FAR661-JAC2206C-GROUP 5-NEW MFRS,MPERS

AND MPSAS
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Assalamualaikum, hari ini kumpulan kami akan berbincang mengenai MFRS baru, MPERS
dan MPSAS. Mari kita mulakan dengan standar akauti di Malaysia yang diawasi oleh MASB.
MASB mengisuhkan tiga standar akauti utama di Malaysia, MFRS, MPRS dan MPSAS.

MFRS adalah perkembangan akauti untuk sembarangan syarikat peribadi di Malaysia. MFRS
adalah ekwivalen daripada IFRS, yang dikeluarkan oleh IASB. MFRS mengganti framework
FRS dan mempunyai 42 standar akauti yang menutupi semua kategori.

kategori. Ampers on the other hand are the Accounting Regulations for Private Enterprises
in Malaysia. They are equivalent to the IASP issued IFRS for Small and Medium Size Entities,
SMEs.

Ampers replace the Private Entity Reporting Standard, PERS framework and consists of 35
parts covering all financial reporting requirements for private enterprises. Ampers aims to
address user demands while balancing costs and advantages for preparers. Ampersas the
most recently created accounting standards among the three.

They are the Accounting Regulations for Public Sectors Government Outside of Government
Business Enterprises, GBEs in Malaysia. They are mostly based on the International Public
Sector Accounting Standard, IPSAS, produced by the International Public Sector Accounting
Standard Board, IPSASB. The Accounting General Department, AGD also issued 34 Ampersas
Standards.

Also, the MFRS framework went into effect on 1st January 2012. Ampers was issued in
February 2014 and applies to financial statements commencing on or after 1st January
2016. The adoption date of Ampersas for Federal Statutory Bodies, FSBs was set as 1st
January 2018.

Entities other than the private entities must use the MFRS framework for the year period
starting on or after 1st January 2012. Private entities that meet certain criteria may use
Ampers. Public Sectors entities except Government Business Enterprises, GBEs, must use
Ampersas.

GBEs are characterized by ability to contract in their own name, financial and operational
power to run a firm, selling goods and services for profit or complete cost recovery, minimal
reliance on government support and lastly, management by a public sector entity. So in
conclusion, the accounting standards in Malaysia including MFRS, Ampers and Ampersas
cater to the specific needs of non-private companies, private enterprises and public sector
entities respectively. These standards play a crucial role in providing financial information to
investors, lenders, creditors, contributors and others to make resource decisions for the
company.

That's all from me, let's move to the next presenters. Okay next, I'm going to talk about the
issue, Factor Contribution and Solution of MFRS, MPERS and Ampersas. Okay, for the first
issue is Complexity and Adaptation, which is the complexities inherent in the aligning with
the global standard, MFRS, while tailoring them for the different sectors, MPRS and
Ampersas, pose challenges in interpretation, adoption and adaptation for the entities.

Okay, what is the Factor Contribution? Factor Contribution is a new and involving
accounting treatment, especially in areas like financial instrument or revenue recognition,
contribute to these complexities. For the solution is, for the first one is Education and
Training, which is by providing intensive training and education program for accounting
professional, financing analysis and other stakeholders. Second, Guidance and Support,
which is establish a robust support system including expert help lines and online resources
to assist entities in interpreting and applying the accounting standard correctly.

Number three is Regular Update and Communication, keep the entities informed about the
updates and changes in the accounting standard. And the last one is Collaboration with the
Regulatory Bodies, which is a foster collaboration between standard setting bodies,
regulatory authorities and industry representative to the streamline the alignment of the
global standard with the sector-specific adaptation. Okay, for the second issue is the
Transition Cost and Education.

Okay, what is the Factor Contribution for this issue? It's basically the implementing new
standard incurred significant cost related to the system upgrade, trainings and education for
the professionals. Smaller entities face challenges in allocating resources for compliance due
to this cost. Okay, what is the solution basically? Okay, for the first one is we're using a cost
benefit analysis, which is we conduct a true cost benefit analysis before introducing a new
accounting standard.

Second is PACE implementation, which is we implement the new standard in process,

allowing entities to spread out their transition cost over time. Number three is Resource
Support for the small entities recognize the resources constraint of the smaller entities and
consider providing financial support or intensive to assist them in meeting compliance
requirement. And lastly is Training and Educational Program, which is we develop a
comprehensive training and educational program to ensure that professionals are well
equipped to understand and implement the new standard.

