neglect and disregard is having a bad effect on the environment and Mother Nature is not going to take mankind’s carelessness lying down. She is making her displeasure known. Read all about it inside.

2 | The Malaysian Accountant | June/August 2007 www.micpa.com.my FEATURE Intellectual Property Rights The Right to Protect & Profit From It

BY LIM KIEN CHAI

Introduction

Crimes do not pay. That used to be the conventional and ‘play-safe’ mindset. The mushrooming of black markets around the world bears vivid testimony to the fact that this trite quote may not have a place in today’s highly competitive and globalise societies. Today’s mankind is always in search of ingenious but unfortunately conniving ways to profit from whatever that they can lay their hands on. To add further injury to the wound, this is done at the expense of someone’s legal rights and privileges. It is done without conscience of transgression and injury it inflicts to ethics, moralities and religion. The mindset is being repositioned from “crimes do not pay” to “crimes pay”.

Intellectual Property

Intellectual Property (IP) allows anyone to own his or her creativity and innovation, however intangible or non-physical in form in the same way that he or she can own physical property. Intellectual property is divided into two categories: Intellectual Property Rights • Industrial property, which includes inventions (patents), trademarks, industrial designs and geographic The Intellectual Property Rights (IPR) is not spared either. indications of source; and Recent assaults on these rights heightened the issues. IPR • Copyright, which includes literary and artistic works refers to but is not limited to five (5) distinctive but such as novels, poems and plays, films, musical works, complementary types of proprietary rights. Traditionally, artistic works such as drawings, paintings, photographs they have been classified as trademarks, copyright, and sculptures and architectural designs. patents, industrial designs and trade secrets. The advent of e-commerce adds variations to these conventional Rights related to copyright include those of performing classifications. artists in their performances, producers of phonograms in At one extreme of the issue are people who believe their recordings and those of broadcasters in their radio that IP should be unprotected and unrestricted while those and television programmes. at the other end feel that Government needs to pass and

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 3 enforce laws to protect intellectual property. The key issue set aside a budget of about 10% of its turnover on protecting here is about producer rights and user rights. IPR. This “investment” may prove to be well worth. Piracy, In Malaysia, fortunately we have a strong intellectual counterfeit, copycat reproduction, imitation, illegal passing property regime. We have a comprehensive legislation to off and the like must be challenged and checkmated or else protect IPR. More legislations and amendments and re- this black market will overwhelm the white market. amendments to existing legislative instruments are in the pipeline. These laws are intended to provide and make Malaysia as the choice country for investors and to let the Legal Protection of IPR world know that their IPR will not be reaped-off and that their market share not diluted illegally, unethically and The first step toward combating the growth of this black immorally. However, the issues of regulatory enforcement market is registering the IPR in all the markets where you and awareness among the business community of the IPR intend to sell. need to be heightened and widened to complement the In other parts of the world, registration systems help legislative framework. Public awareness campaigns could to protect IPR. Malaysia is no exception. Our registration play this educational role. systems are in place for the various legislations to protect the respective IPR and they are:

Legal System for Foreign Investors No. IPR Legislations Purpose 1. Trade Marks Trade Marks For brand identity As part of the colonial heritage, the Malaysian legal Act, 1976 of goods & services system, on a whole is in place to protect investors. Unless foreign investors are assured of this, they will not pump in 2. Industrial Industrial For product their money into our economy. Designs Designs Act, appearance By way of illustration, the business community does 1999 not want to get into a situation akin to that of Britain’s 3. Patents Patents Act, For inventions Imperial Tobacco Group in Indonesia. This world’s fourth- 1983 largest cigarette makers want to invest USD70 million in a new hi-tech factory making its premier brand of Davidoff 4. Copyright Copyright Act, For literary & cigarettes, thereby putting Indonesia at the heart of its plan 1987 artistic materials for expansion into South East Asia. But this mega tobacco including computer company has only one obstacle. A provincial tobacco softwares trader has ‘stolen’ its Davidoff trademark and the British company could not get it back in Indonesia’s court (at the Without that protection, it is much more difficult and time of writing). The tobacco company’s fight to regain the costly to prevent and prosecute these black marketers. rights to its trademark in Indonesia highlights the failure Depending on how globalise your business network is, of the legal system to protect foreign investors. The gist of there may be a need to register the IPR internationally. the Court ruling in this trademark trial case is as follows. Your local legal counsels or IPR Agents can register your IPR The Imperial cannot get back its Davidoff brand abroad through its international network. because: • A Sumatran trader ‘stole’ its IPR to the brand; • Commercial courts upheld the trader’s rights; Conclusion • Enforcement agencies offer no or insufficient help; • Trademark piracy is rampant in Indonesia; and It is without a shadow of doubt that IPR is here to stay. So • Evidently clear mushrooming of black economy. is the black market. They will co-exist as inseparable Siamese twins. Therefore, as a matter of prudence as well The Davidoff brand is one of the many IPR that are as a wise business strategy, it is imperative to have your IPR been attacked. protected through registrations. This is strategically a more cost-effective way to protect your IPR in order to profit from it. The question is when should you register your IPR to Budget to protect IPR enjoy the statutory protection? Realistically, the answer has to be an affirmative “If not now … when? The best way to make profit is to prevent losing it. Similarly, the best way to profit from the IPR is to protect it. Research Mr Lim Kien Chai is the Managing Partner of Messrs KC Lim & shows that protecting IPR does not come cheap. On an Co, Advocates and Solicitors. average, businessmen must be willing, capable and able to

4 | The Malaysian Accountant | June/August 2007 www.micpa.com.my FEATURE Internet Piracy - Copyright Infringement and Adequacy of Malaysian Law

BY INDRAN SHANMUGANATHAN

Introduction

The Internet is a worldwide system of computer networks. Using the same protocol, any one computer can get information from or talk to any other connected computer. It therefore facilitates content and information transmission, sharing and retrieval.

Role of Internet Service Providers

With new technologies and the facilities offered by the Internet, on-line piracy has come about in many ways. In most instances, the Internet service providers are involved. Commercial undertakings have without the authorisation of or any payment to copyright owners ripped and made available recorded music for download. Often times, hacking software is posted. It may be used to break copy protection and other technological measures available and embedded in copyright protected materials to prevent unauthorised copy and transmission. They make their money through banner advertising. There are computers will communicate to the Internet via that also other sites that provide links to these unauthorised address. The IP address but not the identity of the up-loader databases. may be identified. The cross referencing between the IP Peer to peer (“P2P”) networks and systems allows a address and the individual’s details is held by the Internet group of computer users using the same networking service provider who provides with interconnectivity to the program to connect with each other and directly access files Internet. Unless the identity of the up-loader is divulged, no from each other’s hard drives. The common software effective action can be taken against the up-loader. enables users at any time to connect directly with the hard In the case of a motion picture, sound recording, drives of all other users logged onto the Internet. The musical works, audio visual product and business software, electronic files of a user are therefore made available to all only the person by whom the arrangements for the making other users. There are various participants to a P2P of the motion picture or recording can authorise it to be network. placed or copied onto a website, or transmitted across a They include (i) providers of the P2P software, (ii) network, or performed or downloaded by a computer. These intermediaries such as Internet and other service providers, works however contain much underlying works which are (iii) uploaders and, (iv) downloaders. themselves individually protected. Such underlying The role of the Internet service providers is also synchronised works would include literary and dramatic important for another reason. Individual items of software works, musical works, artistic works, image rights and so held by uploaders are identified by reference to an Internet on. The rights of the individual owners of such underlying protocol or IP address. The address is numeric in form and works should be protected. They should continue to retain is allocated to a particular address space in such a manner their respective rights to take both civil and criminal action that an individual computer or a network of individual against infringers.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 5 Commercial undertakings have copyright. If greater protection were desired, perhaps, downloading or storage of copyrighted work itself if done without the authorisation of or any without authorisation would be sufficient to constitute payment to copyright owners ripped infringement. The purpose for which the downloading or storage is made is not relevant to found liability. and made available recorded music The act of uploading however is presently not a for download. criminal copyright infringement. Therefore, a person who “uploads or stores any work protected by copyright in a computer or on any medium by electronic or other means Copyright Act 1987 whether or not for the purpose of making available the work for subsequent downloading, distribution, dissemination or A film is defined to mean the fixation of a sequence of any further dealings in the work” should be guilty of an visual images on any material so as to be capable by the offence. Such an offence can also form the basis for civil use of that material of being shown as a moving picture or infringement. If adopted in the context of civil of being rerecorded onto some other material. “Fixation” infringement, authorisation is required for any means the embodiment of sounds, images or both or of the “distribution, dissemination or in any manner dealing in representation thereof, in a material form sufficiently the work via broadcasting”. “Broadcast” is defined as the permanent or stable to permit them to be perceived, transmitting by wire or wireless means visual images, reproduced or otherwise communicated during a period of sounds or other information that is capable of being more than transitory duration. lawfully received by members of the public or is transmitted “Reproduction” means the making of one or more for presentation to members of the public. It will also copies of work in any form or version and “copy” means include communication of the work to the public that is reproduction of a work in written form, in the form of a already an offence. recording or film, or in any other form. “Infringing copy” In the civil context causing an infringement to take in relation to copyright, means any reproduction of any place is itself an infringement. However, the act is silent on work eligible for copyright the making of which constitutes whether authorising an infringement is itself an an infringement of the copyright in the work or, in the case infringement. To be guilty of authorising an infringement, of any article imported into Malaysia without the consent the defendant must have expressly or implicitly of the owner of the copyright, the making of which was sanctioned, approved or countenanced the infringement. carried out without the consent of the owner of the That is pre-conditioned on the defendant having the right copyright. These definitions it is submitted, are broad to authorise infringement. It is questionable whether the enough to include the down-loading of a computer file. It uploader by offering his files for download may be said to is both a civil and criminal offence if done without the have authorised infringement. He does not possess the Malaysian copyright owner’s consent. These definitions are right to authorise in the sense of him having a right to give also broad enough to protect the copyright of the owners of the necessary sanction, approval or countenance to the underlying works that are embodied in the film or infringe. This is still so, even if he were aware that his P2P sound recording. Th only room for argument is whether the peers would infringe or is indifferent as to what they might storage of the film or sound recording and the underlying do. The wrong of authorising infringement is a very narrow works in a computer or any electronic medium amounts to one that is ineffective in practical terms. The term infringement. It must be so. Accordingly, sections 13 and 41 “causing” an infringement in section 36(1) of the Act, of the Copyright Act (“Act”) 1987 should be amended to appears capable of a wider application. To “cause” must be define an unauthorised act or an infringing copy to include a question of fact and circumstances. It is not conditioned “the reproduction or storage in any material or upon there having to be a right “to cause” (an electronic form”. infringement). Rather, it is premised on the degree of It is not clear whether the word “makes” includes the control the uploader has over the creation of and the act of downloading. Obviously if the downloader computer containing the uploaded work. He controls the subsequently burns in hard-copy form a disc of the means, mode and equipment by which infringement is copyrighted work for downloading, there would an offence. committed and allows the downloader infringer access to But what if reproductions are made from direct connections these. He in fact is well aware that there would be to the hard drives of other users logged onto the Internet infringement and actively encourages such infringing. using the same software. So as to make the act of However, the intent and the ingredients for causing downloading an offence as well, “downloading or storage infringement should be adequately set out in section 36(1) of copyright protected work in a computer or on any of the Act. Perhaps it should be provided that “for the medium by electronic or other means that will facilitate avoidance of doubt, a person causes another to do an act, downloading” should be made an act controlled by the doing of which is controlled by copyright without the

6 | The Malaysian Accountant | June/August 2007 www.micpa.com.my license of the owner of the copyright if he (i) controls or has business models the full economic benefit can be quickly the ability to control the means, equipments, modes and derived by making and using a temporary copy of the instruments by which the infringement would be effected; work. To allow the making of temporary copies therefore (ii) has knowledge or reason to suspect that such goes against the copyright owners’ exclusive legal infringement will take place; and (iii) intends, encourages, entitlement to exploit their creations. It will also promotes, assists or enables the use of the means, unreasonably prejudice the legitimate commercial interests equipments, modes and instruments to effect an of the copyright owners. Where the making of a temporary infringement and takes no reasonable steps to limit the use or transient copy is necessary for technical reasons as in the of such means, equipments, modes and instruments case of acts of caching by servic providers, any exception supplied to legitimate purposes or takes no reasonable should be on condition that the service provider does not steps to filter or block any infringement”. modify or edit the contents of the work and does not The difficulty remaining is whether the wrong of interfere with the use of technological protection measures. “causing” an infringement can only be sustained if the There may be an exception for “the making or reproduction primary act of infringement is completed. This appears to of temporary copies of the work if it is for technical or legal be likely so. To get away from such rigidity, the law should reasons and provided that there shall be no modification be amended to provide that causing “an imminent or editing of the work or interference with the use of any infringement” or if the causative acts make it likely that an technological measures by the owner”. infringement will occur, that should suffice. A suitably worded provision would be: “copyright is infringed by any person who does, or causes any other person to do, without Legal protection and remedies the license of the owner of the copyright, an act the doing of which is controlled by copyright under this Act”. Adequate legal protection and effective legal remedies are In the context of an offence for copyright infringement, provided against the circumvention of effective technological it is an offence to sell or distribute infringing copies. The measures that copyright owners use to restrict acts in computer file in data format that is transmitted over the respect of their works which are not authorised by the network has no physical existence. It is uncertain whether authors concerned or permitted by law. In this respect, the such an infringing computer file meets the definition of it law should prohibit the business of providing circumvention being an “unlawfully reproduced copy”. As mentioned tools and services. What must be suppressed is the earlier, by definition, “copy” must be in some material providing of, manufacture, importation, supply, form. Are data packets residing in a computer file in distribution and sales of decryption devices and other material form? To remove such an uncertainty, perhaps the devices and services which are intended to gain access to, word “material” should be deleted from the definition of or the use of copyrighted material. The factors for “copy”. determining whether a given tool is a circumvention tool Unauthorised distribution of the copyrighted work by may include those set out in the US Digital Millennium Act way of sales is an act of infringement. Whether there is 1998 which are (i) the way the devices and services are such a distribution and sale of the infringing file is designed and/or produced; (ii) whether the way the devices questionable. The computer file residing in the host and services are marketed has any significant commercial computer is never physically moved to the downloader’s purpose or are the marketed for use primarily for the computer. Instead the downloader creates a new file. There purpose of circumvention; and (iii) whether the may be no monetary gain. Perhaps “transmission of the manufacturer or marketer of the devices are acting in work to the public by electronic or other means which upon concert with the user who to his knowledge is using the being received results in the copy of the work”. devices for circumvention purposes. The test has to be an Pirated works are openly advertised for sales either in objective one. the print media or via the Internet. Accordingly the right A balance must be maintained and exceptions and to advertise copyright protected work should be an act limitations to the prohibitions be provided particularly in controlled by copyright and advertising for sales, hire or the face of countervailing national interests such as when rental of infringing copies of works should be an offence. copyright owners totally deny access to their works by Any reproduction made including those that are customers from the non-profit sector such as educational temporary or of transient duration is covered under the institutes, libraries and research organisations or where right of reproduction. (Examples would be copies of works law enforcement and national security interests or where made in the servers and other computers that are the access to copyrighted material is required to achieve engines of electronic commerce and digital networks) A interoperability of computers. person making a temporary pirated copy is no more or no Copyright owners have the exclusive right to control less guilty of infringement than a person making a retransmissions over the Internet. They must retain the permanent pirated copy of the work. Under emerging new absolute right to authorise or prohibit the retransmissions

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 7 of their works. The value of audiovisual work will It is the object of copyright laws to drastically reduce if unauthorised Internet retransmissions were easily available. There would be considerable provide copyright owners with practical difficulty in the collection of any remuneration effective action and expeditious due. Program suppliers usually license their programs by geographic regions. If unauthorised programming remedy against any form of becomes available online via the Internet, such global infringement. marketing structure would be displaced and the value of such geographically limited licenses is lost. Where authorisation for retransmission is given, copyright owners as “prohibited content or content in contravention of must have an equal and absolute right to impose the terms Malaysian law” is a matter fo interpretation. If it is to be and conditions for the retransmission. Territories of the so regarded and the Internet Access Service Provider world market are targeted differently; for instance, it is an withdraw access to the subscriber or blocks access to or essential requirement in the case of audiovisual works in removes such content, then, the objective of the copyright the form of films. Worldwide distribution of content over owner is achieved. What if the Internet Access Service the Internet seriously impacts on local release patterns. Provider refused on the ground that it is not the It is the object of copyright laws to provide copyright adjudicating tribunal to decide on whether the contents owners with effective action and expeditious remedy complained of are indeed infringing? against any form of infringement. It is against this aim In the event the Code is not intended to deal with that the liability of service providers must be considered. As infringing copyright content, a new part would have to be providers of online services they are directly and intimately included in the Act dedicated to controlling the activities of involved in transactions dealing with copyright materials service providers that relate to and govern the manner they and other forms of intellectual property. are to deal with the transmission of infringing materials over their networks. Operating within the scope of their licenses and the provisions of the CMA, it must be The Communications and Multimedia acknowledged that in relation to the electronic copy of the Act 1998 and the Malaysian work, they are entitled to deal with it incidentally in the Communications and Multimedia course of their providing the technical means to enable Code users of the network or other networks to access the work for listening, viewing or any other form of legitimate Service providers in Malaysia are licensed operators under utilisation. Such incidental dealings in the electronic copy the Communications and Multimedia Act (“CMA”) 1998 of the work would include storing, transmitting, routing or and their licenses are subject to conditions that they must providing connections to the work on their own primary or adhere to. Their activities are also subject to the provisions other networks. This obviously is a necessity and network of the CMA. The Malaysian Communications and users would expect such services and that it is within the Multimedia Code (“Code”) requires Internet Access Service intent of the CMA that such services be provided by the Providers “to comply with and incorporate terms and network service providers. conditions in the contracts and legal notices as to terms of use with subscribers of their service”. The following terms Network Service Providers shall be included, namely (i) subscribers shall comply with the requirements of Malaysian law including, but not Ordinarily, network service providers cannot be liable for limited to the Code, and shall not provide prohibited infringement. In a P2P file sharing context, they are just contents or any content in contravention of Malaysian law; intermediaries. They are not involved in any way in the (ii) the Internet Access Service Provider shall have the right infringement They merely provide the technical to withdraw access where a subscriber contravenes what is infrastructur or connectivity that facilitated the exchange stated in (i); and (iii) the Internet Access Service Provider of infringing files by P2P peers. The network service shall have the right to block access to or to remove such providers may however be made answerable for the prohibited content provided such blocking or removal is infringement. Any laws to provide for the legal responsibility carried out in accordance with the complaints procedure and liability of these providers must provide incentives and set out in the Code. By Section 98(2) of the CMA encouragement to join the copyright owners, enforcement “compliance with a registered voluntary industry code agencies and consumers to take all steps necessary to deter shall be a defense against any prosecution, action or the use of the digital networks for copyright piracy, detect proceeding of any nature whether in court or otherwise and eliminate copyright infringements that take place over regarding a matter dealt with in the Code”. Whether the networks and identify and pursue the infringers and copyright infringing material or content is to be regarded instigators of infringements Such incentives and

8 | The Malaysian Accountant | June/August 2007 www.micpa.com.my encouragement would be in the form of the remedies for traffic data stored by the service providers. The data will infringement that would otherwise be available against assist in the real time identification of the registrant of the the service provider being limited or reduced. This is the domain name and the server where the related website is approach adopted by the US Digital Millennium Copyright maintained. Accordingly a network service provider should Act 1998 and the E.U Electronic Commerce Directive (2002). be liable for infringement if it refuses to disclose to the To fix or impute the service providers with liability, copyright owner or his authorised representatives, the law must legislate against these network service information relating to the identity of the infringer, his providers primary infringement as well as secondary or contact details, specified or other information and indirect infringement activities such as authorising or documents that are useful for the purpose of protecting the causing infringement, joint liability, contributory or owner’s copyright. To ensure the integrity and accuracy of vicarious infringement etc. In so far as the transmission of the data, the law must make it an offence to fraudulently an electronic infringing copy of the work is concerned, it is misrepresent or suppress essential information in the submitted that the network service providers are already registration process. The network service providers must in liable as primary infringers and offenders under the their agreement with subscribers ensure that this is spelt amendment suggested above. For instance, the service out for otherwise the information even if provided by the provider would be regarded as an infringer in relation to would be of little use to copyright owners. the electronic copy of the work transmitted via their networks, they become aware or ought to be aware of infringing materials or activities on their systems and do Conclusion nothing to remove or cut off access to the offending material. It is not necessary that the service providers be notified of the Whether providers of file sharing software and services can presence of infringing material and activities on their systems, be fixed with liability for copyright infringement depends but if notified then, the defense of lack of awareness cannot on the role they play and the degree of control they exert avail itself to them. They should then be imputed with over the file sharing process. If the infringing files are stored notice. It would be preferable if “ network service provider on their servers (referred to at times as the site and facility) is made liable for infringement for transmitting electronic and made available for download, then their position infringing copies of work to the public if (i) it is aware or would be as that of the uploader. It should not matter have knowledge of or ought to be aware or have knowledge where their servers are located. They may even be located of the electronic copy of the work that is transmitted outside of Malaysia but so long as they have control over through its network systems is an infringing copy; or (ii) it the same, they should be guilty of infringement. The law receive a statutory declaration (from the copyright owner should provide that “a person shall be guilty of infringement or his authorised representative?) that provides in his belief if he stores or causes to be stored any recording or reproduction in good faith, an act which constitutes infringement has of an infringing work on servers or other storage or retention occurred in the course of making available an electronic facilities or means wherever located knowing that or under copy of the work on the network to which the network circumstances which render him likely to know that the service provider provides access and the grounds of his infringing work may at any time subsequently be reproduced belief and neglects or fails within a reasonable time to take or accessed or dealt with in a manner that is prejudicial to the the necessary action to remove or disable access to the work interest of the owner of the copyright by the public”. Such that is infringing. This approach is entirely consonan with infringement is of course in addition to and not an alternative the requirements of the CMA and the Code. There must be to the direct infringement of having unlawfully reproduced safeguards. A person who knowingly misrepresents or the copyright protected work. Substituted for the requirement suppresses relevant and essential facts just to assert for control over the servers, is the requirement for knowledge infringement must be liable in damages. or presumed knowledge that there will be subsequent Also relevant, is whether network service providers infringements made from the unlawfully reproduced file must disclose identifying information in their possession that is held in storage. Implicit in the proposed provision is with regard to an on line infringer where a request for the the presumption that the provider must have control over information is made by copyright owners or their legal the site and facility. representatives. A time limitation within which to respond must be provided. These are information and particulars This article first appeared in Shearn Delamore & Co Newsletter that are readily available. One significant tool for Internet (Vol 6 No 1.0) March 2007 and is produced with kind anti-piracy enforcement is the availability of and access to permission from Shearn Delamore Services. data about Internet users and website operators after This article covers legal issues in a general way. The identification of their IP addresses in order to identify contents are not intended to constitute advice on any specific copyright infringers. The most significant sources of these matter and should not be relied upon as a substitute for detailed data are the WHOIS databases and the subscriber and legal advice on specific matters or transactions.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 9 FEATURE Basis of Recognition of Income for Property Developers

BY Dr ARJUNAN SUBRAMANIAM

his paper examines the basis of income (d) Section 2 – ‘stock in trade’ definition includes work in recognition for property developers. In so, progress; examining statutory case-law developments (e) Section 43 – Business losses brought forward; and the general guidelines issued by the (f) Section 44 – Adjusted business loss for current year; InlandT Revenue authorities are explored. Since there are no special rules in the Income Tax Act 1967, surely the changeability to tax must proceed along The Statutory Provisions the sections in the Income Tax Act 1967 cited above. Applying the sections the proposition is well summarised The Income Tax Act 1967 does not set out any special in the case of YF Development Sdn Bhd v Ketua Pengarah Hasil 1 sections or provisions for property developers. This fact Dalam Negeri in the following terms: must be borne in mind in attempting to find answers of In the case of a housing developer, the question income recognition for property developers. Section 36 of of whether or not his project has been completed, or the Income Tax Act 1967 authorises the Director General whether or not he has sold all the units upon to give directions to be published in the gazette as to the completion of the project does not arise. A housing computation of business income in certain cases. But no developer must be taxed just like any other trader. such directions for property developers have been made. This means that for ascertaining his gross income for Thus, a property developer must be taxed as any other a basis period, the sales of units, works in progress taxpayer under the following provisions of the Income Tax and stock-in-trade must be taken into account. In Act 1967. arriving at his adjusted income, all expenses wholly and exclusively incurred in the production of that These provisions, inter alia, are: income during the relevant period must be allowed. (a) Section 3 – derived and remittance basis; In arriving at his statutory income, capital (b) Section 5 – manner of computing chargeable income allowances allowable under Schedule 3 to the Act – determine source; must also be taken into account. However, where (c) Section 33(1) – deduction – ‘…by deducting from the losses arise in the application of these rules, then such gross income of that person from that source for that losses can be carried forward to the following year of period all outgoings and expenses wholly and assessment. Unabsorbed capital allowances can also exclusively incurred… in the production of gross income’; be carried forward and allowed against adjusted

10 | The Malaysian Accountant | June/August 2007 www.micpa.com.my income of the same source. Thus, the assessments are and evidence before them, I agree with their finding. to be amended in accordance with these rules, and In my view, this is not inconsistent with provisions of may require recomputation. s 33(1) of the Act.

The court further emphasised two separate projects thus: ‘Source’ and its Implications As I have said, the shop house project, which for Property Developers was held by the Special Commissioners to be quite separate from the TAR Centre project, would be However, notwithstanding what is said in YF Development, regarded as a distinct source of income, which was a developer company can have many sources of income, recognised by the respondent pursuant to the i.e. a business can have several sources2. A source is a completed contract method of accountancy. As the question of fact3, but even questions of fact must be based TAR Centre which would, in the circumstances, be on evidence. An error of fact is an error of law4. regarded potentially as another source of income, had How does the concept of a ‘source’ impact the tax yet to be completed or substantially completed at the position of a developer? The case of Sarawak Properties Sdn material time, the income was therefore not recognised. Bhd v Director General of Inland Revenue5 illustrates the impact well. In this case the facts were: His Lordship continued on to say: (i) There were two separate projects, i.e. there were two Recognition would come once the said project sources of income; was completed or substantially completed. (ii) The completed contract method (CCM) of accounting was adopted; The importance of the conclusions reached by the (iii) No income was recognised at the end of a financial year; Court in Sarawak Properties is that property developers may (iv) Income was only recognised upon completion of the decide on the accounting methods to be adopted and be project. No work in progress is ever shown; bound by consequences. Thus, if in Sarawak Properties a (v) No expenses were claimed until at the end of the project; different accounting method was adopted whereby income and was recognised at each accounting year with work in (vi) It is mandatory under the CCM method NOT to report progress and deductions claimed that procedure would be income until the completion of a project. It is also applicable and accepted if consistently followed. But note mandatory NOT to claim expenses until the projects that the completed contract method is no longer accepted are completed. by the Revenue. See Public Ruling 3/2006 (infra). So where does that leave the judgement in Sarawak Properties? This The important point to note is that the Court found proves that it is so important to follow the law – not what two projects. And no income was reported from the parties accepted. uncompleted TAR project.

Steve Shim J as His Lordship then, put it in this way: Consistent Application There was, however, no income realised from of Chosen Method is Important the uncompleted TAR Centre at the time. The facts also disclose that an amount of RM19,521,342.05 was A method once adopted should not be changed, without expended on the shop house project whereas an valid reasons. Consistently in application was also expenditure of RM30,229.843.27 was incurred for the emphasised in the case of Thomas Hill Ltd v Comptroller of uncompleted TAR Centre in the year ending 1985. Income Tax6, by Lord Templeman in these terms: Given the circumstances above and in the light of the In the present case, the company is not being authorities cited earlier, it could well be said that the asked to abandon the completed contract method but income of RM35,914,865.48 derived from the sales of to apply it uniformly and consistently. the shop house under the shop house project was one source of income and the amount of RM19,521,342.05 The facts in Thomas Hill were that the taxpayer adopted was the expenditure incurred wholly and exclusively the completed contract method in computing profits. By in the production of that income. This income of this method: RM35,914,865.48 from the shop house project was The expenses directly incurred by the company, recognised pursuant to the completed contract in relation to a site which is developed are not charged method of accountancy. It was recognised by the in the company’s profit and loss account year as those respondent and such recognition was accepted as expenses are incurred. On the other hand, no proper by the Special Commissioners. On the facts account is taken of the value of the work in progress

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 11 year by year. Upon completion of the development, all the expenditure relating to the development The Courts must be cautious incurred over the years from the date of acquisition of of accepting the CCM the site, including the cost of acquisition of the site is aggregated and deducted from the sale price or method on grounds market value of the completed development. The difference between the aggregate expenditure incurred that the Inland Revenue in respect of the development and the proceeds of sale Board accepted that method. or market value of the completed development, constitutes a profit which the company then includes There is no such law. in its profits and account for the year of completion.

Pursuant to the completed contract method ‘no income of the company arises from a development until that development is completed. Outgoings and expenses directly But when the percentage of completion method attributable to that development are not deductible from is consistently adopted, then the interest incurred in the income of the company as they arise but are only taken the financial year qualifies for a deduction under s into account in arriving at the profit derived from the 33(1), Income Tax Act 1967 as and when incurred. This development and that profit constitutes part of the income must be so, even if under the percentage of completion of the company in the year of completion and not in any method ‘interest’ is capitalised since ‘capitalised’ 7 previous year. interest retains the character of ‘interest’ . In its accounts for 1974, taxpayer altered its practice and changed property tax as general administrative expenses in respect of all the development sites. Such a Public Ruling No.3/2006 change was disallowed by the Revenue on grounds that: dated 13 March 2006 (i) consistent with the completed contract method adopted by the taxpayer, the property tax in respect of The Inland Revenue Board does not accept the completion each development site should be treated as costs directly of contract method (CCM). (See paras 6.2, 6.4 and 7.5 pp 5 attributable to that development and should be brought and of the said ‘Ruling’). Where the taxpayer adopts the into account on the completion of the development as completion of contract method, the Director General part of the total cost of the development before ‘requires the property developer … to compute his income arriving at the profit (or loss) for the development. tax liability for a year of assessment by using the percentage of completion method, that is, by using either The court at every stage agreed with the Revenue. the method prescribed in the accounting standards or the progressive payments basis prescribed by the Director General. (Paragraph 6.4 of Ruling). Tax Treatment of Borrowing Is this Ruling consistent with Sarawak Properties? Costs in Respect of Developers Prima facie, it appears not consistent since the CCM method was adopted by the taxpayer and applied by This paper addresses interest payable as deduction for the court. But this method was accepted in that case by property developers. The accounting treatment adopted the Inland Revenue Board. The court so found this fact: could be: In the instant case, the established facts disclose (i) interest may be capitalised as part of property that the audited accounts of the appellant for the years development; or ending 1982, 1983, 1984 and 1985 were maintained (ii) interest may be charged to the profit and loss account and drawn up for income tax purposes on the basis as and when ‘incurred’. of the completed contract method of accountancy which was recognised under the International Whatever accounting treatment is adopted in respect Accounting Standard 11 and accepted by the of interest, it is submitted that the essential question is respondent. deducting interest in the accounting method adopted for the And if the Inland Revenue Board does not accept recognition of income of property developers. the CCM method, then the Court must rely on the If the completed contract method (CCM) is adopted provisions of the Income Tax Act 1967. And that is then it follows that the interest applicable to a project why this paper begins with the provisions of the can be deducted only upon completion of that project. Income Tax Act 1967, i.e. ‘a property developer must (This follows Sarawak Properties and Thomas Hill). be taxed just like any other trade’.

12 | The Malaysian Accountant | June/August 2007 www.micpa.com.my And there is a Revenue Law principle that needs (b) Expenses relating to income generating properties to be repeated – both the Inland Revenue Board and would be allowable. the taxpayer cannot choose methods of recognising (c) Interest expense incurred by a property developer: profit or deduction but must follow the provisions in the Income Tax Act 1967. This principle was stated 14.8.1 Interest paid on loans taken for financing in Ostime (Inspector of Taxes) v Duple Motors Bodies Ltd8 the purchase of land and development as follows: works are to be capitalised or debited in the Development Expenditure Account, and In EM Bhd v Director General of Inland Revenue9, this not charged to the Profit and Loss Account principle not only was accepted in Malaysia but the Court every year as part of administrative held that the Inland Revenue Board must act in accordance expenses. Where funds borrowed to acquire to the provisions of the Income Tax Act 1967: land cannot be related to a particular It is up to the respondent (Inland Revenue parcel or parcels, the interest incurred Board) to do so in accordance with the provisions of should be allocated to all land held during the Malaysian, Income Tax Act 1967 and in compliance the year in proportion to the cost of each with the normal accounting practice. parcel. Interest would be allowed as part of the cost of sales based on the percentage of Percentage of completion method or the progressive completion method. payments basis. Interest expense incurred on money borrowed and employed in the production of gross income of a property developer is Progressive Payments Formula allowable under subsection 33(1) of the Income Tax Act 1967. To qualify for a The Inland Revenue Board Ruling in paragraph 7.9.2 reads: deduction, the interest expense of a property 7.9.2 The progressive payments basis provides developer must not only be incurred but an estimate of the gross profit of a project must also satisfy the test that it is incurred (or phase as the case may be) proportionate in the production of gross income. In other to payments received and receivable for words, “only interest attributable to the each accounting year. The estimated gross phases or projects, whichever is applicable, profit for each year is arrived at by using which produced income would be allowed as a the formula: deduction under sub-s 33(1) of the Income Tax Act 1967”. The deductibility of the interest Estimated gross profit expense should strictly follow the principle for a year of assessment = (a) x (c) of percentage of completion that is deduction (b) is based on the progress of completion of the phase or project. Where – (a) = the sum of payments, including deposits, received In paragraph 7.7 of the ‘Ruling’ the Inland Revenue and receivable in the year and the figures must Board takes a position that expected loss on a development reflect the actual position prevailing at the project recognised in the accounts would be allowed on balance sheet date. grounds that the loss is a ’anticipated contingent loss’. This (b) = the total value of development of the project, i.e. applies to an estimated gross loss as outlined in paragraph the total anticipated sales proceeds 12 of the ‘ruling’. A provision made for liquidated (c) = the estimated gross profit for the project i.e. the damages is not allowed as per paragraph 14.5.3 of the gross profit which the developer expects to make ‘Ruling’. This treatment draws the following comment: in relation to the project or phase. (a) if an excepted loss is not allowed, then on what basis is an expected profit taxed? (b) if an expected gross loss cannot be set off against other Outgoings and Expenses Wholly sources of income, then what is the basis of taxing and Exclusive Incurred – s 33(21), and expected gross profit? Income Tax Act 1967 application (c) a provision made for liquidated damages can be allowed if late delivery or defects have already The Inland Revenue Board Public Ruling provides: occurred i.e. the event which triggers the liability has (a) Development expenditure must be adjusted to exclude occurred, because the legal liability to pay has arisen10. non-allowable expenses.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 13 method. There is no such law. And accounting practice Revision of Estimates cannot infringe the provisions of the Income Tax Act 1967, and Tax Computations a principle much forgotten in Sarawak Properties.

The ‘Ruling’ in paragraph 10 outlines the following: This paper was written by Dr Arjunan Subramaniam (a) no revision of past assessment is allowed where there BA(hons) (Mal), LLB (hons) (Lond), LLM (Lond) PhD (Mal), CLP (Mal) is a revision resulting in a reduced estimated gross Advocate & Solicitor, Malaya, Adjunct Professor, University Utara and profit. Such revisions are only for current and ensuing formerly Adjunct Professor of Law the Northern Territory Univesity, years of assessment. Darwin Australia (b) where the revision is from an estimated gross profit to a loss situation, no adjustments of past years are Source; Malayan Law Journal [2006] 6i-cxl, November-December 2006. allowed until the final amount is ascertained at the Produced with kind permission. end of the project. 1 [1996 MSTC 2526.] But see the proposals in the 2007 Budget where The comment that these rulings draw are as follows: effective from year of assessment 2006, the following principles, inter In respect of both (a) and (b) above, it is neither alia, are proposed to be gazetted under section 36, Income Tax Act, 1967: logical nor supported by any statutory authority that (i) The gross income from a property development or construction past assessments cannot be reviewed where Inland contract business for a basis period for a year of assessment shall Revenue Board already accepts the revision of be determined using the percentage of completion method; estimates. (ii) Revision of estimates of gross profit from a property development project or construction contract can be allowed where there is an increase in development or construction costs due to escalating Conclusions cost of materials, a reduction in selling price or contract sum or other commercial reasons acceptable to the Director General; (1) The Inland Revenue Board does not accept the CCM (iii) Expenses incurred during the defect liability or warranty period method. Housing developers need then to pay shall be allowed against the income of the year of assessment in attention to how the transactions are presented in which the expenses are incurred or shall be carried forward to the accounting procedures adopted. following years of assessment. However, the property developer (2) The percentage of completion method is accepted by or construction contractor may elect to carry back the expenses the Inland Revenue Board. But this does not mean the to the basis period for the year of assessment in which the project Inland Revenue Board would allow all interest or contract is completed. expenditure incurred to date. The tax treatment (iv) On submission of the final accounts upon the completion of the accorded in the Public Ruling No 3/2006 to housing project or contracts special rules are to be enacted to compute profits. developers as investors is not investor friendly, since The proposal is effective from year of assessment 2006. the Inland Revenue Board in its ‘Ruling’ would not 2 River Estate Sdn Bhd v Director General of Inland Revenue [1981] 1 allow interest costs as and when ‘incurred’. MLH 99. (3) It is recommend that housing developers adopt an 3 Nathan v FC of T 25 CLR 183. accounting system, if that is allowed by accounting 4 See Mamor Sdn Bhd v Director General of Inland Revenue [1981] standards, to claim (i) all expenses, including interest 1 MLJ 117 and Airspace Management Services Sdn Bhd v Col (B) costs in the basis period incurred, and include (ii) all Harbans Singh a/l Chingar Singh [2000] 3 MLJ 714. sales of units in the basis period, (iii) and include 5 [1997] 4 AMR 3181 work in progress. This satisfies the provisions of the 6 [1984 – 1985] 1 SLR 2. Income Tax Act 1967. 7 See Perwira Habib Bank Malaysia Bhd v Pengkalan Enterprise Sdn Bhd [1992] 2 MLJ 35. Capital allowance under s 3 Income Tax Act 1967 8 [1961] 2 All ER 167. must be allowed in arriving in statutory income in the tax 9 [1988] 1 MSTC 2085. computation. And if losses arise applying of all these rules 10 See Exxon Chemical (M) Sdn Bhd v Ketua Pengarah Hasil Dalam which follow the provisions of the Income Tax Act 1967, Negeri [2006] 1 MLJ 428, where it was held that an expense is then such losses can be carried forward or allowed against incurred when there is a present liability to pay. See also RACV other income in the current years pursuant to the Insurance Pty Ltd v Federal Commissioner of Taxation [1974] 4 provisions of the Income Tax Act 1967. ATR 610; 14 TC 4169 where actuarially estimated provisions for That precisely was what was decided in YF Development. claims in relation to accidents which occurred during the year of The Courts must be cautious of accepting the CCM method income but which occurred during the year of income but which on grounds that the Inland Revenue Board accepted that gave rise to claims in the following years were considered

14 | The Malaysian Accountant | June/August 2007 www.micpa.com.my FEATURE Wither the External Audit in Corporate Governance?

BY HASHANAH ISMAIL

This is a theoretical paper based on under which companies in Malaysia are incorporated, i.e. the Companies Act, 1965. That a company is required by literature and the corporate law to appoint an external auditor yearly to audit its governance framework in Malaysia. annual accounts underlines the perceived importance of By reviewing the roles perceived and the external audit in the eyes of the law. Implicit in the mandatory appointment of external auditors by each expected of external audit under company is the recognition by the lawmakers that external corporate governance environment auditors play a vital governance role to serve the interests research questions are raised as a of the shareholders. The duties, scope, rights and basis for research into possible responsibilities of the external auditors are spelt out in the relevant sections on Audit and Accounts in the Companies future roles of the external audit. Act, 1965. The attestation of the auditors as formalised in the Auditors’ Report improves the credibility of the financial information attested to (Mautz and Sharaf, 1961). Provided the auditors perform an audit of a reasonable standard, the audited financial information should be useful to investors and other users for decision- making. Recent negative incidents of audited financial statements however have raised concern about the quality of audit and the quality of audited financial statements. As a result, initiatives were taken to improve the overall financial reporting environment as part of a drive to produce a good governance culture in the Malaysian corporate scene. As a result of the corporate governance initiatives, will the role of the external auditor change from a conformance role discharging their statutory duties to report on truth and fairness of accounts? It is the objective of this paper to examine the nature of corporate governance environment in Malaysia and see whether elements of the environment affect the external audit and in what ways. This paper is a theoretical paper and the following section discusses corporate governance in Malaysia followed by a review of some of the literature on the role of audit in governance. The paper concludes with research questions, which could be the bases for empirical Introduction investigation.