And the last issue is Regulatory Dynamics. Okay, what is the factor of the issue? Which is
frequent regulatory changes driven by global developments and local economic condition
contribute to the needs for the updates and amendments in these standards. These changes
sometimes lead to the confusion and adaptation challenges for the entity.

So what is the solution? Basically, for the first one is regular communication and
transparency, which is established clear communication channel between regulatory bodies
and entities to ensure that any upcoming changes are communicated well in advance.
Second, impact assessment, which is we conduct through our impact assessment before
implementing regulatory changes. And the last one is PACE implementation, which is we
consider PACE implementation of regulatory changes to provide entities with a reasonable
transition period.

Okay, next I'm going to explain about Rational and Origin about MFRS, MPERS and MPSAS.
Okay, for the MFRS, what is the Rational? So the Rational is the primary goal was to improve
the quality and relevance of financing reporting, making Malaysian companies financial
statement more understandable and comparable on an international scale. This initiative
aimed to enhance investor confidence, attract foreign investment and promote economic
growth by adopting globally accepted accounting standard.

Okay, what is MFRS origin? New MFRS evolved from the Convergence Initiative towards
International Financial Reporting Standard, IFRS. The Malaysian Accounting Standards
Board, MASB, aimed to align Malaysian standards with a globally recognized principle to
enhance transparency, comparability and reliability of financial statements. Okay, next for
MPERS, which is what is the Rational? Basically the Rational is behind MPERS was to reduce
the compliance burden on smaller entities by providing a set of accounting standard tailored
to their needs.

This framework aimed to strike a balance between providing relevant information for
decision making and reducing the complexities and costs associated with the full MFRS
compliance for a private entity. For origin, MPERS was introduced as a simplified reporting
framework for private entities, recognizing that smaller entities might face challenges in
complying with the full MFRS requirement due to their skill and resources. So lastly is
MPSAS.

So next is MPSAS, which is the Rational is MPSAS aimed to enhance transparency,

accountability and governance within the public sector. It focused on aligning financial
reporting practice of public sector entities with international best practices while
considering the unique nature of the public sector, including accountability for public fund
and service delivery. For the origin, MPSAS was developed to the chapter specifically to the
unique requirements of the public sector in Malaysia.

They need a rose from the recognition that public sector entities have distinct reporting
needs compared to the private entities and require specialized accounting standards.
Challenges of MFRS. Firstly, complexity of standards.

MFRS can be intricate and companies may find it challenging to interpret and apply the
standards correctly. The complexity may lead to misinterpretation resulting in errors or
inconsistency in financial reporting. Adequate training and guidance are essential to help
entities navigate and comply with the standards.

Second, transition costs. Transitioning from previous accounting framework to MFRS may
involve significant costs. Companies need to invest in staff training, system upgrades and
possibly external consultancy to ensure a smooth transition.

These costs can strain resources particularly for smaller entities with limited financial
capacity. Third, impact on small and medium enterprises. SMEs may face unique challenges
in adopting MFRS due to their size and resource constraints.

Compliance might be more burdensome for smaller entities that lack dedicated financial
staff and robust accounting system. There's a need for talent support and guidance to
facilitate SMEs transition to MFRS. Advantages of MFRS.
Firstly, greater transparency in financial statement. MFRS emphasize transparency in
financial reporting. By adhering to a consistent set of accounting principles, companies can
present their financial information in a clear and standardized manner.

This enhance the comparability of financial statements enabling investors and analysts to
make accurate assessments of a company's financial position and performance, fostering
trust and confidence in financial markets. Second, easing financial reporting requirements
for multinational firms. Multinational companies often operate in diverse regulatory
environments, each with its own set of financial reporting requirements.

MFRS simplifies this complexity by providing a common set of standards that multinational
firms can follow. This not only reduce the administrative burden for this company but also
contributes to a lower cost of compliance, making it more attractive for them to operate
globally. Third, attracting more foreign investors.

The adoption of MFRS makes financial statements more accessible and understandable to a
global audience. This increased transparency and comparability make companies following
MFRS more attractive to foreign investors as they can confidently analyze and compare the
financial performance of this company with others in the global market. This attractiveness
can lead to increased foreign investment benefiting the growth and expansion of
multinational firms.

MFRS Challenges Increased Audit and Valuation Fees As an SME, small and medium-sized
enterprise, adopting MFRS may experience additional costs related to the increased audit
fees. This shift to MFRS may require auditors to allocate more time and resources to ensure
compliance with the new standards. Furthermore, there could be additional valuation fees
incurred by SMEs, especially when revaluing certain assets and liabilities.