Every year companies go through the ritual of nominating an auditor, calling an annual general meeting to get Corporate governance in Malaysia approval from shareholders on the appointment of the external auditors so nominated, approval of the audited In May 1998 Price Waterhouse published the results of a accounts and authorisation for directors to determine the survey on corporate governance in Malaysia amongst audit fees. This ritual is entrenched in the Malaysian senior management of public listed companies. The survey corporate culture as a result of the requirement of the law results reported that shareholders and / or investors look

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 15 towards auditors for the assurance that the financial Companies Regulation 1966, Companies (Winding Up) statements provide a “true and fair” view of a company’s Rules, 1972, The Securities Industries Act 1983, The financial position. The financial statements are the key Securities Commissions Act, 1993, the Malaysian Code on source of financial information available to investors to Takeovers and Mergers, 1987, the Guidelines on the assist them in making decisions. Respondents were also Regulation of Acquisition of Assets, Mergers and Takeovers, asked on areas requiring improvements and one of the the Bursa Malaysia Listing requirements and Practice Notes areas identified by respondents was the need for a clearer and the Financial Reporting Act, 1997. These regulatory definition of the role of the external auditors. In an earlier frameworks identify three important players: directors, study by Tan, Zainal and Cheong, (1990), financial analyst managers and auditors of companies and good and government investment agencies in Malaysia ranked governance ensure that there are mechanisms by which future prospects of companies as most relevant for their companies are directed and controlled and the decision making compared to audited historical financial mechanisms which supervise those who direct and control statements. If audited accounts are less useful compared to companies. prospective information, what are auditors for? In Malaysia, management oversight includes board The need for strong corporate governance is very structure, composition and board subcommittees, internal much linked to a country’s need to make it an attractive and external auditors. Together they are inter-related to capital market to investors by convincing investors of the ensure that companies produce reliable financial integrity of such markets (Millstein, 1999). Malaysia is no statements to the capital market. exception as evidenced by its Capital Market Master Plan. At the heart of corporate governance framework in Investors rely on quality information to make decisions Malaysia is the Code of Corporate Governance launched in and quality audit can enhance the reliability of financial 2001. PN9 of the Bursa Malaysia listing requirements statements. Sound governance by boards of directors is mandates each listed company to disclose in its annual recognised to influence the quality of financial information report a Statement of Corporate Governance to explain reported, which in turn has an important impact on how the company applies the principles enunciated in the investor confidence (Levitt, 2000). Strong governance Code and to state whether the company has complied with should reduce the adverse effects of earnings management Best Practices spelt out in the Code and if not why not. In as well as reduce the likelihood of misstatements arising what ways can these governance initiatives affect the from fraud or errors (Beasley, 1996). The effect of sound external audit? governance practices on the quality of financial reporting has recently received attention from researches, The Financial Reporting Act 1997 particularly from the US (McMullen, 1996, Abbot et. al, 2000). The main focus of these studies has been the relation The Act brought into existence the Malaysian Accounting between audit committees and fraudulent financial Standards Board which became the sole accounting reporting, with results generally supporting a negative standard setting body in Malaysia. By amending the relationship between an active audit committee and the Companies Act 1965, companies must comply with likelihood of a company being cited for fraudulent accounting standards issued by the board and this gave reporting. legal clout to accounting standards. By mandating While these results provide evidence from a strong compliance with accounting standards in the preparation and sophisticated capital market environment, very little of financial statements, board of directors are now research has been conducted in countries where capital compelled to present financial statements which would markets are less developed, like Malaysia. Good corporate relatively be free from material misstatements and governance are equally, if not more important, for therefore present a lower audit risk to auditors. By making Malaysia if we are to achieve the goals of the Capital such standards compulsory under law, this structural Market Master Plan. change in the reporting framework enhances the auditor’s Koh (2002) has described the corporate governance role by bringing in co-regulation by the government structure in Malaysia as comprising “core corporate laws” alongside self-regulation from the profession. which prescribe the ways in which companies are regulated to ensure that management utilised the companies’ The Code resources in a manner that safeguard the rights of the companies’ stakeholders. As a result of these prescriptions, The Code touches on four principles with one section many mechanisms for oversight and checks and balances devoted to accountability and audit. The principle is such including a system of disclosure and reporting to ensure that the onus is on the board of directors to present a fair transparency and greater accountability on the part of the financial report of the company’s position and prospects board of directors. The core corporate laws comprise the and to maintain a good internal control system and instill Companies Act, 1965 and its subsidiary legislation, the a good relationship with the external auditors. The

16 | The Malaysian Accountant | June/August 2007 www.micpa.com.my auditors’ role is affirmed under the Code and is further various stakeholders in Malaysia but also what auditors see enhanced because the Best Practice section further iterates as the impact of governance on the audit process itself. the remit of Audit Committees to appoint, review and monitor the work of the external auditor, thereby increasing the independence of the external audit. Conclusion In sum therefore, reforms of corporate governance appear to be positive for external auditors and confirms the Reforms of corporate governance are meant to increase the importance of the external audit. accountability of those in charge of the governance of listed corporations so that the interests of shareholders and other stakeholders are not jeopardised. The role of the external Literature Review auditor has not changed but the results of more accountable boards could reduce audit risk, increase auditor independence, Past studies relating to audit and corporate governance increase audit quality and therefore improve the credibility mainly focus on the influence of corporate governance of financial reports and financial reporting process. characteristics on auditing. O’ Sullivan (2000), for instance, Whether we have achieved this objective or not could be provides evidence on how the existence of non-executive the subject of future empirical research. directors on the board enhances audit quality. Companies with independent boards of directors and audit committees are often perceived as having lower audit risks (Cohen and References Hanno, 2000) and those with higher agency risks require more audit effort (Gul and Tsui, (2001). Earlier studies on Abbot, L.J., Park, Y. and Parker, S. 2000. The effects of audit committee activity and independence on corporate fraud. Managerial the role of auditing in corporate governance in Malaysia Finance 26(11): 55-67 examine the influence of audit quality on company financial Beasley, M.S. 1996. An empirical analysis of the relation between reporting (e.g. Takiah and Hashanah (2003). Results show the board of director composition and financial statement fraud. The that auditing does not significantly affect the strength of Accounting Review 71(4): 443-465 corporate governance. Similarly when examined as a Cohen, J.R. and Hanno, D.M. 2000. Auditors’ consideration of corporate governance and management control philosophy in moderating variable, audit quality appears to have no preplanning and planning judgments.. Auditing: A Journal of Practice significant influence on earnings management (Nor and Theory Vol.19 (2): 133-146 Haizah et al, 2004), Nor Hisham and Hashanah, 2004.) Goodwin, J. and Seow, J.L. 2002. The influence of corporate Hence the insignificant role of auditing in corporate governance mechanisms on the quality of financial reporting and governance as shown by the research may be due to limited auditing: Perceptions of auditors and directors in Singapore. Accounting & Finance 42 (3): 195-223 scope of the external audit role or resulting from poor Gul, F.A. and Tsui, J.S.L. 2001. Free cash flow, debt monitoring quality audit? and audit pricing. Auditng: A Journal of Practice and Theory Vol. 20 A lot of effort has been taken to reform corporate (3):71-84 Levitt, A. 2000. Renewing the covenant with investors , speech governance. These include restructuring board representation at New York University http://www.sec.gov/news/speeches/spch370.htm (O’Sullivan, 2000), improving the basis of auditor selection Malaysian Code on Corporate Governance, 2001. Malaysian Institute of Corporate Governance Millstein, I.M. 1999. Introduction to the report and (Cohen et al 2000) but generally the role of auditing in recommendations of The Blue Ribbon Committee. Business Lawyer 54 corporate governance is not discussed as extensively (Baker (3):1057-1066 and Owsen 2001). Mautz, R.K and Sharaf, H.K. 1961. The philosophy of auditing. Do auditors perform a governance role in South East (AAAA, Sarasota) Asia? Fan and Wong (2002) examined a sample of firms in McMullen, D.A.1996. Audit committee performance: an investigation the region where firms are described as experiencing an of the consequences associated with audit committees. Auditng: A Journal of Practice and Theory 15(1):87-103 agency problem between controlling shareholders and O’ Sullivan, N. 2000. The impact of board composition on audit minority interests. The study finds that the choice of big quality. British Accounting Review Vol 32: 397-414 five auditors help to mitigate agency problems by charging Takiah M. Iskandar and Hashanah Ismail. 2003. Corporate a fee premium in response to agency problems reporting quality, audit committee and quality of audit. Paper presented encountered. The study finds that overall, auditors do at The 1st International Conference of the Asian Academy of Applied Business, 10-12 July perform a governance role with some peculiar findings for 2003, Kota Kinabalu Malaysia. Goodwin and Seow (2002) report that corporate Tan, L.T., Zainal, A.K. and Cheong, P.W. 1990. Information needs governance is perceived to have increased the quality of of users and voluntary disclosure practices of Malaysian listed audit in Singapore and thereby strengthen the credibility corporations. The Malaysian Accountant, April 2-6. of the external auditor. Given the mixed findings in the Wallace, W.A. 1980. The economic role of the audit in free and regulated markets. Touche Ross and Co., New York. literature, it is proposed that a study be carried out in The Companies Act 1965, MDC Publishers Printers Sdn Bhd Malaysia to examine not only on whether the scope of the external audit should be expanded from the perspective of This article is contributed by Hashanah Ismail, who is a member of MICPA.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 17 FEATURE Towards Selecting and Maintaining an Effective Internal Audit Function?

BY RAYMOND CORRAY & RYAN CHONG

he Malaysian Code of Corporate Governance professional function, are faced with additional requires listed companies to state whether they expectations arising from corporate irregularities. These have an internal audit function or, if not, what are casting question marks with regards to: alternative they have in place to provide • how internal audits function: assuranceT with regards to the adequacy and integrity of the • the standards that they employ; system of controls. In fulfilling this requirement, listed • the people that they have; and companies have either established their own internal audit • ethical standards that they subscribe too. (“IA”) function or have outsourced the function to professional service providers. The Institute of Internal In overcoming and meeting such challenges and for Auditors has issued The International Standard for the purposes of being able to respond to changing demands Professional Practice of Internal Auditing (“Standards”) and remaining relevant, continuous assessment, challenge that provides guidance on the principles and frameworks and improvement need to be undertaken by the internal for setting up an IA function or when outsourcing. audit function. A solution recommended by the Institute of When contemplating the appropriate course of action Internal Auditors is to undertake a Quality Assessment for an effective internal audit function, as a first step, Review (“QAR”). organisations should keep in mind the following: The objective of a QAR is to undertake an assessment • Whether to have an in house function or to outsource of the function for purposes of ensuring that the: the function; • mission; • The expectations of an internal audit function, i.e. to meet • people; regulatory compliance or to be a value adding partner; • processes; and • The independence and stature to be accorded to the • technology, function; • The investment that the organisation is willing to make; employed within the function are relevant in meeting ever and changing stakeholder expectation. The objectives behind • The availability of people resources in terms of skills such assessments are: and experience. I. To ensure that the mission of the internal audit department is aligned with the overall vision and In setting up an in-house function the main challenge mission of the organisation; faced by organisations is in sourcing skilled and experienced II. That people with relevant skills and experience are IA personnel and the costs involved. Due to the lack of such employed to undertake engagements and to provide personnel, a solution that is frequently employed is to value add; and outsource the function. When faced with outsourcing and III. That the processes (methodology) and technology for purposes of ensuring that an appropriate service provider employed are designed to foster efficiency, effectiveness is selected, organisation needs to bear in mind the following: and economics of the function. • Reputation of the service provider; • Standards that the service provider adopts, for example, With the present demand for greater governance and The Institute of Internal Auditor’s Standards; transparency, an organisation cannot afford complacency • The resources of the service provider, both in terms of or deviations from acceptable practices. Having an technical and industry and operational skills; effective internal audit function is a fundamental • The approach and the methodology in maximising the requirement of a well run company and more importantly service; provides an independent framework for check and balance • The ability to work with other service providers, to value and value in management. add and respond to sudden request; and • The independence and integrity of the firm. This article first appeared in BizDo, issue 18, August 2007, the newsletter of BDO Binder. Produced with kind permission. Today, internal audit functions, apart from facing the Raymond Corray is a Director and Ryan Chong, Principal inherent challenges associated with maintaining a Consultant of BDO Governance Advisory Sdn Bhd.

18 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

PEOPLE

At The Helmc b b BY MALKEET KAUR c

he recent Annual General Meeting of the MICPA & Young Malaysia from 1999 to 2004 and Dato’ Johan, the witnessed the election of a new President and Vice- current Executive Chairman of PricewaterhouseCoopers T President. YBhg Dato’ Nordin Baharuddin was Malaysia, between them, possess 60 years work experience elected the 28th President while YBhg Dato’Ahmad Johan in a vast area of their profession. Both are members of the Mohammad Raslan, the Vice-President of the Institute. Institute of Chartered Accountants in England and Wales This is indeed an interesting combination as Dato’ (ICAEW) and of course, the MICPA. Nordin and Dato’ Johan are two extremely remarkable Shortly after their election to their posts, Dato’ Nordin leaders of the accounting profession and with these two and Dato’ Johan spared some time from their busy schedules stalwart Accountants at the helm, steering the wheel, the to have a chat with The Malaysian Accountant and both had next few years would be an interesting journey for the MICPA. interesting views and opinions on a variety of topics Dato’ Nordin, the former Executive Chairman of Ernst touching the Accountancy profession as well as the Institute.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 19 Dato' Nordin Baharuddin It’s after five and Dato’ Nordin Baharuddin is still hard at work, something he didn’t think he would be doing after retiring from his prominent position as Executive Chairman of Ernst & Young Malaysia in 2004. “I thought I would be freer after retiring but now I am busier than ever,” he laughed. The simple, down-to-earth current Chairman of KUB Malaysia Berhad takes his new position and the responsibility as the President of the MICPA somewhat seriously. “There is a lot of work to be done here,” he said, looking unperturbed with the challenge. Dato’ Nordin, who was the former Vice- President of the Institute, seemed to have settled into his new role quite easily. And he pulled no punches when the conversation turned to the current scandals besetting the business world relating to accounting practices. “Corporate scandals are happening all around the world, in the U.S., Europe and even here. Crime doesn’t pay and neither does the manipulation of accounts,” he stressed. It is important for the profession to redeem itself in the eyes of the public, worldwide. He says that the MICPA can contribute by disciplining and encourage them to become members of the Institute.” members who threaten to put the Institute and the profession Dato’ Nordin also touched on the Institute’s other in disrepute. He added that it is important for the regulators qualification – the Certified Financial Accountant (CFiA) – to step in and come down hard on offenders. which he revealed is suitable for students who are not going Having being admitted into the MICPA in 1982, he into active public practice. The qualification, he explained, talked about the importance of injecting new blood into the would be perfect for students looking to get into finance- Institute. “We have to inform students and make them related jobs like a manager of finance or maybe even CFO. aware of what the CPA stands for and that it’s recognised “This will encourage the university students to take the overseas. Attracting more students to take up the CPA required modules so that when they leave university, they qualification is one way to ensure a continuous flow of only need to attend the workshop and be accepted as a students passing the exams and becoming active members CFiA,” he explained. of the Institute,” said Dato’ Nordin who also believes that Disagreeing with the misconception that the MICPA the future leadership of the Institute should rest in the capable examination is difficult, he was blunt when talking about hands of the younger generation who have the motivation, the unsatisfactory quality of students today. He advised inclination, the time and resource to do an excellent job. students to be more hard-working and willing to pay their He agreed that there is great competition from dues during their training so that extensive work overseas professional qualifications and students are under experience can be gained. a misconception these overseas qualifications would give “The world,” he said, “would be at your feet and you them more opportunities and a higher standing. will have countless career options.” It would also, he added, “One of our initiatives is to have an agreement with give them an additional edge in today’s challenging global professional institutes overseas so that our members can environment as the training provided would give them the also be members of these professional institutes. By doing ability to be more analytical, versatile, as well as possess this we hope that more local students are encouraged to do management capabilities. our examinations and be our members.” Dato’ Nordin is the first to agree that Accountancy did He further added, “We are the first and only professional indeed enrich his life in many ways, and has kept him accounting body in Malaysia and we would like to keep firmly anchored on the ground, though at one point in his that tradition. As the premier accounting body locally, we life he was interested in taking to the skies as a fighter pilot; also try to give support to the students in the universities an ambition fuelled while studying at the Royal Military

20 | The Malaysian Accountant | June/August 2007 www.micpa.com.my College. However, after completing his Upper Six, he TMA: If you could, is there anything you would like obtained a scholarship and went on to pursue his to change in your life? accounting degree in England. NB: No, I don’t think so. Further on the MICPA, he hopes that the future would see a merger between the MICPA and the MIA. “We are a TMA: To you what does it mean to be a Malaysian? small country and it would be better to have one body. A NB: I am proud to be a Malaysian because I think we have lot can be accomplished if we have just one professional caught the attention of the world by fighting for the rights Institute,” he concluded. of the developing nations. Away from the rigours of the job, Dato’ Nordin revels TMA: How do you relax? in his family; two daughters in accountancy and a son who NB: By playing golf and exercising. is a fitness consultant/entrepreneur. He plays golf regularly and also takes time to do some fishing. But his ultimate TMA: What are your favourite food and drink? passion is to climb greater heights – literally! NB: Food is ‘Nasi Padang’ and drink would be ‘Air Kelapa Muda’. Dato’ Nordin loves mountaineering and has, locally, TMA: Any advice to young professionals taking the conquered the Gunung Tahan and Mount Kinabalu. He Malaysian CPA examinations? has also climbed Mount Kilimanjaro in Tanzania, the NB: My advice to them is not to give up easily. It’s a worthwhile highest peak in Africa and hopes to fulfil his ambition of venture. tackling the ultimate challenge – Mount Everest. Like the song - ‘Ain’t no mountain high enough’- certainly applies to TMA: Do you ever see yourself retiring? Dato’ Nordin for whom no challenge is impossible, be it a NB: When I retired from EY in 2004, I thought I would have mountain, his career, or even his latest position in the MICPA. a quieter life. Now I am busier than ever.

TMA: Are you into mobile gadgets? TEN QUICK QUESTIONS NB: I have a Nokia Communicator. I am waiting for the E900 to be launched. TMA: What are your likes and dislikes? NB: I like exercising. I dislike not doing anything and smoking. TMA: Complete this sentence. Being a CPA….. NB: Is the qualification for a meaningful life, personally TMA: What sort of music do you listen to? and professionally. NB: Light and easy music.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 21 Dato’ Johan Raslan His gracious and engaging demeanour immediately puts one at ease. An essential quality to have when one is the Executive Chairman of one of the biggest accounting firms in the country – PricewaterhouseCoopers Malaysia. Coupled with his natural enthusiasm in his work and his dynamism, it is not surprising that Dato’ Johan Raslan is where he is today – at the top of his profession. It is all these qualities and more that he will bring to his new position as the Vice-President of the MICPA including the youth and vitality needed to take the Institute to even greater heights. The honour accorded was an unexpected surprise for him. “The MICPA holds a special position as a body for Accountants in the country, being a home-grown entity. MICPA is special because it is Malaysian and I don’t think our profession would be as strong and high quality without the MICPA,” said Dato’ Johan who is also a member of the Institute of Chartered Accountants in England and Wales. “My role as Vice-President is to give support to Dato’ Nordin and to provide some continuity in the role that he played before as a VP,” said Dato’ Johan. He is also full of “And the reason they do it is because they are far- admiration and respect for his former counterpart. sighted and they know that eventually they are going to be Dato’ Johan who holds a Bachelor of Science (Hons) competing with each other. They are looking for a degree in Economics and Accountancy from University of qualification that sets them apart. They are going to be the Hull, United Kingdom was admitted as a member of the future leaders and the flag bearers of the profession,” he MICPA in 2002 and quickly became a Council Member in said. 2003. His view on increasing the number of students sitting Further on the future of the MICPA, Dato’ Johan is of for the MICPA examinations is an interesting one. the opinion that the Institute must move in tandem with “Everyone has a different take on this. I feel that the evolving world. MICPA should not ever want to be a mass factory churning “To remain relevant in a constantly changing world, out the majority of Accountants in Malaysia. Rather, it a constantly changing country which is part of a constantly should be the Institute of choice for those who wish to be globalising world, where great things are happening, the elite,” he opined. where climate changes are becoming a major issue, where He further stressed, “In that way, the employer will the flows of people are huge, where accounting standards always choose an MICPA over other qualifications. I am and other standards are becoming global, it is important sure there are things we can do to improve the situation to ensure that we ourselves change,” he highlighted. and attract and target the kind of students who have higher “If we as an Institute want to continue to do the same aims and abilities.” things, we will find ourselves left behind eventually. So we On the issue of students preferring other professional have to change as well. This is my point of view and I will qualifications over the MICPA because of wider continue to state my point of view to the MICPA,” he international recognition, he added that MICPA members emphasised. have no problems procuring jobs overseas. “Internationally, Dato’ Johan feels that it is time for the MICPA to step because of its high standards, the MICPA has managed to up the pace and play a stronger role, especially in transcend those apparent challenges of recognition,” said enhancing the image of the profession. He feels that MICPA Dato' Johan. members who are among the premier accountants in the He went on to stress that there are a lot of young country must play a leading role in this endeavour, to take Malaysians these days, who deliberately choose the lead and demonstrate leadership and integrity over qualifications which are more difficult. and above the call of duty.

22 | The Malaysian Accountant | June/August 2007 www.micpa.com.my He stressed that the MICPA, as an organisation TMA: If you could, is there anything you would like should take the lead in putting forth its views on important to change in your life? issues that involve the profession. “In that way, members DJR: I can’t think of anything. Okay, there is one thing. I can see, read and hear what the Institute is saying, take the think my father would have loved to see Malaysia progress lead from there and spur to greater heights.” to this stage. He pointed out that studying to be a CPA and the subsequent years of training teaches students a lot. “The TMA: To you what does it mean to be a Malaysian? exams are difficult but doable. The training exposes you to DJR: We are not a huge country so one person can make many real working issues and companies. I guess the a difference in Malaysia. We are a very agile sort of country bottom-line is that you get so much exposure. It is like the and are so diverse; that’s our strength. Certainly in best business school in Malaysia,” said the charismatic business, we argue, discuss and challenge one another and Accountant who credits his choice of profession to his we come up with better answers than if we are all of the renowned father, Mohammad Raslan Abdullah, one of the same persuasion. Diversity makes us stronger. three founding partners of Hanafiah Raslan Mohamad. TMA: How do you relax? Aside from his work, family is important to Dato’ DJR: My family is my relaxation. Johan. “I am incredibly fortunate to have such a loving and supportive wife and family,” said the 47-year-old TMA: What are your favourite food and drink? father, of two daughters and a son. DJR: Banana leaf rice and 'Nasi Kandar' and I love very good coffee.