The emphasis on fair value in MFRS means that SMEs may need to invest in valuation
expertise and processes to determine the fair value of their assets and liabilities,
contributing to higher operational costs. Fair Value Considerations MFRS is not a cost-based
accounting standard. Rather, it often requires the valuation of assets and liabilities at fair
value.

This approach, while providing a more accurate reflection of market conditions, necessitates
additional costs for SMEs. Valuing assets and liabilities at fair value requires expertise and
resources, which may pose challenges for smaller entities. These costs associated with the
valuation process contribute to the overall financial impact of adopting MFRS.

Complexity and Cost of Compliance Certain aspects of MFRS, such as the measurement of
biological assets and investment properties at fair value, can be more intricate and costly
compared to the other reporting standards like PERS, Private Entities Reporting Standards,
or MFRS, Malaysian Financial Reporting Standards. For example, under MFRS, entities have
the option to use the cost model for measuring plants and investment properties, providing
a more straightforward alternative. The increased complexity and cost of compliance under
MFRS may pose challenges, particularly for smaller entities with limited resources.

Advantages of MFRS First, Simplified Reporting Standards MFRS is designed to be more

streamlined and user-friendly compared to full International Financial Reporting Standards,
IFRS. The standards are tailored to the needs and complexities of private entities, making
compliance less burdensome and more straightforward. Second, Improved Financial
Decision Making MFRS facilitates more transparent and consistent financial reporting for
private entities.

This, in turn, enhances the reliability of financial information. With clearer financial
statements, stakeholders, including investors and creditors, can make more informed
decisions contributing to the overall financial health of private entities. Third, Consistency
with International Standards When tailored for local needs, MFRS maintains alignment with
international accounting standards.

This ensures a level of consistency in reporting practices, facilitating cross-border

transactions, and collaboration for private entities involved in international business
activities. MPSAS Challenges First, Legal Issues and Lack of Political Support Implementing
accrual accounting often faces legal hurdles and lack of political support. Legal framework
may need adjustment to accommodate the new accounting standards.

Additionally, political backing is crucial for successful adoption and without it there can be
resistance to change. Second, Human Resource Challenges Inadequate skills and knowledge
among public sector employees pose a challenge. The transition requires a skilled workforce
capable of handling the intricacies of accrual accounting.

Frequent turnover and insufficient investment in human resources can hinder the
development of the necessary skills. Third, Alignment of Information Systems The shift to
accrual-based accounting necessitates comprehensive changes in information systems. The
government must evaluate and enhance its information technology IT capacity to meet the
new requirements.

Redesigning systems to support accrual-based accounting is not only a financial

commitment but also requires specialized IT skills, making it a complex undertaking. MPSAS
Advantages Firstly, Greater Accountability Accrual accounting promotes greater
accountability. Accountability involves providing citizens and other stakeholders with
information about the outcomes of decisions made by the decision makers.

Accrual accounting details financial reporting, ensures transparency and allows the public to
hold government entities accountable for their financial performance and the use of public
resources. Second, Corruption Reduction The use of accrual-based accounting may reduce
corruption. By including all financial information in the financial statements, accrual
accounting leaves less room for manipulation or concealment of financial data.

The comprehensive nature of accrual accounting promotes a culture of transparency,

making it harder for corrupt practices to go unnoticed. Third, Determining Full Cost of
Government Activities One of the key reasons for implementing accrual-based accounting in
the Malaysian public sector is its ability to determine the full cost of government activities.
This includes not only cash costs but also non-cash costs like depreciation and non-debt
liabilities such as pension obligation.

This comprehensive approach provides a holistic view of the financial implications of

government operations, aiding in better financial planning and decision making. Thank you
Fatin Amirah for your explanation. So I will explain about the theoretical framework and
solution for MFRS and MPERS.

The first one is new to MFRS. So MFRS have been using the Conservatism principle. The
Conservatism principle is the fundamental concept in accounting that requires entities to
recognize and report financial information in a cautious manner with a bias toward
understatement rather than overstatement.

This principle is based on the idea that it is better to understate asset and overstate liability
than to overstate asset and understate liabilities. In the context of the Malaysian Financial
Reporting Standards, MFRS, the Conservatism principle is applied to ensure that financial
statements provide a faithful representation of the effect of transactions, other events and
conditions in accordance with the definitions and recognition criteria for assets, liabilities,
income and expenses. The MFRS framework requires entities to apply the Conservatism
principle when estimating the amount of assets and liabilities, as well as when recognizing
revenue and expenses.