TEN QUICK QUESTIONS TMA: Any advice to young professionals taking the Malaysian CPA examinations? TMA: What are your likes and dislikes? DJR: It’s worth it. DJR: I really like working in KL. I love it, it’s marvellous and a varied place to work. Dislikes, I can’t think of any. TMA: Do you ever see yourself retiring? DJR: Absolutely yes. TMA: What sort of music do you listen to? DJR: Very varied. I don’t normally buy CDs. I listen to the TMA: Are you into mobile gadgets? radio when driving and I have pre-programmed Light FM, DJR: I am into my mobile phone and my Blackberry but Mix FM, Hitz FM, some Malay stations, one Indian and two that’s it. I am not a technie person. But I am hooked on Chinese stations. I kind off flip them around. these two. TMA: Complete this sentence. Being a CPA….. DJR: Will set you and your family up for life.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 23 INSTITUTE NEWS

The Depu ty Minister being o escorted into th ut-going Preside e ballroom by inister Finance I nt Dato’ Abdul H r Ng Yen Yen, Deputy M in-coming alim Mohyiddin YB Dato’ D President Dato’ and t the dinner Nordin Baharud delivering her speech a din

t was that time of the year again for members to get together at the Institute’s Annual Dinner. The Annual Dinner is the most significant event in the Institute’s calendar as it marks the close of Iyet another year of activities and the beginning of a new one. It serves as an opportunity for fellowship among members of the accountancy profession as well as for fostering closer links between the profession, the business community and Government. The function, held on June 22, 2007 at Sapphire Ballroom, Mandarin Oriental Kuala Lumpur, was graced by YB Dato’ Dr Ng Yen Yen, Deputy Minister of Finance I and attended by close to 500 members and invited guests. Distinguished guests included YBhg Datuk Yusli Mohd Yusof, CEO of Bursa Malaysia Berhad, YBhg Datuk Rafiah bt Salim, Deputy Vice Dato’ Abdu Chancellor of Universiti Malaya, YBhg Dato’ Ahmad l Halim Mohyiddin m and Dato’ Nordin ingling with guests Johan Mohammad Raslan, Chairman of Financial Reporting Foundation, Presidents of several professional

24 | The Malaysian Accountant | June/August 2007 www.micpa.com.my Immedi ate Past President Dato’ Abdu nted to l Halim Mohyiddi rds were prese n g Service awa l delivering his s Lon Hariah Ismai peech Siew Ling, Cik Ms Khong ’ Abdul liyas by Dato dinner Cik Salmiah A rs at the and din l membe Halim Mohyid Counci

bodies and Deans of Universities. Also present were Past commenced employment with MICPA in 1997 and is the Presidents of the Institute. Training Assistant in the Education & Training Department. The Dinner was also the occasion for the presentation The third recipient was Cik Hariah Ismail who also commenced of Anugerah Presiden 2007 to a member of the Institute who employment with the MICPA in 1997 and is the Administrative has made exceptional contributions to society, the accountancy Assistant in the Examination Department. profession and the Institute. The recipient was YM Raja Datuk Aside from the awards ceremony, guests were treated to Arshad Raja Tun Uda. a superb performance by the sensational Donna Daniels, a The most important asset of an organisation is its world class show host, professional singer and comedienne. people. Long Service Awards were presented to three Secretariat Donna entertained the guests with a repertoire of songs and The D staff of the Institute, in recognition of their loyalty, diligence also had the crowd in stitches with her antics and jokes. Mr eputy Minister b eing escorted int out-going Pre o the ballroom b and dedicated service. The recipients were Ms Khong Siew Jonathan Sia of Deloitte Sports Club also rendered two Frank sident Dato’ Abd y in-com ul Halim Mohyid ing President Da din and Ling, who commenced employment with MICPA in 1996 Sinatra classics, one being a parody he wrote to the tune of to’ Nordin Baha ruddin and is currently the Accounts Assistant of MICPA. The Sinatra’s version of the classic anthem, New York, New York. second recipient was Cik Salmiah Aliyas who The other was an old Sinatra favourite, Strangers in the Night. All in all, it was a pleasant and enjoyable evening.

ip and good food It was a time for fellowsh

Great e ntertainmen t by Donna D aniels and h er entourage

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 25 INSTITUTE NEWS

RECIPIENT OF ANUGERAH PRESIDEN 2007

YM Raja Datuk

Arshad Rajac Tun Uda b b c

M Raja Datuk Arshad Raja Tun Uda was born on December 2, 1946. He is married to YM Tengku Datin Yusni Tengku Mohd Yusof (the girl next door during his Penang days) and theyY are blessed with 4 children. He is a member of the Selangor Royal Family and in 2005 he was made a palace official with the title “Engku Setia Lela Bestari”. His success in life can perhaps be attributed to the discipline and wisdom imparted to him by his father, who was a strict disciplinarian. His father had wanted a doctor in the family but Raja Datuk Arshad was attracted to accountancy by the sight of articled students smartly dressed in three piece suits. He then worked on convincing his father that perhaps accountancy and not medicine was the choice of a profession for him. He has had no regrets about his change of mind and has built a distinguished career spanning a period of 30 years, both in the United Kingdom and in Malaysia. He has accumulated extensive and broad experience in auditing, taxation, corporate finance and other related work covering a range of clients in the manufacturing, financial services, utilities and government sectors. Raja Datuk Arshad qualified as a Chartered Accountant in 1971 and joined Price Waterhouse in 1972. In 1974, he was asked to manage the Melaka office of Price Waterhouse and returned to Kuala Lumpur in 1976. He was admitted as a partner of the firm in 1978, where he held various positions, including being partner in charge of an audit group and staff partner of the firm. In September 1985, Raja Datuk Arshad attended the 1980 and served for 24 years until his retirement from the Advanced Management Program at the Harvard Business Council in 2004. During this time he served as a member School in Boston and became Senior Partner on his return of the Examination, Membership Affairs, Investigation and to Malaysia in January 1986. In a re-organisation of the Executive Committees of the Institute and as Chairman of firm in January 1990, he was elected Executive Chairman the Government Affairs Committee. He was elected the and held the position until his retirement in June 2005. 20th President of the Institute for three terms, from 1992 to Raja Datuk Arshad was admitted as a member of 1994 and during his tenure as President, the Institute MICPA in 1972. He was elected to the MICPA Council in achieved several milestones. In November 1992, the first

26 | The Malaysian Accountant | June/August 2007 www.micpa.com.my Acceptance Speech by YM RAJA DATUK ARSHAD RAJA TUN UDA

I would like to thank the MICPA, in particular to thank you, Mr President and your colleagues on the Council for the privilege and honour of this award and for your kind words. In listening to your remarks, I sometimes had difficulty in realising that some of the references were to me. In making it sound so good, Mr President Sir, you Raja Arshad accepting Anugerah Presiden from YB Dato’ Dr have portrayed me with all my warts removed and my Ng Yen Yen, Deputy Minister of Finance I. Looking on is Dato’ rough edges smoothed over. And the first thing I shall Abdul Halim Mohyiddin do after tonight’s dinner is to pray to God to forgive me for enjoying every minute of it. MACPA Insolvency Guidance Note, IG 1 – Minimum Of course some may say that I have been given this Standards of Practice by Insolvency Practitioners was award because the Council members of MICPA are all issued, the inaugural Excellence Awards for Best my friends. I cannot deny that they are all indeed my Accounting Graduates were presented and the Corporate friends. But I would like to stress that the most precious video, The World of a CPA was launched by the Minister of thing in this world for anyone, is the esteem of one’s Education, YB Datuk Dr Sulaiman Hj Daud. friends and for that I am truly thankful. Over the years, Raja Datuk Arshad has held a number Someone once defined a ‘derivative’ as “an instrument of public appointments and is currently a Member of the that derives value from its underlying assets”. Well, Board of Directors of Khazanah National Berhad, Member Ladies and Gentlemen, I am a living example of a of the Malaysian Communications and Multimedia derivative for whatever valuable contribution I have Commission (MCMC), having been appointed by the made has not been without the help of many talented, Minister of Energy, Communications and Multimedia, knowledgeable and experienced people working for me Malaysia. He is also a Member of the Tax Review Panel, and with me. Any of my successes and achievements established by the Ministry of Finance to review the various that have led to this award – I owe to so many people – tax legislations and to formulate the concept, legislation, from my parents, particularly my late father for the strict process and procedures for the GST and a Member of the upbringing and not only for instilling but also Capital Market Advisory Council (CMAC) established by demonstrating to me what integrity is all about, to my the Securities Commission to oversee the implementation teachers in school, to my former bosses and mentor, to of the 10 year Capital Market Master Plan. my colleagues and friends at work and in the profession His international roles include being a member of the and to all of these people from my parents, teachers, Standards Advisory Council of the International mentors, colleagues, friends and family – I would like to Accounting Standards Board (IASB), the body responsible say a big thank you and tell them that I am accepting for setting international accounting standards and a this award tonight on behalf of all of us. member of the PwC Global IFRS Board. Ours is a much respected profession and we must Apart from his active involvement in the profession, ensure that it will continue to be a much respected Raja Datuk Arshad is also involved in charity being the profession. I have always said that the profession is the Chairman of Yayasan Raja Muda Selangor. He is also an best training ground for any field that one chooses to Adjunct Professor at Universiti Utara Malaysia and was a venture into eventually. And the fact that many of our member of the Board of Trustees of the National Art Gallery members are in leadership positions, on the management from 1985 to 2003. and board of corporations spanning a wide range of Raja Datuk Arshad was conferred Panglima Jasa industries, and in other organisations both in the public Negara by His Majesty Yang di-Pertuan Agong and also and private sectors bears testimony to these statements. was conferred the Darjah Sultan Salahuddin Abdul Aziz But then with these positions come heavy responsibility Shah (DSSA) by the Sultan of Selangor. The conferment of and accountability. these honours speaks well of his outstanding public service Over the years, a number of corporate failures have contribution to the nation and the state.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 27 dented the image of the profession. Not so long ago, the financial scandals at Enron, World Com etc have not only tarnished the profession’s reputation but also provoked a rash of knee jerk reactions by the authorities particularly in the USA that have led to a more restricted working environment. As a result, the profession has found it more difficult to recruit the best and the brightest. More recently, a spate of adverse publicity on the integrity of the published financial information of some domestic corporations cannot but further erode the public confidence and trust in the profession and its members. For after all our members are everywhere – from the custodian of finance to preparers of financial information, to those in governance positions – on the boards and audit committees, as well as those vetting the financial information as auditors. It is therefore imperative that each and everyone of us as individual members of the profession as well as Raja Arshad delivering his acceptance speech those governing bodies of the professions do whatever is necessary to bring back public confidence and trust to the profession. relevant authorities if we find a member of our profession Firstly – as individuals we should not only possess has done something to bring disrepute to our profession. but be seen to possess the highest level of integrity. We And members of our profession who sit on the must also be seen to exercise the highest level of governing council of corporations and other organisations governance and ethical standards. We must not succumb and who are in a position to investigate and mete out to temptation, or be persuaded, coerced or threatened to punishment must not shirk in their responsibility by do something that will bring disrepute to ourselves and ensuring that the guilty ones are appropriately punished. the profession. A father was once overheard to have remarked “The It is not good enough to fulfill all these conditions worst thing that can happen to a youngster starting and say I have done my part. We should try to prevent school is to be caught cheating!”. other members of our profession tarnishing their own “Not at all” replied a clergyman. “The worst thing and the professions’ reputation by helping to persuade that can happen at the start of a persons’ life is to cheat or cajole those whom we believe may be treading down and NOT GET CAUGHT”. the wrong path. And if our persuasive powers do not Secondly, the governing bodies of our profession work, if we truly love our profession, we should lodge a must continue to instill the highest level of integrity, complaint with the governing body or report to the governance and ethical standards to those aspiring to be members of our profession. They must also, not only ensure that the professions’ rules and regulations are relevant and current but they must also be seen to be enforcing these rules. The public must know that appropriate action have been taken against errant members. Only then we can regain their confidence and their trust. If we truly love the profession, it is incumbent upon each and everyone of us to help restore the public confidence and trust in our profession. Mr President Sir, Thank you once again for honouring me with the Anugerah Presiden 2007. Tonight – this award, your kind words and the spirit of the presentations are all so meaningful that they will always have a special place in my memories.

Raja Arshad with family and friends Thank You.

28 | The Malaysian Accountant | June/August 2007 www.micpa.com.my INSTITUTE NEWS 49th MICPA Annual General Meeting

YBhg Dato’ Abdul Halim Mohyiddin happy to hand over the President post to YBhg Dato’ Nordin Baharuddin

he Institute’s 49th Annual General Meeting promotion of the CPA Malaysia qualification has been called to order by the President, YBhg Dato’ Abdul high on the Institute’s agenda and gathered momentum. Halim Mohyiddin, at 10:00 a.m. on June 23, With the guidance and professional advice of a brand 2007 proceeded smoothly. At the commencement consultant, one of the most obvious outputs has been the ofT the meeting, the President commented on the Institute’s Institute’s branding exercise, which is anchored by the overall financial position and provided a brief on major activities brand theme - Success, Achievement and Accomplishment during the past year. that underlies the value of membership to MICPA. The President stated that the Institute’s financial He added that the Institute has focused on improving position improved in 2006 and experienced a surplus our marketing strengths with the formation of a new compared to a deficit in 2005. Total income increased by Marketing Department in order to be more customer- 7%, which was due to the increase in income from member orientated and to raise the profile of the Institute to various and student sources resulting from the revised rates of stakeholders. The development and delivery of new and annual subscriptions and fees. Total income from other exciting outreach activities have been planned to promote activities including CPD, examination workshops and sale and attract new entrants to the CPA Malaysia programme of publications had remained approximately the same as in line with our overall brand theme. that of the previous year. He added that the Institute was The President informed members that the Secretariat able to rebuild its reserves due to a revision of the fees responded positively to the call from members at last years’ payable by members and students, which took effect from Annual General Meeting for a more coordinated approach the financial year 2006. The Council will continue to in our communications process and to be more visible and undertake fund-raising activities to increase the Institute’s proactive. Considerable emphasis has been given to financial resources in order to enable the Institute to invest improving the framework for communication between the in the key initiatives set out in the Strategic Plan. Institute and members. To create awareness on the The President stressed that education and training Institute’s activities, we have contributed regular articles to are the Institute’s core functions and has set, communicating other professional bodies’ Journals and have produced the the value of the CPA Malaysia qualification, as one of its CPA e-Newsline, a monthly electronic newsletter designed key strategies. In this regard, the enhancement and to provide members, students and the public with quick

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 29 updates on recent developments at the Institute and in the business environment. It is inspiring to note that we have received positive feedback from members on these initiatives. The President stressed that the Council is conscious that in the light of an increasingly international and competitive marketplace, there is an urgent need to build CPA Malaysia as a global brand that is equivalent to the Chartered Accountants and Certified Public Accountants designations of the more established accounting bodies in the world. The Institute continued to take proactive steps towards seeking mutual recognition arrangements with these professional bodies. The President reported that the Association of Chartered Certified Accountants (ACCA) has completed an independent review of the CPA Malaysia qualification. MICPA and ACCA have finalised in working out a Mutual Recognition Agreement (MRA) to set out the terms and basis upon which recognition for membership of qualified members of each body may occur. Under the MRA, members of MICPA will be eligible to be admitted to ACCA membership either: • on achieving 5 years’ relevant post qualification professional experience and satisfactorily completing A member seeking clarification either the ACCA online Professional Ethics Module (which is non-examination based) or the ACCA Critical Incident Questionnaire; or decline in new student intake of 51% due to increase • Passing ACCA’s Paper P1, The Professional Accountant. competition from foreign accountancy bodies. After taking into account, students who were excluded from the register The MRA will be signed in a few weeks. The success of of students for non-payment of annual fees, students who the endeavour should provide an opportunity for young terminated their registration and students who were Malaysian CPAs to attain an internationally recognised admitted as members or provisional members, a net qualification and will further increase the career mobility decrease of 8% in student population was recorded of Malaysian accountants across borders and enhance the compared to 2005. Presently, the Institute has a total opportunities of exporting professional services. number of 759 registered students. The President informed members that the Institute At the Extraordinary General Meeting held last year, registered a total of 147 new students comprising members had passed the resolution to pave the way for the predominantly graduates with accounting degrees. As admission of a new class of members who shall be entitled compared to previous year, there had been a significant to use the designation Certified Financial Accountant (CFiA). The Institute will promote the CFiA qualification to graduates undertaking the Bachelor of Accountancy degree with the aim to expand and strengthen our membership base. The Education and Training Committee is in the process of finalising the syllabus and study materials for the CFiA Professional Competence Programme before the programme is officially launched in August 2007. The Institute had undertaken a review of the Advanced Stage Examination (ASE). The ASE has been restructured into four modules from the earlier three modules. Module D, which covers accounting, financial reporting and auditing has been split into two separate modules as the syllabus has become increasingly challenging resulting from the changes in international accounting and auditing standards. The new Module D focuses on advanced topics in accounting and financial The AGM session in progress reporting whilst the new Module E focuses on competence

30 | The Malaysian Accountant | June/August 2007 www.micpa.com.my requirements for audit professionals, covering the advanced aspects and issues relating to auditing and other assurance engagements, the legal and professional environment, and assessment and advice on corporate governance and business controls. The new examination structure took effect from the November 2006 examination. The Institute continued to deliver Continuing Professional Development Programmes throughout the year to help members keep abreast of current developments and to build on their knowledge, skills and experience. The Council has also approved the issuance of the Statement on Continuing Professional Development that prescribes the Continuing Professional Development (CPD) requirements with which members should comply for CPD reporting Council member putting forth his views periods beginning on or after January 1, 2007. The President highlighted that the profession’s success rests on its reputation for integrity, competence and International Auditing and Assurance Standards Board objectivity. The Institute requires that members adhere to (IAASB) of IFAC. the Code of Professional Conduct and Ethics to ensure that In the area of international co-operation, the Institute members uphold these professional values in all their work. certainly welcomes the exchange of information between The Institute has revamped the Code to be in line with the fellow accountancy bodies to strengthen professional revised Code of Ethics for Professional Accountants recently relationship and understanding of the current issued by IFAC. The revised Code emphasises that auditors developments in the accountancy profession and business need to be constantly vigilant to identify threats to environment in the various countries. A delegation visit independence and apply appropriate safeguards to from the Institute of Cost & Works Accountants of India eliminate such threats. The Code also provides in-depth was made to the Institute during the year, which certainly guidance for members in business. The revised Code has served to strengthen the friendship between the two been approved by the Council, which will soon be issued as accountancy bodies and open up further opportunities for an exposure draft for consultation. close co-operation on professional activities where there In recognition of the increasingly global nature of the may be mutual benefit for members. accountancy profession, the Institute seeks opportunities to In conclusion, the president thanked all members participate and contribute to the international accounting who have contributed their time, energy and expertise to organisations. The Institute’s involvement is focused on the Institute’s work. He also expressed his gratitude to the areas that are most relevant to the Malaysian environment. Council members for the full support and cooperation The Institute participates actively in the work of IFAC. rendered to him during his tenure as President for the past Currently, two of our Council members are serving on the 3 terms. He also called on the younger members to IFAC Board. We also maintain an active involvement in the participate actively in the Institute’s activities.

A group of attentive members at the AGM

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 31 INSTITUTE NEWS Extraordinary General Meeting

n extraordinary general meeting of the Institute was held immediately after the AGM to consider, and if thought fit, pass the resolutions to the proposed fee payable on admission as a CertifiedA Financial Accountant (CFiA) member and annual subscription payable by each CFiA member.

The Proposed Subscriptions and Fees

The Certified Financial Accountants (CFiA) qualification is intended as an alternative professional qualification for persons who wish to build a career in commerce, industry or the public sector. Those who wish to engage in public practice will be encouraged to pursue the Certified Public benefit of members and students, the Council has Accountants (CPA) qualification. undertaken a number of initiatives to enhance the value The CFiA qualification is targeted mainly at and recognition of the CPA and CFiA qualifications. The graduates of the Bachelor of Accountancy degree by assisting major initiatives are: these graduates to achieve a professional qualification that • The Institute will continue to embark on a more meets the requirements of the International Education aggressive marketing strategy to position the CPA & Standards for Professional Accountants. It is crucial that in CFiA as the designated choice. New marketing the face of increasing globalisation and cross-border trade collaterals including publicity leaflets, corporate in professional services, the qualification of Malaysian brochure, posters and display panels have been professional accountants meet the global benchmarks set produced for use in career fairs and exhibitions. by the International Federation of Accountants (IFAC). • The Institute continued in its effort to seek mutual The Council believes that one of the key challenges recognition of the CPA qualification with overseas facing the Institute is its ability to ensure continued professional accountancy bodies. This initiative will membership growth and strongly feels that the further enhance the career mobility of Malaysian introduction of the CFiA qualification will help to expand CPAs across borders and enhance opportunities of and strengthen the Institute’s membership base. exporting professional services. Apart from providing a range of core services for the • The Institute will need to invest in the development of the CFiA Professional Competency Programme. New syllabus, assessment process and study materials will be developed for the programme.

The above initiatives involve substantial costs. In order to meet these costs, the Council has proposed the annual subscriptions and fees payable by CFiA members, which were tabled for members’ consideration at this meeting.

Resolutions

The resolutions proposed by the Council were passed Passing of resolutions by members.

32 | The Malaysian Accountant | June/August 2007 www.micpa.com.my The MICPA Council - 2007/2008

Dato' Nordin Baharuddin (President) Mohamed Raslan Abdul Rahman Dato' Ahmad Johan Mohammad Raslan Ng Kim Tuck (Vice-President) Ken Pushpanathan Dato' Abdul Halim Mohyiddin Ng Mi Li (Miss) (Immediate Past President) Poon Yew Hoe Abdul Halim Md Lassim See Huey Beng Abdul Jabbar Abdul Majid Seow Yoo Lin Ahmad Mustapha Ghazali Sam Soh Siong Hoon Beh Tok Koay Sukanta K Dutt Datin Hajjah Fadzilah bt Saad Tan Chin Hock Goh Lee Hwa (Miss) Tan Ghee Kiat Peter Lim Thiam Kee Dr Veerinderjeet Singh Lee Tuck Heng Venkatramanan Viswanathan Lim Tian Huat Dato' Yeo How Loh Lay Choon (Miss) Robert Tan Bun Poe Dato' Hj Maidin Syed Ali Datuk Robert Yong Kuen Loke

Chairman of Committees - 2007/2008

Executive Dato' Nordin Baharuddin Accounting & Auditing Technical Committee Sukanta Dutt Alt Chairman: Ng Kim Tuck Administrative & Financial Affairs Dato' Ahmad Johan Mohammad Raslan Commerce & Industry Dato' Yeo How Disciplinary Ahmad Mustapha Ghazali Alt Chairman: Abdul Jabbar Abdul Majid Education & Training Dato' Abdul Halim Mohyiddin Examination Abdul Jabbar Abdul Majid Alt Chairman: Beh Tok Koay Financial Statements Review Ken Pushpanathan Government Affairs Dato' Ahmad Johan bin Mohammad Raslan Insolvency Practice Lim Tian Huat Investigation See Huey Beng Alt Chairman: Datin Hj Fadzilah Saad Membership Affairs Tan Ghee Kiat Public Affairs Datuk Robert Yong Kuen Loke Public Practice Committee Sam Soh Siong Hoon Tax Practice Committee Beh Tok Koay

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 33 INSTITUTE NEWS

Acknowledgements

The Malaysian Institute of Certified Public Accountants wishes to express its heartfelt thanks to the following organisations and firms for supporting the Institute’s 49th Annual Dinner.

Diamond Supporters Berjaya Land Berhad Berjaya Sports Toto AM Investment Bank Group Bursa Malaysia Berhad Ernst & Young CIMB Bank Inter-Pacific Securities Sdn Bhd DRB-HICOM Berhad KPMG Folks DFK KUB Malaysia Berhad Heitech Padu Bhd RCE Capital Berhad Horwath – KL Office UEM World Berhad Petronas Projek Lebuhraya Utara Selatan (PLUS) Bhd Gold Supporters Public Bank Berhad Russell Bedford LC & Co DKC Tax Services Sdn Bhd Sime Darby Berhad Ernst & Young Telekom Malaysia Berhad HLB Ler Lum IOI Corporation Bhd PricewaterhouseCoopers Supporters Deloitte KassimChan Monica Wong Mee Mee (Ms) Ng Lee & Partners Silver Supporters Ng Mi Li (Ms) SC Tong & Co Azman, Wong, Salleh & Co BDO Binder

MEMBERSHIP UPDATE MICPA WELCOMES NEW MEMBERS

ADMISSION TO MEMBERSHIP IN JUNE 2007 CESSATION OF PRACTICE 1. Chan Su Lin (Ms) 1. Choo Choon Beng wef April 2007 at Choo & Associates 2. Fong Yee Yee (Ms) COMMENCEMENT OF PRACTICE 3. Heap Wei Guan 1. Chan Hooi Lam wef June 2007 at Ernst & Young 4. Lee Yang Seng 2. Chin Shoon Chong wef June 2007 at KPMG 5. Nurlina bte Mohd Yusai (Cik) 3. Kwong Hoi Meng wef April 2007 at Leslie Yap & Co 6. Suzana bte Mokhtar (Cik) 4. Lee Kok Wai wef June 2007 at Horwath - KL Office ADMISSION AS PROVISIONAL MEMBER IN JUNE 2007 5. Phuah Lai Hock wef April 2007 at Deloitte 1. Chan Chooi Han (Ms) KassimChan 2. Chong Lee Chuin (Ms) 6. Thayaparan A/L S.Sangarapillai wef April 2007 at PricewaterhouseCoopers 3. Tong Sheau Shan (Ms)

The following members have been excluded from the register of members for non-payment of annual subscription/ practising certificate fee:

Name Membership No 1. Ismail b. Hj Kamat Haji 732 2. Tan Boh Seng 1711 3. Tan Mei Ping, Wendy 3517

34 | The Malaysian Accountant | June/August 2007 www.micpa.com.my MAY 2007 EXAMINATION RESULTS CPA STUDENTS Performance in Individual Subjects

PART SUBJECT PASSED FAILED % %

Professional Stage Module A Examination Financial Accounting & Taxation 100.0 0.0

Module B Financial Reporting 100.0 0.0 Auditing & Assurance 100.0 0.0 Business Finance & Management 100.0 0.0

Advanced Stage Module C Examination Advanced Taxation 75.9 24.1

Module D Advanced Financial Reporting 33.3 66.7

Module E Advanced Auditing & Assurance 87.5 12.5

Module F Advanced Business Management 87.5 12.5 & Integrative Case Study

Winners of Subject Prizes

Advanced Taxation KHOR SEW LIN, SERENE (Miss) (2057) (Shamsir Jasani Grant Thornton Gold Medal)

Advanced Auditing & Assurance TAN HOE POO (2185) (Ernst & Young Gold Medal)

Advanced Business Management and CHEW LAY YEN (Miss) (2026) Integrative Case Study (Tan Sri Dato’ Jaffar bin Hussein Gold Medal)

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 35 INSTITUTE NEWS

TIME TABLE NOVEMBER 2007 EXAMINATION Professional Stage Examination

DATE MORNING AFTERNOON (9:00 a.m. – 12:00 noon) (2:00 p.m. – 5:00 p.m.)

Monday (November 26) Financial Accounting and Taxation Financial Reporting

Tuesday (November 27) Business and Company Law Auditing and Assurance

Wednesday (November 28) Management Information and Control Business Finance & Management

Advanced Stage Examination

DATE TIME EXAMINATION PAPER

Monday (November 26) 9:00 a.m. – 12:00 noon Advanced Taxation

Tuesday (November 27) 9:00 a.m. – 12:30 p.m. Advanced Financial Reporting

Wednesday (November 28) 9:00 a.m. – 12:30 p.m. Advanced Auditing & Assurance

Thursday (November 29) Advanced Business Management & Integrative Case Study 9:30 a.m. – 11:30 a.m. Part A - Integrative Case Study [8:45 a.m. – 9:30 a.m. (Reading Time)]

12:30 p.m. – 2:30 p.m. Part B - Advanced Business Management

Admitting Examination Bye-Law 34(1)(f) [formerly bye-law 33(d)] Examination Candidates

DATE TIME EXAMINATION PAPER

Monday (November 26) 9:00 a.m. – 12:00 noon Malaysian Taxation

Tuesday (November 27) 9:00 a.m. – 12:00 noon Regulatory & Financial Reporting Framework of Malaysia

36 | The Malaysian Accountant | June/August 2007 www.micpa.com.my CPA STUDENTS MAY 2007 EXAMINATION RESULTS List of Successful Candidates

The President and Council of The Malaysian Institute of Certified Public Accountants congratulate successful candidates in the May 2007 Examination.

The following candidates passed Module C to the TAN LAY CHENG (MISS) Goh Ewe Gim, Gloria/Stream I satisfaction of the Examination Committee: TAN SZE MEI (MISS) Ooi Lip Aun, Eric/Stream I TEH JU CHING (MISS) Datuk Tan Kim Leong/Stream I CANDIDATE PRINCIPAL/STREAM WAN ABDUL WAHID B WAN LOKMAN Abdullah Abu Samah/Stream I AHLAM NABIHAH BINTI MOHD SAFIE (CIK) Shirley Goh/Stream I YEAP KOH SIN (MISS) Lee Tuck Heng/Stream I ANIS NADIA BINTI CHE MUSTAFAR (CIK) Teoh Soo Hock/Stream I ZAHRATUL NADWA BINTI DAWA @ DEWA (CIK) Hew Lee Lam Sang/Stream I AZRIE HAFIZ BIN AZMI Lim Hun Soon, David/Stream I ZEID BIN ABDUL RAZAK Yap Seng Chong/Stream I CHONG SEET FEI Lee Tuck Heng/Stream I CHOOI FOONG HAR (MISS) Khaw Hock Hoe, Alex/Stream I EMIEZA BINTI ZAKARIA (CIK) Ng Kim Lian/Stream I The following candidates passed Module E to the GOH CHEE YONG Siew Chin Kiang/Stream I satisfaction of the Examination Committee: JEGANMOGAN S/O KUPPUSAMY Lee Tuck Heng/Stream I

KHOR SEW LIN, SERENE (MISS) George Koshy/Stream I CANDIDATE PRINCIPAL/STREAM LAUN WAI TING (MISS) Johan Idris/Stream I AZLYNN ARDILLA MINHA JULABIDIN BIN ISMAIL Seow Yoo Lin/Stream I BT AZIZ AL-RAHIM (CIK) Nik Rahmat Kamarulzaman/Stream I MOHAMMAD RAZMAN B AHAMAD Abdullah Abu Samah/Stream I CHAN JUI CHINN (MISS) Lim Saw Keng/Stream I MOHD FAIZAL BIN MAT NAYAN Goh Ewe Gim, Gloria/Stream I CHONG LI LIAN, KIMBERLY (MS) Lee Yoke Khai, Gary/Stream I MOHD IZAM BIN MISPARDI Siew Chin Kiang/Stream I CHONG WEI YEE (MISS) Choong Mei Ling/Stream I MOHD NAZRIN BIN MD HANIF Teoh Soo Hock/Stream I ENDRAN BIN FADZIL Ooi Lip Aun, Eric/Stream I NUR AMALIA BINTI RAMALI (CIK) Goh Ewe Gim, Gloria/Stream I ENG YING HUI (MISS) Lee Yoke Khai, Gary/Stream I NURSHAHRINI BINTI SHARKAWI (CIK) Lee Yoke Khai, Gary/Stream I FAM MENG FEN (MISS) George Koshy/Stream I ONG YUN LING (MISS) George Koshy/Stream I FAZURA NUR BINTI JAAFAR (CIK) Sivadasan s/o Narayana Nair/Stream I SIAH WEE SEE (CIK) Teoh Soo Hock/Stream I FOO AII CHUAN (MISS) Tan Soo Yan/Stream I TAN BEE HWA (MISS) Chan Kam Chiew/Stream I KOO KHAI PING Lim Foo Chew/Stream I WAN NURSYARIDAH BINTI WAN JAAFAR (CIK) Choong Mei Ling/Stream I LEE LIAN SIM (MISS) Shirley Goh/Stream I YAP Y'NG SZE, MELONY (MISS) Johan Idris/Stream I LEE YEH YONG (MISS) Datuk Tan Kim Leong/Stream I LEONG LAI PENG (MISS) Ho Yuet Mee/Stream I The following candidates passed Module D to the LIM CHUN HENG Foong Mun Kong/Stream I satisfaction of the Examination Committee: LIM SIN YEE @ GRACE LIM Ooi Lip Aun, Eric/Stream I LIM WEI KUAN (MISS) Ooi Lip Aun, Eric/Stream I CANDIDATE PRINCIPAL/STREAM LOH WAI LI, LAUREEN (MISS) Shirley Goh/Stream I ANG PHOOI LENG (MISS) Tan Soo Yan/Stream I LYE KAR YEE (MISS) Datuk Tan Kim Leong/Stream I CH'NG BEE PENG Lee Yoke Khai, Gary/Stream I MOHD NAWAR BIN HASHIM Hew Lee Lam Sang/Stream I CHE WAN INTAN MAISARAH BT JAMALUDDIN Seow Yoo Lin/Stream I MOHD NAZREEN FUZI ELHAM BINTI MOHD NAZER (CIK) Stream II (S) B MOHD NAZZARUDDIN Oong Kee Leong, Stephen/Stream I INTAN IZANI BINTI IDRIS (CIK) Stream II (S) NG HENG CHEE (MISS) Uthaya Kumar a/l Vivekananda/Stream I LEE HOOI KUN (MISS) Stream II NG WAI SAN Lim Saw Keng/Stream I LEE YIH HONG Lee Yoke Khai, Gary/Stream I NIK AZAH KARIMAH BINTI NIK MUSTAFA (CIK) Shirley Goh/Stream I LIEW SUI FUN (MISS) Shirley Goh/Stream I NOR NADIAH BINTI MOHD ANUAR (CIK) Yeo Eng Seng/Stream I MOHD RUSDI BIN ABDUL MANAB Lim Saw Keng/Stream I SALINA BTE SAID (CIK) Ng Eng Kiat/Stream I NIK HASLINA BINTI NIK MAN (CIK) Stream II (S) SOON POH LEE (MISS) Datuk Tan Kim Leong/Stream I NISHA NOR BINTI NOOR HASAN (CIK) Stream II (S) TAN GIM HOO Shirley Goh/Stream I NOOR FARAHUDA BINTI MOHD ROBANI (CIK) Stream II (S) TAN HOE POO Lee Yoke Khai, Gary/Stream I NORAIHAN BINTI MOHID (CIK) Stream II (S) TAN RUEN YING (MISS) Goh Ewe Gim, Gloria/Stream I NORHAIDA BINTI YAHAYA (CIK) Stream II (S) TAN SU LIN (MISS) Tan Soo Yan/Stream I NORHANI AZURA BINTI MOHD ZAMRI (CIK) Ho Yuet Mee/Stream I TEE TECK LIAN (MISS) Datuk Tan Kim Leong/Stream I NORSUZIYANA BINTI KUTERI (CIK) Stream II (S) TIOW WEI SHENG Stream II PHANG SOON YEOW Shirley Goh/Stream I YAP CHEANG YAM Tan Soo Yan/Stream I SITI FAIZAH BINTI JAMALUDDIN Stream II (S) YAP WEE THEN (MISS) Datuk Tan Kim Leong/Stream I SUZIELA BINTI ABU YAMIN (CIK) Stream II (S) YONG YVONNE (MISS) Lee Tuck Heng/Stream I

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 37 The following candidates passed Module F to the The following candidate completed the Professional satisfaction of the Examination Committee: Stage Examination to the satisfaction of the Examination Committee: CANDIDATE PRINCIPAL/STREAM CANDIDATE PRINCIPAL/STREAM CHEA SEE KHEE (MISS) Datuk Tan Kim Leong/Stream I HAFIZAH BINTI ABU BAKAR (CIK) Johan Idris/Stream I CHEONG AI LING (MISS) Lee Tuck Heng/Stream I CHEW LAY YEN (MISS) Lee Tuck Heng/Stream I The following candidates completed the Advanced CHONG MOY LAN (MISS) Poon Yew Hoe/Stream I Stage Examination to the satisfaction of the HARLINA BINTI MANSOR (CIK) Nik Rahmat Kamarulzaman/Stream I Examination Committee: LEE SIOK KUEN (MISS) Choong Mei Ling/Stream I CANDIDATE PRINCIPAL/STREAM LEE SOO YINN (MISS) Tan Soo Yan/Stream I CHEA SEE KHEE (MISS) Datuk Tan Kim Leong/Stream I LIM CHEN HWEE (MISS) Datuk Tan Kim Leong/Stream I CHEONG AI LING (MISS) Lee Tuck Heng/Stream I LIM CHU GUAN Ooi Lip Aun, Eric/Stream I CHEW LAY YEN (MISS) Lee Tuck Heng/Stream I LOUISA HANIM BINTI AMIR (CIK) Shirley Goh/Stream I CHONG MOY LAN (MISS) Poon Yew Hoe/Stream I LUI LEE PING (MISS) Datuk Narendra Kumar Jasani/Stream I HARLINA BINTI MANSOR (CIK) Nik Rahmat Kamarulzaman/Stream I MOHAMAD JAMALI BIN HARON Seow Yoo Lin/Stream I LEE SIOK KUEN (MISS) Choong Mei Ling/Stream I MOHD FAIZAL BIN MOHD FADILLAH Lee Yoke Khai, Gary/Stream I LEE SOO YINN (MISS) Tan Soo Yan/Stream I MUNI AZUIN BT AZMI (CIK) Ooi Lip Aun, Eric/Stream I LIM CHEN HWEE (MISS) Datuk Tan Kim Leong/Stream I ONG SOON BEE Lee Yoke Khai, Gary/Stream I LIM CHU GUAN Ooi Lip Aun, Eric/Stream I SHAHIDA HANNANI BINTI ABDUR RAFAR (CIK) Habibah Abdul/Stream I LOUISA HANIM BINTI AMIR (CIK) Shirley Goh/Stream I TAN CHEW MING (MISS) Hew Lee Lam Sang/Stream I LUI LEE PING (MISS) Datuk Narendra Kumar Jasani/Stream I The following candidate passed Module A to the MOHAMAD JAMALI BIN HARON Seow Yoo Lin/Stream I satisfaction of the Examination Committee: MOHD FAIZAL BIN MOHD FADILLAH Lee Yoke Khai, Gary/Stream I MUNI AZUIN BT AZMI (CIK) Ooi Lip Aun, Eric/Stream I CANDIDATE PRINCIPAL/STREAM ONG SOON BEE Lee Yoke Khai, Gary/Stream I FARAH WAHIDDA BINTI ZULKEFFLI (CIK) Khaw Hock Hoe, Alex/Stream I SHAHIDA HANNANI BINTI ABDUR RAFAR (CIK) Habibah Abdul/Stream I TAN CHEW MING (MISS) Hew Lee Lam Sang/Stream I The following candidate passed Module B to the satisfaction of the Examination Committee: The following candidates passed Malaysian Taxation to the satisfaction of the Examination Committee: CANDIDATE PRINCIPAL/STREAM HAFIZAH BINTI ABU BAKAR (CIK) Johan Idris/Stream I CANDIDATE AFFENDI BIN RASHDI KHONG SIONG SIE MUHAMMAD ARZIM BIN NAIM TENG KING HUEI MICPA Practising Certificate

The Membership Affairs Committee of the Institute in considering applications for practising certificates, has frequently come across cases where a member has commenced public practice before he is issued with a practising certificate by the Institute.

The Committee would like to remind members that in accordance with bye-law 56 of the Institute’s bye-laws, a member shall be entitled to engage in public practice in Malaysia only if he holds a practising certificate issued by the Institute.

If members need clarification on the above, kindly contact the Institute’s Membership Services Department:

Cik Adzlyn / Cik Ruhaizah The Malaysian Institute of Certified Public Accountants No.15 Jalan Medan Tuanku, 50300 Kuala Lumpur. Tel: 03-2698 9622 Fax: 03-2698 9403 E-mail: [email protected]

38 | The Malaysian Accountant | June/August 2007 www.micpa.com.my INSTITUTE NEWS

11th MICPA ACCOUNTANCY WEEK

he 11th MICPA Accountancy Week with the interaction amongst participants from all over the country. theme AAA – Accountants Are Assets was held The events are a best tool to build self-confidence amongst from August 4-11, 2007. Launched in 1986, the participants. It also helps the students utilise their time the Accountancy Week forms part of the in healthy activities as it challenges the youths, both Institute’sT programme to promote accountancy as a career physically and mentally. and the primacy of the CPA qualification. It also provides The week-long events culminated in the final round an opportunity for accountancy students from all over the of the AccQuiz and Accounting Students Quiz, the Sports country to meet, interact and establish closer relationship. and Games competition and finally, the prize presentation This year’s Accountancy Week was held to ceremony on Saturday, August 11, 2007. The prize commemorate the International Federation of Accountants presentation ceremony was officiated by YBhg Dato’ (IFAC) 30th Anniversary celebrations which will culminate Nordin Baharuddin, President of the MICPA and YBhg

with the World Accountancy Week, to be held from Datuk Robert Yong Kuen Loke, December 2 – 8, 2007. The MICPA is one of the founding Chairman of the Public Affairs Committee of MICPA. members of IFAC. The MICPA would also like to record its appreciation A wide range of activities were carried out during the to all sponsors for their generous contributions and for week which included: making the 11th MICPA Accountancy Week a huge success. • Accounting Quiz (AccQuiz) for secondary schools. We would also like to thank all judges for their “true and The preliminary round of AccQuiz was held in Kuala fair” work and to all the participants, thank you for taking Lumpur and Penang; part in the Accountancy Week events. We hope to see you • Accounting Students Quiz and Management Simulation again in 2009. Game for accounting students at universities and colleges of higher education; • Career Counselling Sessions; and • Sports and Games Competition including badminton, basketball, bowling, soccer, squash, table-tennis, tug- of-war and telematch.

The Sports and Games Competition was organised by the Accounting Club of Universiti Malaya while the Management Simulation Game was organised by the Accounting Club of Universiti Kebangsaan Malaysia. They were the people who worked really hard and MICPA would like to commend them on their initiatives to ensure the success of the events. It is MICPA’s aim to organise the Accountancy Week events in a relaxed atmosphere whilst at the same time to maintain competitiveness, sportsmanship and foster closer

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 39 AccQuiz for Secondary Schools Management Simulation Game (Prizes sponsored by Sime Darby Berhad) (Prizes sponsored by IOI Corporation Bhd)

Champion SMK Taman Bukit Maluri Champion Universiti Malaya - Lim Li Jin Team - Lee Hin Weng - Mok Fan Wai - Lee Wai Yee - Ravind Muniandy - Ng Lai Jyn - Chong Sit Moi 1st Runner Up SMK Methodist (ACS) Klang - Lee Ya Chin 1st Runner Up Tunku Abdul Rahman College - Ng Su Yun Team - Quah Jun Loong - Tan Li Peng - Leow Yun Wan - Ng Wan Ling 2nd Runner Up SMK (L) Methodist Pulau Pinang - Tang Khai Shing - Gan Zhi Xiong - Khoo Kean Pin 2nd Runner Up Universiti Malaya - Lim Yik Fong Team - Wong Kah Hooi - Lee Yik Howe Individual Highest Score (Preliminary Round) - Tham Siew Ping - Yap Wei Leong Lim Li Jin, SMK Taman Bukit Maluri Debate Accounting Students Quiz (Prizes sponsored by MICPA) (Prizes sponsored by KPMG) Champion Universiti Tunku Abdul Rahman Champion Universiti Utara Malaysia Team - Lim Hsien Hui - Thiruventhiran Narayanasamy - Loo Huai Cheng - Chee Ling Wei - Loh Wan Ying - Yeap Bee Har Runner Up Universiti Tunku Abdul Rahman 1st Runner Up Universiti Malaya Team - Chew Hui Li - Cheow See Kiang - Fan Weiqi - Tan Chun Hun - Ng Kiat Hwa - Goh Sin Pei Best Speaker Chew Hui Li, UTAR 2nd Runner Up Tunku Abdul Rahman College - Chia Yee Choon Badminton - Stephanie Wong Meng Meng (Prizes sponsored by Sekhar & Tan) - Tee Hooi Yee Champion Tunku Abdul Rahman College Individual Highest Score (Preliminary Round) - Lai Yon Shih Thiruventhiran Narayasamy, Universiti Utara Malaysia - Yeoh Ya Qi

Runner Up Tunku Abdul Rahman College - Aaron Loh Ka Boon - Sem Seou Ling

40 | The Malaysian Accountant | June/August 2007 www.micpa.com.my Basketball Table-Tennis (Men’s Singles) (Prizes sponsored by Berjaya Sports Toto Berhad) (Prizes sponsored by Deloitte KassimChan)

Champion Universiti Malaya Champion Tunku Abdul Rahman College Team - Chaw Poh Guan - Lee Wai Kit - Lau Char Lok - Ng Weng Sum Runner Up Universiti Malaya - Tan Chee Kean - Chew Boon Leong

Runner Up Tunku Abdul Rahman College Table-Tennis (Ladies Singles) Team - Koy Han Lian (Prizes sponsored by Deloitte KassimChan) - Soh Khay Wah - Yong Chen Chuan Champion Universiti Malaya - Lee Yoke Pack Bowling (Prizes sponsored by BDO Binder) Runner Up Universiti Malaya - Ong Chieo Ti Champion Universiti Putra Malaysia Team - Muhammad Hafizuddin Halim Tele Match - Mohd Lutfi bin Ahmad Hajazi (Prizes sponsored by Azman Wong Salleh & Co) - Asmairi bin Mohamed - Nurul Amalina Che Hashim Champion Universiti Malaya - Norhuda bt Sakiman Team - Yong Kin Siong - Goh Huay Zhen Runner Up Universiti Tenaga National - Lee Pei Hwa Team - Mohamad Haffiz b Yusuf @ Yusof - Teng Lai Yee - Afiq Luthfullah bin Ibrahim - Wong Pooi San - Emmy Farina bt Malek - Mohd Muzamil b Azmi Runner Up Universiti Kebangsaan Malaysia - Sarah Shahida bt Awang Team - Mohd Firdaus Md Saed - Mohd Syairazi Razali Soccer - Muhaszlin Mohamed (Prizes sponsored by Ernst & Young) - Munirah Abdul Razak - Nur Dalila Jamaludin Champion Universiti Tenaga National Team - Aifaa Zaffan Bagauddin b Abdul Aziz Tug of War - Abdul Samad b Mohd Zin (Prizes sponsored by PricewaterhouseCoopers) - Ahmad Rusydi b Mohd Yusof - Mohd Faiz b Mohd Azmi Champion Universiti Tenaga National - Mohd Farrisalyusriman Team - Muhammad Azri Zakaria b Mohd Othman - Ahmad Hitzi Azni - Muhammad Nafeez b Mohd Najeeb - Amir Muhd Firdaus Shafie - Muhammad Roni b Risman - Fadzliy Ridzwan Mohd Hilmi - Goh Seng Thai Runner Up Universiti Malaya - H’ng Hock Seng Team - Mohd Hazwan Mohd Azani - Mohd Hilmi Izwan b Mohd Najib - Joepeter Tukau - Mohd Syazwan Kamarulzaman - Mohd Daniel Zainol Abidin - Muhammad Alauddin Faisal - Mohd Ikram Yahaya - Saiful Asyraf b Kamaludin - Mohd Zhafir Hilman Hassin - Suharto Yusuf Runner Up Tunku Abdul Rahman College - Wan Zulhairi Wan Zulkifli Team - Ang Yik Siang - Chang Ngee Chuang Squash (Men’s Singles) - Chong Nyiorp Linng Tommy (Prizes sponsored by IOI Corporation Bhd) - Goh Seng Thai - Kon Tak Pow Champion Universiti Tenaga National - Lim Toh Prince - Joshua Sam - Looi Mun Wah - Lua Jin Yuek Runner Up MICPA Member - Nah Kien Fu - Ching Hoy Seng - Tham Wen Hsiang Squash (Ladies Single) (Prizes sponsored by IOI Corporation Bhd)