This means that the entity should consider the possibility of adverse events or conditions
that could affect their financial position and financial performance, and adjust their
estimates and recognition accordingly. To comply with the MFRS, entities must recognize
and measure assets, liabilities, income and expenses in a cautious manner. For example, the
first one, maintain the conservative approach to accounting for uncertainty.

This involves considering the possibility of adverse events or conditions that could affect the
entity's financial position and financial performance, and adjusting estimates and
recognition accordingly. The second one is disclose the basis for estimating and recognizing
assets, liabilities, income and expenses. Next is Agency Theory.

This theory explores the relationship between principal or owner and agent, which is
manager in a company. Under MFRS 16, the inclusion of leases on the balance sheet might
impact executive compensation tied to financial metrics. Understanding agency problems
can help in aligning incentives to ensure managerial actions are in the best interest of the
shareholders.

Next, the Efficiency Market Hypothesis, EMH. Efficiency Market Hypothesis suggests that
asset prices reflect all available information with the increased transparency brought by
MFRS 16's financial statements become more informative potentially leading to more
efficient markets as investors have access to better information for decision making. Thirdly
is the Positive Accounting Theory.

This theory explores how the individuals make accounting choices based on incentives and
information asymmetry. MFRS 16 might incentivize the companies to structure leases
differently to mitigate the impact of the financial statements. Understanding these
incentives can help regulators anticipate such behavior and adjust standards accordingly.

Okay, now we move to the solutions. The first solution that can MFRS do is make a
education and training. Invest in comprehensive training programs to educate accounting
professionals, executives and stakeholders about the implications of MFRS 16.
These include understanding the standard requirements, its impact on the financial
statements and how interpret the information for decision making. The second one is
technology integration. Leverage accounting software and technological solutions to
facilitate the transition to MFRS 16.

Existing software that automates lease data collection, calculate and financial reporting can
streamline the compliance effort. The third one is stakeholder engagement. Communicate
transparently with the stakeholders about the changes brought by MFRS 16.

This includes providing clear and accessible information about lease impact and engaging in
dialogue to address concerns by integrating these theoretical insights. Practical
recommendation companies and regulatory bodies can navigate the challenges just posed
by MFRS 16 effectively in ensuring smoother transition and improved financial reporting
practices. Okay, next we move to the MFRS.

The first theoretical framework that MFRS have been using is the Full Disclosure Principle.
The Full Disclosure Principle is a key aspect of the Malaysian Private Entities Reporting
Standard, the MFRS. The MFRS aims to provide guidance on the preparation and
presentation of financial statements for private entities in Malaysia.

The Full Disclosure Principle requires entities to provide all necessary information in their
financial statements to enable users to understand the effects of particular transactions,
other events and conditions on the entity's financial position and financial performance. The
MFRS framework presumes that the application of the standard with additional disclosure
when necessary will result in financial statements that achieve a fair presentation of the
financial position, financial performance and cash flow of private entities. The additional
disclosures are necessary with compliance with the specific requirements in the standard
insufficient to enable users to understand the effects of particular transactions, other events
and conditions on the entity's financial position and financial performance.

To comply with the MFRS, an entity must make an explicit and unresolved statement of such
compliance in the notes to financial statements. Financial statements cannot be described
as complying with the MFRS unless they comply with all requirements of the standard. The
entity making such disclosures must describe the basis for preparing and presenting the
information.

The second theory is Institutional Theory, which suggests that organizations are influenced
by external pressure from the international environment, including regulatory bodies,
professional associations and societal norms. To study this purpose, the institutional project
influenced the decision of MFRS adoption and it was further suggested that decisions of
adoption influenced by the desirable features and undesirable features of MFRS and
challenges for adoption. The third one is Conservatism Principle in the MFRS is based on the
International Financial Reporting Standard for Small and Medium Entities, IFRS, for SME.

The MFRS framework is designed to provide guidance on the preparation and presentation
of financial statements for private entities in Malaysia which may have different reporting
requirements compared to public entities. The Conservatism Principle in the MFRS requires
entities to recognize and report financial information in a cautious manner, with a bias
toward understatement rather than overstatement. This principle is applied to ensure that
financial statements have provided a faithful representation of the effects of transactions,
other events and also conditions in accordance with the definitions and recognition criteria
for assets, liabilities, income and expenses.

Here are some practical solutions for MFRS. The first one is Embrace Digitalization. This one
is adopt digital technologies to streamline accounting processes, improve data accuracy and
enhance the efficiency of financial reporting.

The second one is Focus on Sustainability. Integrate sustainability considerations into

financial reporting to provide a more holistic view of an entity's performance and contribute
to the achievement of sustainable outcomes.
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