Champion MICPA Members - Yap Siew Yen

Runner Up Universiti Tenaga National - Hafizah bt Jamaludin

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 41 INSTITUTE NEWS

ACCA-MICPA MUTUAL RECOGNITION AGREEMENT

On August 13, 2007 two leading professional accountancy bodies, the Association of Chartered Certified Accountants (ACCA) and The Malaysian Institute of Certified Public Accountants (MICPA) signed a global Mutual Recognition Agreement (MRA). The MRA has been reached on the basis of equivalence of qualifications and sound educational review of each others’ syllabus. This MRA will provide great opportunities for sharing of professional knowledge, expertise and resources, all of which will help advance the reputation of both bodies. It provides a route for qualified members of either body to become a member accountancy profession and business, the Council is conscious of the need to enhance the standing and recognition status of the CPA Malaysia qualification not only at the national level but also at the international level. Strong and meaningful international alliances are a very positive development for the profession as a whole and for the CPA Malaysia designation in particular. Both bodies share common and strong interests in the advancement of the profession of accountancy, especially in relation to the maintenance and strengthening of professional and educational standards, and the agreement provides a greater platform for collaboration and of the other body, allows both bodies to share best and to enjoy the benefits both practices in education and training. bodies can offer. For further information, please The signing adds another refer to the FAQs in the MICPA milestone in the Institute's website www.micpa.com.my or continued efforts in seeking you may call Pn Adzlyn Aladzimy, mutual recognition agreements Membership Services Officer on with premier accountancy Tel: 603-2698 9622 or E-mail: bodies. The event was witnessed [email protected] by En Othman Sahar, Deputy Accountant-General (Corporate). In recognition of the increasingly global nature of the

42 | The Malaysian Accountant | June/August 2007 www.micpa.com.my PROFESSIONAL NEWS MASB Update

MASB issues 10 revised accounting Statements. Dr Nordin explains, “The framework sets out the standards and new accounting concepts that underlie the preparation and presentation of framework financial statements for external users. It is not an FRS and does not deal with any accounting measurement or disclosure The Malaysian Accounting Standards Board on June 15, 2007 issue. The purpose of the framework is to provide support to announced the issuance of the Framework for the Preparation preparers and users of financial statements so as to enhance and Presentation of Financial Statements and 10 revised their understanding of the information presented. The Financial Reporting Standards (FRSs). The revised FRSs and purpose of the framework amongst others is to assist MASB in the framework are virtually identical to the International developing FRSs, facilitate preparers in applying FRSs and in Financial Reporting Standards (IFRSs) and IASB’s accounting dealing with topics not addressed in FRSs and help users in framework respectively and took effect from July 1, 2007. interpreting information contained in financial statements.” In a statement issued, MASB Executive Director Dr. Nordin The revised FRSs and the framework are available from Mohd Zain said, “Prior to 2005, MASB made improvements MASB website (http://www.masb.org.my) or can be purchased to certain international standards by adding explanation, in booklet form from MASB office. guidance and examples for clarity before the standards were issued for application in Malaysia. This was done to Notes: broaden the content of the standards to cover domestic and The 10 revised Financial Reporting Standards (FRSs) are: regulatory issues and to provide guidance to the local (a) FRS 107 - Cash Flow Statements constituents for topics not addressed in the IFRSs. (b) FRS 111 - Construction Contracts However, in line with the policy of convergence with (c) FRS 112 - Income Taxes IFRSs and based on experience in implementing FRSs, the (d) FRS 118 - Revenue Board decided to make FRSs issued prior to 2005 the same (e) FRS 119 - Employee Benefits as the respective IFRSs. The Board considered this to be (f) FRS 120 - Accounting for Government Grants and Disclosure of necessary in order to enjoy the full benefit of convergence.” Government Assistance The revised FRSs are Cash Flow Statements, Construction (g) FRS 126 - Accounting and Reporting by Retirement Benefit Plans Contracts, Income Taxes, Revenue, Employee Benefits, Accounting (h) FRS 129 - Financial Reporting in Hyperinflationary Economies for Government Grants and Disclosure of Government Assistance, (i) FRS 134 - Interim Financial Reporting Accounting and Reporting by Retirement Benefit Plans, Financial (j) FRS 137 - Provisions, Contingent Liabilities and Contingent Assets Reporting in Hyperinflationary Economies, Interim Financial Reporting and Provisions, Contingent Liabilities and Contingent FRS 1142004 Segment Reporting and FRS 1232004 Borrowing Costs are not Assets. The proposed revisions, contained in MASB ED 55 included in the list of amendments as the Board is in the process of reviewing Proposed Amendments to Financial Reporting Standards, were IFRS 8 Operating Segments and the revised IAS 23 Borrowing Costs, which exposed to the public for comments in March 2007. Generally, the will replace FRS 1142004 and FRS 1232004 respectively once they are finalised. revisions were removal of local guidance and editorial matters. The Board plans to issue IFRS 8 and the revised IAS 23 for public comments Prior to the finalisation of MASB ED 55, the Board held in the near future. a dialogue with preparers, accounting firms, professional FRS 1292004 Financial Reporting in Hyperinflationary Economies is accountancy bodies, regulators and other interested not included in the list of amendments as that Standard is already organisations to solicit views on whether or not the FRSs should identical to IAS 29 Financial Reporting in Hyperinflationary Economies. be revised. There was general consensus among delegates to align the 10 FRSs with IFRSs. However, the additional guidance removed should be made available to readers in Background other forms or through professional bodies. Dr. Nordin added that, “Currently, there are only two When the MASB was set up in 1997, the Board subscribed to FRSs which have not been realigned to IFRSs. This is the policy of “harmonisation with International Accounting because the Board is in the process of reviewing IFRS 8 Standards (IASs)”. Harmonisation involved using IASs as a Operating Segments and the revised IAS 23 Borrowing Costs, basis in the development of accounting standards for which will replace FRS 1142004 and FRS 1232004 once they are Malaysia. The Board would carry out detailed examination finalised. The Board plans to issue these two documents as of accounting standards and practices in other jurisdictions exposure drafts for public comments in the near future.” but recognised the IASs were the most appropriate basis for In another development, MASB has also issued the all MASB Standards. Up until December 31, 2004, all MASB Framework for the Preparation and Presentation of Financial Standards, apart from locally developed standards are

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 43 consistent in all material respect with IASs. For locally approved accounting standard; developed standards, the principles underlying the recognition, 3. assist auditors in forming an opinion as to whether measurement and disclosure requirements of those standards financial statements conform with MASB approved are consistent, with other relevant standards issued by the accounting standards; International Accounting Standards Committee (IASC). 4. assist users of financial statements in interpreting the IASC was reconstituted on April 1, 2001 with the birth information contained in financial statements prepared in of the International Accounting Standards Board (IASB), conformity with MASB approved accounting standards; and which took over the standard-setting responsibilities. The 5. provide those who are interested in the work of MASB IASB has since committed to developing, in the public with information about its approach to the formulation interest, a single set of high quality, understandable and of MASB approved accounting standards. enforceable global accounting standards that require transparent and comparable information in general purpose The Framework is not an MASB approved accounting financial statements. In addition, the IASB co-operates with standard and hence does not define standards for any particular national accounting standard-setters to achieve convergence measurement or disclosure issue. Nothing in the Framework in accounting standards around the world. overrides any specific MASB approved accounting standard. To move closer to world convergence of accounting The Framework is concerned with general purpose financial standards, the MASB recognises the need to converge with statements including consolidated financial statements. Such International Financial Reporting Standards (IFRSs). As a financial statements are prepared and presented at least first step, it has renamed MASB Standards to FRSs with effect annually and are directed toward the common information January 1, 2005. In addition to the name change, MASB also needs of a wide range of users. Some of these users may require, re-numbered the Standards to correspond to those of the IASs. and have the power to obtain, information in addition to that contained in the financial statements. Many users, however, have to rely on the financial statements as their major source Purpose of revising the 10 FRSs of financial information and such financial statements should, therefore, be prepared and presented with their Prior to 2005, the MASB made improvements to a number of needs in view. Special purpose financial reports, for example, international standards by adding explanation, guidance prospectuses and computations prepared for taxation and examples or by amending certain provisions to suit local purposes are outside the scope of the Framework. Nevertheless, circumstances. The MASB considered this to be necessary to the Framework may be applied in the preparation of such broaden the content of the Standards to cover domestic, special purpose reports where their requirements permit. regulatory or other issues as well as to provide guidance for The Framework applies to the financial statements of all the local constituents on topics not addressed in the IASs. commercial, industrial and business reporting entities as In line with the policy of convergence with IFRSs and specified in the Financial Reporting Act 1997. A reporting based on experience in implementing FRSs equivalent to IFRSs, entity is an entity for which there are users who rely on the the MASB has decided to align its accounting standards financial statements as their major source of financial issued prior to 2005 (FRSs with a subscript ‘2004’) with the information about the entity. respective IASs, both in terms of form and contents. In order For enquiries, please contact: Dr Nordin Mohd Zain, to achieve this objective, the MASB removed all the remaining Executive Director, Malaysian Accounting Standards differences between FRSs and IASs to eventually result in Board, Suites 5.01-5.03, 5th Floor, No. 338, Jalan Tuanku FRSs being virtually identical to IASs / IFRSs. Abdul Rahman, 50100 Kuala Lumpur. Tel: 03-2715 9199, The subscript ‘2004’ has been removed from the 10 Fax: 03-2715 9212, Email: [email protected] revised Standards. (Source: MASB Press Release/ June 15, 2007)

Framework for the Preparation and 2 new proposed Standards for greater Presentation of Financial Statements transparency

The Framework sets out the concepts that underlie the The MASB on July 2, 2007 released ED 56 Financial Instruments: preparation and presentation of financial statements for Disclosures (ED 56) and ED 57 Operating Segments (ED 57) external users. The purpose of the Framework is to: seeking greater transparency in ways companies manage 1. assist the MASB in the development of future MASB their resources as well as their exposure to risks arising approved accounting standards and in its review of from their involvement in financial instruments. existing MASB approved accounting standards; ED 56 and ED 57 are virtually identical with IFRS 7 2. assist preparers of financial statements in applying Financial Instruments: Disclosures (IFRS 7) and IFRS 8 MASB approved accounting standards and in dealing Operating Segments (IFRS 8) respectively. with topics that have yet to form the subject of an MASB IFRS 7 and IFRS 8 were issued by the International

44 | The Malaysian Accountant | June/August 2007 www.micpa.com.my Accounting Standard Board (IASB) in August 2005 and requirements previously in IAS 32 (whose title has been November 2006 respectively. IFRS 7 replaced IAS 30 shortened to reflect the change). The IFRS also requires Disclosures in the Financial Statements of Banks and information about the extent to which the entity is exposed Similar Financial Institutions and some requirements in to risks arising from financial instruments, and a description IAS 32 Financial Instruments: Disclosure and Presentation. of management’s objectives, policies and processes for IFRS 8 replaced IAS 14 Segment Reporting (IAS 14). managing those risks. Together, these disclosures provide MASB executive director Dr Nordin Mohd Zain says an overview of the entity’s use of financial instruments and with the proposed disclosures, investors and other users of the exposures to risks they create. financial statements will be able to make informed In developing the proposals in IFRS 7, the IASB worked judgement about the risks and returns in an entity. with an expert advisory group, the Financial Activities Financial instruments disclosures standard applies not Advisory Committee. The Committee’s members have only to financial institutions but also other entities that hold experience and expertise in banks, finance companies and financial instruments. The degree of disclosures depends on insurance companies and include auditors, preparers and how broadly the entity uses financial instruments. Amongst regulators. Their role was to provide input from the perspective others, the Standard proposes disclosure of sensitivity of preparers and auditors of financial statements of entities analysis for each type of market risks to which the entity is that have large exposures to financial instruments and to exposed and disclosures of how an entity manages risks assist the IASB in developing an IFRS and Implementation arising from financial instruments. With these disclosures, Guidance for risk disclosures arising from financial users are informed about the extent of financial risks instruments and for other related disclosures. involved in the entity’s undertakings. Simultaneously with the issuance of ED 56, there is a proposed Background of IFRS 8 limited amendment to FRS 101 Presentation of Financial IFRS 8 arises from the IASB’s comparison of International Statements dealing with capital disclosures. The capital disclosure Accounting Standard (IAS) 14 Segment Reporting with the US is important as it helps users to assess an entity’s policies standard SFAS 131 Disclosures about Segments of an Enterprise and processes for managing capital. Users will be able to assess and Related Information. IFRS 8 replaces IAS 14 and aligns the entity’s risk profile as well as entity’s ability to withstand segment reporting with the requirements of SFAS 131. unexpected adverse events and ability to pay dividends. The IFRS requires an entity to adopt the ‘management Another proposed Standard issued by MASB is on approach’ to reporting on the financial performance of its operating segments which requires management to report operating segments. Generally, the information to be how it has used its resources to manage the entity. The reported would be what management uses internally for Standard enables users of financial statements to see an evaluating segment performance and deciding how to entity through the eyes of management by requiring allocate resources to operating segments. Such information disclosure of information in the format and structure used may be different from what is used to prepare the income by management. At present the Standard requires statement and balance sheet. The IFRS therefore requires companies to disclose information based on products and explanations of the basis on which the segment services, and on geographical areas. The Standard, when information is prepared and reconciliations to the amounts finalized, is expected to reduce cost of reporting segment recognised in the income statement and balance sheet. information as it uses information that is readily available The IASB believes that adopting the management and generated for management’s use. approach will improve financial reporting. First, it allows These proposed Standards are available on MASB users of financial statements to review the operations through website at http://www.masb.org.my. the eyes of management. Secondly, because the information is already used internally by management, there are few costs Notes: for preparers and the information is available on a timely basis. Background of IFRS 7 This means that interim reporting of segment information IFRS 7 introduces new requirements to improve the can be extended beyond the current requirements. information on financial instruments that is given in As part of its deliberations leading to IFRS 8, the IASB entities’ financial statements. It replaces IAS 30 Disclosures considered comments by a coalition of over 300 non- in the Financial Statements of Banks and Similar Financial governmental organisations (NGOs) known as the Publish Institutions and some of the requirements in IAS 32 What You Pay campaign, which asked for the scope of the IFRS Financial Instruments: Disclosure and Presentation. to be extended to require additional disclosure on a country- Simultaneous to the issuance of IFRS 7, IAS 1 Presentation by-country basis. Because the IFRS was developed as a short- of Financial Statements is amended to introduce requirements term convergence project, the IASB decided that country- for disclosures about an entity’s capital. by-country disclosure should not be addressed in the IFRS. IFRS 7 requires disclosures about the significance of Instead, the matter will be raised with international bodies financial instruments for an entity’s financial position and that are engaged with similar issues. performance. These disclosures incorporate many of the (Source: www.masb.org.my)

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 45 IASB Update

IASB welcomes US SEC proposal to The Interpretation requires entities to allocate some of allow IFRSs without reconciliation the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have The International Accounting Standards Board (IASB) fulfilled their obligations. They may fulfil their obligations welcomes the decision of the US Securities and Exchange by supplying awards themselves or engaging (and paying) Commission (SEC) to propose allowing non-US companies to a third party to do so. file financial results according to International Financial The effect of the Interpretation will be to ensure that Reporting Standards (IFRSs) as approved by the IASB. obligations to supply customer loyalty awards are measured The change would permit non-US companies to access US the same way, whether the award credits are sold separately capital markets without reconciliation with US Generally or granted to customers as part of a larger sale. Accepted Accounting Principles (GAAP) by 2009. The SEC Introducing IFRIC 13, Robert Garnett, IFRIC Chairman emphasised that this proposal applies only to those and IASB member, said: “Until now, international standards companies filing financial statements according to full IFRSs. have lacked clear guidance for award credits granted ‘free’ The SEC’s decision reflects the increasing acceptance of IFRSs with other goods or services. The Interpretation will as a widely used and high quality financial reporting standardise practice in a way that reflects our view that language. It also proves the significant progress that has been loyalty awards are separate goods or services for which made in the convergence process between the IASB and the US customers are implicitly paying.” Financial Accounting Standards Board (FASB). (Source: www.iasb.org) Sir David Tweedie, IASB chairman, commented on the importance of the SEC decision: The SEC’s proposal shows its recognition of the tangible benefits of a single set of financial IFRIC publishes proposed guidance reporting standards used in the world’s integrating capital on real estate sales markets and the relevance of the continuing IASB-FASB convergence process to the economies of the US and the rest The IFRIC released for public comment a draft Interpretation, of the world. If approved, the rule will eventually reduce IFRIC D21 Real Estate Sales. The proposals were open for public significantly the barriers to capital flows between countries comment until October 5, 2007. using full IFRSs and the United States. The proposed Interpretation aims to standardise “We appreciate the SEC’s continued support of our work. accounting practice among real estate developers for sales of Our ultimate aim at the IASB is to have a single set of units, such as apartments or houses, ‘off plan’, i.e. before accounting standards used worldwide. The SEC’s proposal is construction is complete. an important step in achieving that goal, but much work At present, real estate developers interpret International remains to be done,” he said. Financial Reporting Standards (IFRSs) differently and record (Source: www.iasb.org) revenue for the sale of the units at different times. Some record revenue only when they have handed over the completed unit to the buyer, while others record revenue IFRIC UPDATE earlier, as construction progresses, by reference to the stage of completion of the development. IFRIC issues guidance on customer IFRIC D21 proposes that revenue should be recorded as loyalty programmes construction progresses only if the developer is providing construction services, rather than selling goods (completed The International Financial Reporting Interpretations real estate units). It proposes features that indicate that the Committee (IFRIC)* issued an Interpretation, IFRIC 13 seller is providing construction services. In many countries, Customer Loyalty Programmes. these features tend currently not to be present, in typical off The Interpretation addresses accounting by entities that plan sale agreements. grant loyalty award credits (such as ‘points’ or travel miles) IFRIC D21 Real Estate Sales is available for eIFRS to customers who buy other goods or services. Specifically, it subscribers from today and will be freely available on the explains how such entities should account for their IASB Website. obligations to provide free or discounted goods or services (Source: www.iasb.org) (‘awards’) to customers who redeem award credits.

46 | The Malaysian Accountant | June/August 2007 www.micpa.com.my IFRIC issues interpretation on IAS accounting when translating a functional currency into a 19—Defined Benefit Assets and presentation currency. The IFRIC concluded that the hedged Minimum Funding Requirements risk is the foreign currency exposure arising between the functional currency of the foreign operation and the functional The IFRIC issued an Interpretation, IFRIC 14 IAS 19 -The currency of any parent entity within the group structure. Limit on a Defined Benefit Asset, Minimum Funding Clarification was needed on whether a company could account Requirements and their Interaction. for a hedged foreign currency risk only in the immediate IFRIC 14 provides general guidance on how to assess the parent entity, only in the main parent entity, or in those or limit in IAS 19 Employee Benefits on the amount of the any intermediate parent entity of the foreign subsidiary. surplus that can be recognised as an asset. It also explains IFRIC D22 also considers which individual entity within how the pensions’ asset or liability may be affected when a group structure can hold a hedging instrument. The IFRIC there is a statutory or contractual minimum funding proposes that the hedging instrument can be held by any requirement. The Interpretation will standardise practice subsidiary or parent entity within a group regardless of the and ensure that entities recognise an asset in relation to a entity’s functional currency. To assess how effective the surplus on a consistent basis. hedging instrument is in offsetting the risk from the foreign No additional liability need be recognised by the operation, the company must calculate the change in value employer under IFRIC 14 unless the contributions that are of the hedging instrument in the functional currency of the payable under the minimum funding requirement cannot parent hedging its risk and not the functional currency of the be returned to the company. IFRIC 14 is likely to have the subsidiary holding the instrument. most impact in countries that have a minimum funding The IFRIC recognises the difficulty that entities would requirement and where there are restrictions on a face in preparing adequate documentation from the inception company’s ability to get refunds or reduce contributions. of the hedge relationship. It therefore proposes that, if The Interpretation is mandatory for annual periods confirmed, the guidance should be applied prospectively, i.e. beginning on or after January 1, 2008. Earlier application for all future transactions. is permitted. For further information on IFRIC 14, please (Source: www.iasb.org) visit the project Webpage on www.iasb.org. (Source: www.iasb.org) How IFRIC 14 (an interpretation of IAS 19) addresses the defined benefit IFRIC publishes proposed guidance pension assets and their minimum on hedges of a net investment in a funding requirements foreign operation On July 5, 2007 the IFRIC issued an Interpretation, IFRIC 14 The IFRIC released for public comment a draft Interpretation, IAS 19 -The Limit on a Defined Benefit Asset, Minimum Funding IFRIC D22 Hedges of a Net Investment in a Foreign Operation. The Requirements and their Interaction. proposal is open for public comment until October 19, 2007. Since the release of the Interpretation the IFRIC has IFRIC D22 clarifies two issues that have arisen on two observed several press articles and statements by market accounting standards—IAS 21 The Effects of Changes in Foreign commentators providing an inaccurate assessment of the Exchange Rates and IAS 39 Financial Instruments: Recognition effect of IFRIC 14. and Measurement —about the accounting for hedging foreign Whether and how IFRIC 14 applies to a particular entity currency risk within a company and its foreign operations. will depend on the exact terms of the pension plan and the The IFRIC proposal clarifies what qualifies as a risk in the regulatory requirements in the relevant jurisdiction, and hedge of a net investment in a foreign operation and where should be determined by reference to IFRIC 14 itself. within a group the instrument that offsets that risk may be held. In some companies the currency that is used to present The Interpretation does not change the rules on funding financial statements (the presentation currency) differs from The Interpretation clarifies how entities should account for the currency that the company or its foreign subsidiaries use the effect of any statutory or contractual funding daily and in which they generate net cash flows (the requirements. It cannot change those requirements as they operating, or functional, currency). At present, some are set by regulators and pension fund trustees, and it is for companies use hedge accounting when ‘translating’ that management to decide how it satisfies those requirements. functional currency into the presentation currency. The IFRIC takes the view that this mere translation of currency The Interpretation does not affect an entity's ability for presentational use does not represent a hedgeable economic to get a refund risk. Consequently, it proposes not to allow the use of hedge The Interpretation provides guidance on how to account for

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 47 any restrictions that may be in place. It does not affect an (IFRSs) and the challenges encountered during the process. entity’s ability to get a refund. An employer’s ability to get a Building upon and strengthening cooperation with emerging refund is determined by the statutory requirements in the markets and transition economies in the development, jurisdiction in question and the scheme rules. implementation and training of accounting standards will promote emerging markets and transition economies to An additional liability is recognised only if two participate in international convergence and is beneficial to conditions exist at the same time a single global high-quality set of financial reporting standards An additional liability is recognised only if both of the to meet the objective needs of economic globalisation. following conditions exist: The participants discussed the efforts made by emerging • If the entity has a statutory or contractual obligation to markets and transition economies in the international pay additional amounts to the plan and convergence of accounting, and called for mutual understanding • If the entity’s ability to recover those amounts in the and common actions in the following aspects: future by refund or otherwise is restricted. 1. Emerging markets and transition economies should build In that case, the recognition of an additional liability reflects up a clear concept about international convergence of the economic reality. accounting, and take active action to develop a plan on convergence with IFRSs. The international convergence of The Interpretation clarifies when a surplus in a pension accounting is the irreversible trend and direction of plan can be recognised development. The participants support international IFRIC 14 provides a clearer interpretation of the availability convergence of accounting and the IASB in its efforts to of a surplus than the original standard, IAS 19 Employee build a global high-quality accounting standards system. Benefits. Under IAS 19 some have argued that a surplus is The IASB encourages countries to participate in the not available to a plan sponsor unless it is immediately international convergence process by developing a plan realisable at the balance sheet date. IFRIC 14 states that the to adopt the complete set of IFRSs. However, the IASB employer only needs to have an unconditional right to use recognises that there are specific conditions in each the surplus at some point during the life of the plan or on its jurisdiction. Convergence is a process and should be a wind up in order for a surplus to be recognised. two-way interaction between national accounting standards setters and the IASB. The participants shared The Interpretation ensures that the accounting for experiences on the international convergence of accounting surpluses is consistent and transparent in their own countries at the Symposium, and took note The Interpretation will ensure that any economic consequences that China’s developments of accounting standards and of making contributions required by legislation or the terms its achievements towards international convergence have of the plan will be treated in a transparent and consistent accumulated valuable and significant experience for manner by all entities. emerging markets and transition economies.

* The IFRIC is the interpretative arm of the International 2. The IASB should continue to create a favourable environment Accounting Standards Board (IASB). for emerging markets and transition economies to participate (Source: www.iasb.org) in the development of IFRSs thus achieve the international convergence of accounting. The International Accounting Standards Committee Foundation (IASCF) Constitution Convergence of accounting in charges the IASB to consider the needs of emerging markets emerging and transition economies and transition economies in its standard-setting and other activities. Accordingly, opinions from different parties, including emerging markets and transition economies, The Symposium on International Convergence of Accounting and their actual situations need to be taken into sufficient in Emerging Markets and Transition Economies, jointly considerations during the standard-setting of the IASB. hosted by International Accounting Standards Board (IASB) The IASB participates in several outreach activities, and China Accounting Standards Committee (CASC), was including sponsoring regional meetings, at which it seeks held in Beijing on July 10-11, 2007. The participants present to learn the views of its constituents. Emerging markets and at the Symposium (hereinafter referred to as “the participants”), transition economies are also represented on the IASCF which include representatives from the World Bank, the Trustees and Standards Advisory Council (SAC). Emerging UNCTAD, EU?seventeen emerging markets, transition economies markets and transition economies are important participants and developed market economies, discussed strategies taken in the global capital market and users of IFRSs, thus they by emerging markets and transition economies to adopt or will play an important role in IFRSs setting. Therefore, the converge with International Financial Reporting Standards participants proposed to set up a Forum on International

48 | The Malaysian Accountant | June/August 2007 www.micpa.com.my Convergence of Accounting in Emerging Markets and With a view to ensure smooth transition to the IFRSs from Transition Economies to establish a regular exchange April 1, 2011, the Institute of Chartered Accountants of India mechanism to improve and implement the various will take up the matter of convergence with IFRSs with the suggestions raised in the Beijing Initiative. The Forum can National Advisory Committee on Accounting Standards be convened annually by the IASB, CASC, other emerging established by the Ministry of Corporate Affairs, Government markets and transition economies?and accounting of India, and various regulators such as the Reserve Bank of organisations that are willing to host the Forum. The minutes India, the Insurance Regulatory and Development Authority of discussions at the Forum will be offered to the IASB. The and the Securities and Exchange Board of India. The Institute participants unanimously agreed to try to gain support to of Chartered Accountants of India would formulate its work- the Forum from their local agencies and supervisory plan to ensure that the IFRSs are effectively adopted from departments. All the emerging markets and transition April 1, 2011. The Institute will also conduct IFRS-specific training economies are welcome to participate in this Forum. programmes for its members and others concerned to prepare them to implement IFRSs. The Institute will also take up those 3. Emerging markets and transition economies should take areas in certain IFRSs where it feels that some changes in more positive actions to participate in the international IFRSs may be required keeping in view the Indian conditions. convergence of accounting and development of IFRSs. All (Source: www.iasb.org) emerging markets and transition economies should strengthen communication and exchange with the IASB, as well as that among one another. Such cooperation can The ASBJ and the IASB announce Tokyo be conducted in various forms ranging from the experience Agreement on achieving convergence of of adopting IFRSs or formulating standards and models of accounting standards by 2011 personnel education and training. As joint hosts of this conference, the IASB and CASC will continue to support Ikuo Nishikawa, Chairman of the Accounting Standards emerging markets and transition economies to take Board of Japan (ASBJ), and Sir David Tweedie, Chairman of positive actions in international convergence. The CASC the International Accounting Standards Board (IASB), jointly informed the participants that it will work together with announced an agreement (known as the Tokyo Agreement) the IASB through IASCF’s education department to to accelerate convergence between Japanese GAAP and consider the establishment of an education training International Financial Reporting Standards (IFRSs), a program on international convergence targeted at process that was started in March 2005. emerging markets and transition economies. The CASC As part of the agreement the two boards will seek to will utilise project funds of Asia-Pacific Finance and eliminate by 2008 major differences between Japanese GAAP Development Centre (AFDC) to train human resources and IFRSs (as defined by the July 2005 CESR assessment of from emerging markets and transition economies in the equivalence), with the remaining differences being removed field of international convergence of accounting. on or before June 30, 2011. Whilst the target date of 2011 does (Source: www.iasb.org) not apply to any major new IFRSs now being developed that will become effective after 2011, both boards will work closely to ensure the acceptance of the international approach in India announces convergence with IFRSs Japan when new standards become effective. for public interest entities from 2011 Commenting on the agreement, Mr Ikuo Nishikawa said: “We have reaffirmed our commitment to convergence and The Council of the Institute of Chartered Accountants of are pleased to have an opportunity to increase the significant India, at its 269th meeting being held these days at New Delhi, involvement of the ASBJ and Japan more generally in the has decided to fully converge with International Financial international standard-setting process. It is expected that this Reporting Standards (IFRSs) issued by the International agreement will enable Japanese companies to publish Accounting Standards Board from the accounting periods financial statements prepared under Japanese accounting commencing on or after April 1, 2011. Like in other countries standards without any remedies continuously in the EU and such as Australia, New Zealand and countries in the European other capital markets using IFRSs.” Union, the IFRSs will be adopted for the listed entities and Sir David Tweedie said: “We are delighted that the ASBJ, other public interest entities such as banks, insurance companies representing the interests of the second largest economy in and large-sized entities. The decision is an important the world, has agreed to accelerate convergence between milestone in achieving full convergence with IFRSs as India will Japanese GAAP and IFRSs and look forward to its active join 102 countries which presently require or permit use of participation in shaping the future direction of international IFRSs in preparation of financial statements in their countries. financial reporting standards.” By 2011, the number is expected to reach 150. (Source: www.iasb.org)

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 49 IFAC Update

IFAC Seeks Proposals to Develop establishing effective internal control systems. Practice Management Guide for The interviews help to demonstrate the importance of Small and Medium Accounting Firms a risk-based approach to internal control in helping an organisation manage its overall risk. They also shed light The International Federation of Accountants (IFAC) is on the nature of risk in organisations, how to establish an requesting proposals for the development of a practice internal control system focused on driving performance management guide for use by small and medium and supporting the delivery of strategic objectives, and accounting practices (SMPs). The purpose of the guide will success stories that can help organisations in considering be to assist SMPs in managing their practices in an improvements to their approach. efficient, profitable and professional manner. It is intended "The flood of rules and requirements that resulted that the guide will cover a range of topics, such as strategic from past corporate failures, and the often time-consuming planning, management structure, client relationships, and costly compliance efforts, make us easily forget that managing finances and risk, partnership issues, the right kind of internal controls - focused on the real risks networking, and succession planning. of an organisation - actually can save time, money and “The development of this practice management guide ensure creation and maintenance of value," emphasizes is part of the SMP Committee’s plan to provide a series of Edward Chow, Chair of the PAIB Committee. "These explanatory guides aimed at helping SMPs to comply interviews will help professional accountants in business efficiently with international standards and to deliver high and their organisations to benchmark their own quality, cost-effective services,” states Sylvie Voghel, Chair organisations' internal control efforts and philosophy." of the IFAC SMP Committee. This interview-based information paper is part of a The guide will be made available to all IFAC member larger PAIB Committee project on internal control. In 2006, bodies at no charge for end use by practitioners, in the committee published an overview paper, Internal particular, those managing the practice. Controls - A Review of Current Developments, which reviewed The specifications for the Request for Proposal: current developments and some of the latest thinking in Development of a Practice Management Guide for Use by Small the area of internal control. These two publications form and Medium Practices are available on the IFAC website at the groundwork for the development of principles-based http://web.ifac.org/download/Practice_Management good practice guidance on internal control, which the PAIB _Guide_RFP.pdf. The deadline for submitting proposals is Committee plans to issue in 2008. 12:00 pm (EDT), Friday, October 19, 2007. Submissions can Internal Control from a Risk-Based Perspective can be be emailed to Paul Thompson, Senior Technical Manager downloaded free-of-charge from the IFAC online bookstore of the SMP Committee, at [email protected]. at http://www.ifac.org/store. A range of other publications (Source: www.ifac.org) on topics of interest to professional accountants in business is also available from the IFAC bookstore. (Source: www.ifac.org) New IFAC Paper Focuses on Internal Control from a Risk-Based Perspective and the Role of IAASB Clarifies its Quality Control Accountants in Business and Auditor Reporting Standards; Makes Further Progress on Clarifying One of the best defences against business failure and an Other Auditing Standards important driver of business performance is strong internal control. This is true for organisations globally. Recognising To enhance the quality and consistency of audits, the this, the Professional Accountants in Business (PAIB) International Auditing and Assurance Standards Board Committee of the International Federation of Accountants (IAASB), an independent standard-setting board under the (IFAC) has released a new publication on Internal Control auspices of the International Federation of Accountants from a Risk-Based Perspective. This information paper (IFAC), is continuing to advance its project to clarify its features interviews conducted by Robert Bruce, a leading international standards. At its July 2007 meeting in financial journalist, with 10 senior-level professional Warsaw, Poland, the IAASB approved exposure drafts of accountants in business on their experiences and views on nine proposed standards, including each of its international

50 | The Malaysian Accountant | June/August 2007 www.micpa.com.my quality control and auditor reporting standards. These Progress of the Clarity Project have all been redrafted in accordance with the IAASB's All of the proposed standards have been drafted in new drafting conventions designed to improve the clarity accordance with the IAASB's new drafting conventions. of its pronouncements. These conventions include the specification of an objective Further information about each exposure draft and within each standard and separate section for the changes proposed therein is provided in the requirements and application and other material. explanatory memorandum at the beginning of the exposure The IAASB has now approved five final ISAs drafted drafts. The exposure drafts may be viewed by going to in accordance with the new conventions and, including the http://www.ifac.org/EDs. eight just released, 23 exposure drafts of ISAs. The IAASB expects to issue a further seven exposure drafts this year, Quality Control Exposure Drafts and to complete all 35 ISAs as final standards by the end The IAASB has issued proposed International Standard on of 2008. Quality Control (ISQC) 1 (Redrafted), Quality Control for Further information on the Clarity project may be Firms that Perform Audits and Reviews of Financial Statements, obtained from http://www.ifac.org/IAASB/downloads/ and Other Assurance and Related Services Engagements, along IAASB_Clarity_Status_Report.pdf. with proposed International Standard on Auditing (ISA) 220 (Redrafted), Quality Control for an Audit of Financial How to Comment Statements. Recognising the number of exposure drafts being issued, "Together, these standards deal with important the IAASB has staggered the deadlines for comments: quality control considerations at both the firm and • Comments on the exposure drafts of proposed ISA 510 engagement levels. The standards are closely linked, and (Redrafted) and ISA 530 (Redrafted) are requested by therefore, implementing clarity revisions at the same time October 31, 2007. makes sense to ensure consistency between them," explains • Comments on the exposure drafts of proposed ISA 700 John Kellas, IAASB Chairman. (Redrafted), ISA 705 (Revised and Redrafted), ISA 706 (Revised and Redrafted), ISA 800 (Revised and Redrafted) Auditor Reporting Exposure Drafts and ISA 805 (Revised and Redrafted) are requested by The IAASB has also addressed the clarification of its auditor November 30, 2007. reporting standards. The proposed clarified auditor • Comments on the exposure drafts of proposed ISQC 1 reporting standards comprise: (Redrafted) and ISA 220 (Redrafted) are requested by • ISA 700 (Redrafted), The Independent Auditor's Report on December 31, 2007. General Purpose Financial Statements; • ISA 705 (Revised and Redrafted), Modifications to the Comments should be submitted by email to Opinion in the Independent Auditor's Report; [email protected]. They may also be faxed to IAASB • ISA 706 (Revised and Redrafted), Emphasis of Matter ED Comments, at +1-212-286-9570 or mailed to IAASB ED Paragraphs and Other Matter(s) Paragraphs in the Comments at 545 Fifth Avenue, 14th Floor, New York, NY Independent Auditor's Report; 10017, USA. All comments will be considered a matter of • ISA 800 (Revised and Redrafted), Special Considerations public record and will ultimately be posted on the IFAC - Audits of Special Purpose Financial Statements and Specific website. Elements, Accounts or Items of a Financial Statement; and (Source: www.ifac.org) • ISA 805 (Revised and Redrafted), Engagements to Report on Summary Financial Statements. IFAC's International Ethics Standards Proposed ISA 700 (Redrafted) redrafts a standard that Board for Accountants Invites was revised in 2004. The other reporting standards have Comments on Proposed Strategic been fully revised to update them and make them Plan consistent with ISA 700. Those revisions were completed and approved by the IAASB in 2006, and the standards are The International Ethics Standards Board for Accountants now being issued for comment only on their redrafting into (IESBA), an independent standard-setting board within the the new clarity conventions. International Federation of Accountants (IFAC), is seeking comment from IFAC member bodies, regulators, national Other Proposed Standards ethical standard setters, accountants in professional In addition, the IAASB has issued exposure drafts of practice and accountants in business and other interested proposed ISA 510 (Redrafted), Initial Audit Engagements - parties on an exposure draft of its Strategic and Operational Opening Balances, and proposed ISA 530 (Redrafted), Audit Plan for the period 2008-2009. Sampling. The objective of the IESBA is to serve the public

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 51 interest by setting high quality ethical standards for those developed by national professional accountancy professional accountants and by facilitating the bodies. The guidance documents may also serve as a convergence of international and national ethical leadership tool that professional accountants can use in standards, thereby enhancing the quality and consistency promoting sound financial and management accounting of services provided by professional accountants. In practices within their organisations. considering which new projects and activities should be "The release of the proposed Preface represents the undertaken, the IESBA conducted a survey of interested start of a significant work program for the committee," says parties, including accountants in public practice (from Edward Chow, Chair of the PAIB Committee. "The new large and small firms), accountants in business, regulators, pronouncements will contribute to better decisions in IFAC members and associates, ethical standard setters and organisations and enhance the level of support to and academics, to solicit views on matters that the IESBA should competence within the global community of professional consider in the next few years to achieve its objective. accountants in business. I encourage professional "In addition to suggestions for specific projects, there accountants in business to use these pronouncements to was a strong message from the approximately 120 survey promote good practices in the organisations in which they respondents that the IESBA should place more emphasis on work." our convergence objective," states Richard George, IESBA Chair. "The IESBA, therefore, plans to hold four regional New Guidance on Developing Codes of Conduct forums, starting in late 2008, with the objective of gaining The PAIB Committee has released the first International a better understanding of the steps necessary to facilitate Good Practice Guidance, Defining and Developing an Effective convergence of international and national ethical standards Code of Conduct for Organisations. This guidance will assist and achieve greater global acceptance of the Code." professional accountants and their organisations in (Source: www.ifac.org) developing and implementing a code of conduct within a values-based culture. It can be downloaded free-of-charge from the IFAC online bookstore at http://www.ifac.org/store. IFAC Seeks Comments on Proposed The PAIB Committee welcomes further feedback on this Preface to New Management document during the exposure period for the Preface. Accounting Guidance and Releases Guidance on Developing Codes of Exposure Draft on Project Appraisal Using Conduct Discounted Cash Flow In addition to the above, the PAIB Committee has also Professional accountants in business worldwide will get issued an ED of a proposed International Management added assistance from the International Federation of Accounting Statement, entitled Project Appraisal Using Accountants (IFAC) in the form of new international Discounted Cash Flow. The proposed International principles-based good practice guidance. A newly released Management Accounting Statement aims to support exposure draft (ED), Preface to IFAC's International professional accountants in business in applying and Management Accounting Statements and International Good promoting the use of discounted cash flow and net present Practice Guidance, developed by IFAC's Professional value to evaluate investments. It sets an international Accountants in Business (PAIB) Committee, sets out the benchmark for using discounted cash flow in project objective, scope and due process of two new types of appraisal and provides principles that reflect widely guidance: International Management Accounting accepted good practice, supported by guidance to facilitate Statements and International Good Practice Guidance. The their application. The ED asks for feedback on both the PAIB Committee seeks input on the approach to content and approach. representing good practice to professional accountants in business and the proposed document types. Looking Ahead Together with the draft Preface, the PAIB Committee Over the next year, the PAIB Committee plans to develop has released new guidance on developing codes of conduct proposed principles-based pronouncements on internal and has issued an exposure draft of the first International control from a risk management perspective, using cost Management Accounting Statement. information effectively, and enterprise governance. The The International Management Accounting Statements PAIB Committee is also using the proposed International and International Good Practice Guidance establish Management Accounting Statement on Project Appraisal fundamental principles and provide supporting application Using Discounted Cash Flow to solicit feedback on future guidance to reflect good practice. In addition, the new topic selections to support this document. guidance signposts other sources of information, such as (Source: www.ifac.org)

52 | The Malaysian Accountant | June/August 2007 www.micpa.com.my CASE LAW HIGHLIGHTS

SANJUNG SELAMAT SDN BHD v C L CHIN & ASSOCIATES

HIGH COURT (KUALA LUMPUR) – CIVIL NO D4–22–67 OF 2005 ABDUL WAHAB PATAIL J 24 MAY 2005

Companies & Corporations – Directors – Authority – Directors supposedly authorised and who signed the resolution had been rejected by the registrar of companies as directors – Whether they were persons actually occupying the position of director – Whether the position takes precedence over the administrative refusal of the registrar of companies to register them as directors – Companies Act 1965 s 4

Enclosure 25 is the defendant C L Chin & Associates application to challenge to plaintiff solicitors to act for the plaintiff on the grounds that the two directors who supposedly authorised and signed the resolution authorising Lim & Hoh have been rejected by the registrar of companies as directors. Enclosure 17 is intended intervener’s application. The plaintiff objected to the application on the grounds only commercial rights are involved, not legal rights. There were no sales and purchase agreement with interveners, and their right is only under a deed of guarantee – where deal or arrangement and power of attorney were given only as security. The plaintiff submitted their only right was to sue the plaintiff for including the fiduciary duties of a de jure or money. undisputed director, and must account to the company. These duties and responsibilities as de Held, dismissing the application with costs: facto directors occupying the position of a director (1) Enclosure 17 is allowed for the reason that it is unsafe must take precedence over the administrative refusal to reject the application at this stage unless the issue of the registrar of companies to register them as of those rights of the proposed intervener is looked directors. The function of registration is for public into. That could without inconvenience be disposed notification and does not affect their appointment as off more safely together with the plaintiff’s application. directors, the authority of which emanates from the Since it is apparent that the proposed intervener has shareholder’s resolutions. This conclusion is some interest, there can be no objection to the consistent with s 107 of the Companies Act 1965 that proposed intervener being heard in the plaintiff’s the directors remain valid notwithstanding any application. subsequent finding that they are not valid directors. The nature of the applications in this case are prima (2) Section 4 of the Companies Act 1965 with facie in the interest of the plaintiff company. There is considerable foresight set out that the term director nothing shown at this point that those orders are to ‘includes any person occupying the position of a the detriment of the plaintiff company. For these director’ for the reason that a company cannot have reasons the application at encl 25 was dismissed with no director. In this case the previous directors are said costs. to have all resigned. The persons actually occupying Source: Malayan Law Journal [2007] 1 MLJ the position of director carry the responsibilities Produced with kind permission

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 53 GLOBAL INSIGHT NEWS from Down Under A O FERRERS, AUSTRALIAN CORRESPONDENT

Many will know that much of the Drought Australian continent is in the grip of severe drought, the tropical north being an The federal government has been making drought exception. However, in the last few days financial assistance available to farmers and rural easternM New South Wales has been inundated with businesses in a number of forms. Some of these require exceptional rain worsened by gales, causing severe detailed information, which some people find baffling to flooding. This has destroyed crops, drowned livestock, assemble. To assist, CPA Australia has put together an ruined businesses and damaged or destroyed homes. information kit, which is available not only on the Internet Emergency Services staff from Queensland and Victoria has but also from regional and rural branches of the ANZ Bank joined their New South Wales colleagues to repair some of free of charge. The kit is designed to help farmers and the worst damage. Some are saying that full recovery may businesses suffering exceptional circumstances to apply for take years rather than months. There will be mammoth financial support during one of Australia’s worst droughts insurance claims. After a respite of a few days, more heavy in history. The bank is committed to helping their rain is falling today as I write. Sydney itself has been on customers work out strategies to manage the financial the fringes of the deluge. burden caused by the drought. Our financial year ends on June 30, 2007. After that Peter Docherty, Director of Public Practice, says that we begin to prepare and file our tax returns. Mr Tax in his the kit describes the types of relief offered by government media release of June 12, 2007 says that he is here to help and clarifies the application process. It specifies the taxpayers: eligibility criteria for each type of relief and directs applicants to government websites for further information. “The Tax Office has assured people affected It also tells those unaware of entitlements what they may be able to get and how to go about it. Of course, this is by the floods that they do not need to worry where accountants can be of inestimable assistance. about their tax at this time. [Mr Tax] said this Mr Docherty has commented: “CPAs are already is a very difficult time for residents of the helping their clients with the application process for central coast and Hunter region, especially drought relief which requires financial and budgeting those who have suffered damage to their home information. An accountant can help make sense of complex information and ensure that it is translated into or business. the format required for the form. “We understand that people have other “We encourage farmers and small businesses who are priorities to sort out now and it may be some affected to apply for drought relief. The drought has been time before they are able to focus on tax and continues to be a problem. Farmers and businesses must be aware of the help available.” matters.” The CPA Australia media release gives two examples of success in which CPAs were instrumental in making the A hotline has been set up for taxpayers to call and application. One concerned a farm machinery another for their tax agents to make arrangements that manufacturing business. It received $83,000 as an interest suit individual circumstances. rate subsidy. The Tax Office is offering help in a number of ways, In the second a farmer with a cropping and grazing including farm received $100,000 as an interest rate subsidy. These • Fast tracking refunds for those impacted by the flood funds will put the farmer in a position of being able to pay • Giving extra time to pay debts without interest charges loan interest commitments if the season does not break or • Helping reconstruct tax records where documents has if a break occurs, to pay interest and finance the sowing of been destroyed the next crop. The CPA concerned is working with the • Offering personal visits from field officers to help farmer on action plans for recovery after rain or, reconcile lost records. alternatively, survival if there is no rain. If detailed plans are required, the CPA will look at helping the client access

54 | The Malaysian Accountant | June/August 2007 www.micpa.com.my the Professional Advice and Planning Grant to pay for this to display ethical behaviour to attract and retain staff, work. increase profits, attract investors and government funding Accountants can and do take the hard work out of the and to enhance its reputation within the corporate world. various processes of applications for relief, which allows the “In an age of near full employment, attracting and client to get on with his business. The accountant can retaining good staff can be tough. Staff wants to be proud monitor progress of the application as well and resolve any of where they work and the standing of a company can issues quickly for the client which may arise. stand or fall on its ethical reputation… [Customers] want With the kit in hand, ANZ branches and country a product that not only serves its purpose but is produced CPAs are spreading the word about the government help by an environmentally responsible company… If you want available. to get and retain monies, ethics are essential. “The days are long gone where business was powerful enough to get government to act whenever it demanded it. Ethics Government is transparent and the ethical standards of a business are now a key factor in the procurement of grants By a media release of June 13, 2007 the National Institute and influence.” of Accountants announced that it had joined with its fellow He also sounded a warning pointing out that ethics professional bodies, CPA Australia and the Institute of came from prosperity. But if prosperity ends, then there is Chartered Accountants, in forming the Accounting a risk ethics may be forgone. In his words, “it may be one Professional and Ethical Standards Board. This Board is of the first things to fall in an economic drought”. independently constituted charged with the responsibility to set the code of ethics and professional standards by which their members are required to abide. While each of the founding members has its own code and standards, the Board will mean that the three bodies will work together to ensure consistency throughout the profession of accountancy. All three are now replacing their present standards and code with the equivalent Board standards. The National Institute of accountants’, Greg Dennis, had this to say: “With the NIA now an equal member of the Board, the result is a clearly defined and transparent Dear Readers, development process for standards nationally and the NIA If you have any article, which in is very pleased to play its part to ensure the Australian your view, is suitable for inclusion in accounting profession remains one of the most ethical and professional in the world. our columns, please send the article to “[There] is an ongoing process that requires careful the Editorial Board at the address below consideration of the exposure drafts issued by the Board. To or via e-mail. this end, we will be relying on the input of our members to We will be happy to review the assess the impact of any proposed changes. These will be communicated to the Board and worked through on a case- article for publication in this journal. by-case basis.” Kindly contact: The Institute of Chartered Accountants in May held a NSW Business Forum at which the topic of ethics was Public Affairs & featured. David Gonski of Investec Bank was a leading speaker. Communications Manager The media release recorded that he said that having The Malaysian Institute of good business ethics was not a gimmick. Rather, good Certified Public Accountants ethics made good business sense and in today’s corporate environment, businesses cannot afford to ignore their 15 Jalan Medan Tuanku obligations. 50300 Kuala Lumpur “We ought to take responsibility for social, E-mail: [email protected] community and environmental issues.” He also pointed out that it is important for business

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 55 GLOBAL INSIGHT WORLD NEWS

UNITED KINGDOM

UNITED STATES

SRI LANKA

AUSTRALIA

Australia • inventories that are manufactured or otherwise produced, in large quantities on a repetitive basis. The Australian Accounting Standards Board (AASB) has issued a revised AASB 123 Borrowing Costs. The revised AASB 123 applies to each entity that is required to Standard has been adopted as a result of the IASB’s prepare financial reports in accordance with Part 2M.3 of revisions to IAS 23 Borrowing Costs in March of this year. the Corporations Act 2001 and is a reporting entity, general The Standard is applicable to reporting periods beginning purpose financial reports of each reporting entity and on or after January 1, 2009, with early adoption permitted. financial reports that are, or are held out to be, general Professor David Boymal, Chairman of the AASB, purpose financial reports. commented that: “The major change to the Standard Amending Standard AASB 2007-6 has also been involves the removal of the option of recognising released which makes amendments to a number of borrowing costs immediately as an expense, to the extent Standards that are a consequence of the changes made to that they are directly attributable to the acquisition, AASB 123. construction or production of a qualifying asset. The (Source: www.accountingeducation.com) removal of the option to expense borrowing costs attributable to qualifying assets is aimed at converging, in the short-term, IASB Standards and US generally accepted Sri Lanka accounting principles.” The Board of the Institute of Chartered Accountants of Sri The Revised Standard also has a narrowed scope and Lanka (ICASL) has approved a policy that Sri Lankan its requirements do not apply to borrowing costs directly Financial Reporting Standards will be fully compliant with attributable to the acquisition, construction or production International Financial Reporting Standards by 2011, of: meaning that a company that asserts compliance with Sri • a qualifying asset measured at fair value, for example Lankan standards could also assert compliance with IFRSs. a biological asset; or

56 | The Malaysian Accountant | June/August 2007 www.micpa.com.my The policy was announced by Yohan Perera, President of Respondents highlighted the following generic issues the ICASL, at an international conference on 'Fair Value – that the Islamic finance industry faces: Lack of young A Paradigm Shift' sponsored by the South Asian Federation qualified Islamic bankers across all regions; while training of Accountants in Colombo, Sri Lanka, on August 25, 2007. is available and specific countries such as Malaysia are Currently, Sri Lanka has adopted many, but not all, making huge investments in this area, respondents of the latest IFRSs. Mr Perera also announced that Sri Lanka observed that high turnover remains a problem. Lack of expects to adopt IAS 32 and IAS 39 in September 2007, to development in Islamic finance regulations: many Muslim be effective in 2009. countries have not put the legislation in place covering the (Source: www.IASPlus.com) authorisation of Islamic banks, or the issuance of Islamic finance products. Nor have they considered putting it on the agenda. The quality and transparency of financial United Kingdom reporting on Islamic finance differs from one jurisdiction to another. The International Valuation Standards Committee (IVSC) Measuring the performance of Islamic financial is consulting on the determination of fair value of products can be difficult. However, with the introduction of intangible assets for the purpose of reporting under Basel II and the requirement that banks allocate risk by International Financial Reporting Standards. rating, there is greater likelihood of the ratings of Islamic It has released a discussion paper that aims to help financial products and instruments growing in importance the future development of improved and more robust over the next few years. Respondents felt that a tailor-made guidance on the valuation of intangible assets for financial rating agency would be the solution, as the major western reporting within the overall IVS framework. ones have been slow to develop rating methods and specific The paper can be accessed at: http://ivsc.org/ivsc/ criteria for Islamic financial products. intangibleassets.pdf On a positive note, the report also highlights the IVSC chairman Joseph Vella said: 'As the International areas where product and market diversification are Financial Reporting Standards (IFRS) require increasing use beginning to take hold in what, undoubtedly, remains a of fair values for a greater range of assets and liabilities in relatively young industry which has experienced a period financial accounts, a clear gap in guidance is emerging.' of rapid expansion to the point where it has an estimated He added: 'The discussion paper was developed by a US$500 billion* under management. One respondent felt team of experts and addresses one of the key areas in which that takaful (insurance) is potentially the most lucrative the IASB requires fair value guidance - that of measuring are for development, because it remains under-developed, the fair value of intangible assets, such as brands, licences, especially in conservative Gulf Co-Operation Council patents, know-how, customer contracts and customer countries. relationships. Without guidance in this area, there is a danger Paul Furneaux, Financial Services Partner with KPMG that valuation practitioners may take different approaches in the UK explains: “Respondents were aware that they and have different interpretations of IFRS requirements.' would have to be more creative in product innovation in The consultation is open for comment from interested areas such as derivatives, swaps and options, but parties until October 31, 2007. recognised that the market is currently at the bottom of a (www.accountancymagazine.com) steep learning curve. The role of Islamic scholars will be crucial in helping to determine the level of sophistication United Kingdom of the products themselves.” A number of key areas for potential development are A number of barriers remain in the expansion of the highlighted including: Islamic finance industry, including a lack of qualified Islamic • The issuance and trading of asset-backed securities or bankers, weaknesses in financial reporting and transparency, ‘sukuk’ where there is significant potential for the and the issue of regulatory capital according to a KPMG growth in Europe and the U.S. However, several survey conducted by the Economic Intelligence Unit (‘EIU’). respondents felt there had not yet been enough The EIU conducted interviews with a number of issuances in the market to stimulate the growth in leading figures on behalf of KPMG and the report entitled secondary marketing trading as a growth area. “Growth and Diversification in Islamic Finance” sought • Project infrastructure financing which will include the their views on the current and future development of development of markets in the West Islamic finance. Included in the survey are case studies on • Structured finance derivatives HSBC Amanah and Unicorn Investment Bank which detail • Private equity and retail banking which goes beyond their experiences in this area. Islamic mortgages.

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 57 But respondents also reported that there was also a Standards on Auditing (ISAs) and the adoption of the need for the market to consolidate and refine itself, as well Auditing Practices Board's Ethical Standards. as consider innovation and new product development. Overall the AIU found the quality of auditing in the Respondents acknowledge that while Islamic finance UK to be 'fundamentally sound' and said firms had continues to be a male-dominated industry, several women responded well to the implementation of IFRS. It did, have excelled in the sector, and have had a huge financial however, identify a number of issues relating to the impact in Islamic countries. They suggested that the role of application of the audit risk and fraud ISAs (UK and women in the sector will undoubtedly become stronger, as Ireland). they can help tackle the human resources bottleneck that During 2006/07 the AIU undertook 'full scope' currently exists. For this to happen, however, many Muslim inspections of the Big Four firms, Grant Thornton, BDO countries would have to introduce legislation guaranteeing Stoy Hayward, Baker Tilly, PKF and Robson Rhodes (due to gender equality and equal opportunities in the workplace. merge with Grant Thornton next month) . It also visited For the future, convergence is the theme that unites seven smaller firms. many respondents and the point at which the ‘tipping The AIU's report was welcomed by mid-tier firm Baker point’ may be reached between Islamic finance and the Tilly. Audit head Nigel Tristem said: 'The Big Four and Mid global financial system to allow it to move from being a Four continuously seek to improve audit quality to enhance niche player into the mainstream. But there is also an issue further the excellent reputation of the profession and, around Muslim countries addressing their Islamic financial although minor findings were highlighted, I remain architecture by deciding which model they would prefer to confident that the bar for audit quality will continue to be follow – either a ‘dual’ banking system or the ‘Islamisation’ raised by all firms.' of the banking system. Many bankers interviewed for the (Source: www.accountancymagazine.com) survey felt that adherence to the former model would be preferable. Paul Furneaux, Financial Services Partner with KPMG United States in the UK concludes: “Overall the future is bright for the The American Institute of Certified Public Accountants' Islamic finance market. As respondents commented, even (AICPA) Accounting Standards Executive Committee if the oil price goes down, their collective view was that this (AcSEC) has issued Statement of Position (SOP) 07-1, would not have a material effect on its continued Clarification of the Scope of the Audit and Accounting development.” Guide Investment Companies and Accounting by Parent (Source: http://www.kpmg.co.uk) Companies and Equity Method Investors for Investments in Investment Companies. The SOP is effective for fiscal years Watchdog calls for better beginning on or after December 15, 2007, with earlier documentation and accuracy application encouraged. Top accountancy firms are not giving a good enough AcSEC issued the SOP to provide guidance for explanation as to how they reach their key audit judgments, determining whether an entity is within the scope of the watchdog the Audit Inspection Unit (AIU) warned. AICPA Audit and Accounting Guide Investment In its third annual report, the AIU criticised firms for Companies (the Guide). For those entities that are not doing enough to document the rationale behind the investment companies under the SOP, it also addresses important decisions they take during an audit and said whether the specialized industry accounting principles of they jeopardised audit quality as a result. the Guide (referred to as investment company accounting) AIU director Andrew Jones said: 'We're not talking should be retained by a parent company in consolidation about more documentation, but quality of documentation or by an investor that has the ability to exercise significant and accuracy.' influence over the investment company and applies the He called for firms to give a clear message to their equity method of accounting to its investment in the entity partners and staff on the importance of good quality audit (referred to as an equity method investor). In addition, the documentation and the need for ongoing improvement. SOP includes certain disclosure requirements for parent In the year to March 31, 2007, the AIU reviewed 103 companies and equity method investors in investment audits of companies that primarily had a December 31, companies that retain investment company accounting in 2005 year-end. This was the first financial year the parent company's consolidated financial statements or International Financial Reporting Standards (IFRS) was the financial statements of an equity method investor. applied to the accounts of full listed companies and it (Source: www.aicap.org) coincided with the implementation of International

58 | The Malaysian Accountant | June/August 2007 www.micpa.com.my LIFESTYLE Leaving a Legacy for the Future BY KAVALYN KREER

ost of us are so preoccupied with our busy and hectic schedules that we forget the most important force of nature that makes our lives on this planet worthwhile. That force is MotherM Nature! Due to severe neglect and disregard, a lot of damage has been done to our surroundings, so much so it has had adverse effects on the environment worldwide. Countless disasters around the world today are the result of this neglect. Indeed, Mother Nature is striking back with a vengeance! Though there are organisations around the world endeavouring to create an awareness of preserving and protecting the environment, it is imperative that we ourselves as individuals realise the perils of ignoring the calls for safeguarding the environment. If Mother Nature is not appeased, future generations of mankind will suffer worse consequences. Malaysia is geographically-blessed and relatively free from natural disasters. In fact, Mother Nature has endowed her with lush primary rainforests teeming with a variety of flora and fauna, high peak mountains, tropical island paradise with countless marine life beneath the clear turquoise waters, and of course, the endless white sandy beaches. Interestingly, Malaysia’s rainforest is far older than its It is disconcerting when these important facts are counterparts in the equator belt namely the Amazon and completely disregarded and ignored in the name of Congo forests. Some 60% of the country is covered by economic development. Continuous and indiscriminate rainforest and this vast greenery houses an eco-system deforestation and pollution in all forms will contribute in which is truly remarkable. ultimately destroying the fragile eco-system. Precautionary The preserved greenery contributes in balancing the measures for pollution control must be taken to preserve ecology. There are some 8,000 species of flowers, 2000 the environment so everyone can have a chance to enjoy it. species of trees, 800 varieties of Orchids, 200 types of palm, Global warming is another environmental issue that 150 species of ginger plants with rare flowers. should be of paramount concern to all world citizens There is also an endless array of rare species of fauna because global warming is a reality that cannot be ignored comprising the Sun Bear, Monitor Lizard, Orang-utan, any longer. Humans have increased the amount of carbon Sumatran Rhinoceros, Clouded Leopard, Malaysian Tiger, dioxide in the atmosphere by more than a third since the elephants, tapirs, and gibbons. The tropical climate and industrial revolution. Changes this large have historically diversified ecology lures the birds to take shelter in the vast taken thousands of years, but are now happening over the greenery. Mangrove trees at the seafront protect the dry course of decades. land from the encroachment by the sea and are the So what is global warming? breeding ground for prawns and fishes. It means that the planet is heating up and it is Indeed we have the world’s largest flower, Rafflesia warming up fast. Glaciers are melting, sea levels are rising and the smallest pygmy squirrel in our rainforest. and we, the human race are responsible by releasing heat-

www.micpa.com.my June/August 2007 | The Malaysian Accountant | 59 occurred between 1995 and 2006. The first step you can take towards preserving the environment is to become an eco-minded citizen. Your daily habits and decisions, unknowingly, contribute to global warming and can affect society as a whole. Make it a habit to use environmentally-friendly products in your daily lives. This shows that you are committed to making a change and eventually, with enough voices, this may give manufacturers of environmentally unfriendly products a reason to put Mother Nature first instead of their profit margins. As individuals, there are ways you can contribute to the preservation of the environment. Buy organic stuff. In the United States, clothes are also made of eco-friendly trapping gases that are so essentially in our fast-paced products i.e. organic clothes. Take your own bag when you modern lives. This is called greenhouse gases (GHGs) and shop. Some billions of plastic bags are manufactured their levels are so much higher now than in the last around the world each year and an equal number is 650,000 years. thrown away. Imagine the amount of petroleum used to The “greenhouse effect” is the warming that happens produce these items that are eventually discarded in a very when certain gases in Earth's atmosphere trap heat. These environmentally unfriendly manner. So the next time you gases let in light but keep heat from escaping, like the glass go shopping, take your own organic cotton grocery bag. walls of a greenhouse. You could also opt for recyclable plastics. Essentially, the sunlight shines onto the Earth’s Try not to purchase conventional toxic household surface, where it is absorbed and then radiates back into products instead opt for products that do not contain toxic the atmosphere as heat. In the atmosphere, “greenhouse” chemicals. The latter when they find their way into our gases trap some of this heat, and the rest escapes into drains will eventually find their way into our waterways space. The more greenhouse gases are in the atmosphere, and can harm wildlife. the more heat gets trapped. When many of us were young weren’t we often told Throughout the history of the planet, the level of by our parents not to leave the lights on indiscriminately? greenhouse gases have fluctuated but remained fairly That was sound advice. Nowadays, we can opt for energy constant. It was the same for the average temperature saver lights. They may cost more but they use less energy globally until recently. Through the burning of fossil fuels and they last for years; they also generate less heat. By and other GHG emissions, humans are enhancing the using less energy, your electricity bill will be considerably greenhouse effect and warming Earth. lower. In Europe there are plans to stop production of The consequences are critical. Global warming is incandescent bulbs and only have energy saver bulbs causing changes to the Earth’s climate. In the last decade before the end of the decade. or so, weather patterns have changed drastically and as the Other simple things, that we can implement on a Earth spins each day, the new heat swirls with it, picking daily basis is to conserve water; turn off the tap while you up moisture over the oceans, rising in some places and brush your teeth and while soaping in the shower. ultimately changing the rhythms of climate that all living Ultimately, the best thing you can do for Mother things are used to. Some areas are cool, some warm, some Nature is to ‘go green’ everywhere including your home experience change in amount of rain fall and snow. The and workplace. It is not as difficult as it may appear. climate is changing differently in different areas. The United Nations General Assembly, in its efforts to It is a daunting task that humans today are faced preserve the environment, in 1972, established the World with; that is, how to slow down the warming process. Environment Day which is commemorated annually on 5 Climate changes, as we know it, are already set into June. This auspicious day is celebrated in hopes of creating motion. Here, in this part of the world, the El Nino effect is an awareness of the environment through appropriate part of the climatic changes that have occurred in our channels and action. weather patterns. Weather patterns here have gone In the end, all said and done, whether, we want to or completely out of sync with the mercury rising gradually not, we have to start thinking about the consequences of year after year and unpredictable inclement-weather angering Mother Nature. We need to ensure that by during dry months. conserving the environment, we leave a lasting legacy for Interestingly, according to the Intergovernmental the future generations. Panel on Climate Change, eleven of the twelve hottest This article was written by Kavalyn Kreer, who writes lifestyle years since thermometer readings became available articles for publication on the web and print.

60 | The Malaysian Accountant | June/August 2007 www.micpa.com.my

Scaling greater heights

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